The Truth about the Economics Behind the Blacklist Bills (EFF.org)
Sunday January 8th, 2012
In the face of mountains of evidence that the Stop Online Piracy Act (SOPA) and the PROTECT-IP Act (PIPA) will censor online speech, hurt Internet security and infrastructure, and criminalize tools used by human rights activists in oppressive regimes, supporters of the blacklist bills say one subject trumps all others: jobs.
Yet for unknown reasons, Congress is ignoring that SOPA/PIPA would depress the growing tech sector, all while citing the MPAA's misleading and debunked numbers on how piracy is "decimating" their industry.
The tech sector has been a huge economic driver in a time of general economic stagnation. In 2011, California "created more jobs than any other, adding 233,000 workers to the payrolls in the past year -- 6,500 in just the last month," according to CBS News. "The hot spots: high-tech centers where jobs are up in Silicon Valley, San Diego, San Francisco and Orange County." Another study shows Facebook apps and mobile apps alone are responsible for almost 200,000 jobs over the last few years.
The tech sectors have been crucial to the recovery of local economies. For example, San Francisco is seeing job growth reach levels near the dot com peak in the mid 1990s. In fact, "high-tech industry growth during 2011 drove the best market performance in more than a decade" in the northwest region on the United States. But this phenomenon is hardly confined to Northern California: the same is true in less obviously tech-focused states like Tennessee.
Passing SOPA/PIPA could drastically impede this job growth. A study done by Booz and Company found that "Investors and venture capitalists 'overwhelmingly' said they would stop investing in Internet startups if SOPA/PIPA passed and website were liable for content posted by users." A letter sent to Congress from an influential group of VCs echoes the study's conclusions.
Reddit co-founder Alexis Ohanian recently explained why:
If SOPA or PIPA were in effect, the success of [Reddit] simply could not have happened. And that goes for any user generated website. Under these laws they simply would have been shut down before a few weeks have gone by. And all this innovation that we love and enjoy just would have never have happened, not to mention all the jobs that would have been lost. On the other hand, the MPAA and RIAA constantly talk of "19 million jobs" at risk if Congress doesn't pass SOPA/PIPA. As Techdirt's Mike Masnick pointed out, among other people who have nothing to do with their industry, that number includes the entire tech sector, which is vehemently against blacklist bills.
So what's a more accurate number? According to the non-partisan Congressional Research Service, the movie industry employed 374,000 people in 2010 -- and that includes both full and part time workers. Amusingly, another bogus report from an MPAA-backed group claims the move industry loses 373,000 jobs per year, when, in fact, they've only arguably lost 18,000 since 1998. For a tech industry comparison, eBay alone was responsible for creating 724,000 full or part time jobs (people who relied on the site for primary or secondary income) -- and that was in 2005.
Despite all the strum und drang, the movie and music companies contribute the same amount to the economy that they did before file sharing was mainstream--in both 2011 and 1995 their contribution to total GDP was 0.4%. Even better news for them: the Bureau of Labor Statistics gives a wholly positive outlook on future job prospects in the movie industry. This is evidenced by the fact that Warner Brothers just posted a record profit for the third quarter and why Viacom just gave their CEO a $50 million raise.
Yet, they continue to claim poverty in the face of these hard facts. Recently, Julian Sanchez at the CATO Institute took an in depth look at the new numbers being trotted out by the entertainment industry claiming the movie companies lose $20.5 billion annually from piracy.
Sanchez showed how the study used "'multiplier' effects to double--and triple--count loss estimates that were dubious to begin with" and incorporated total infringement wordwide, when SOPA will only affect the U.S--a small fraction of the total. $20.5 billion is actually $446 million, according to Sanchez, and as much as 80% of that number is people downloading movies they wouldn't have bought anyways if they could not get them illegally. All told, Sanchez concluded it wouldn't save a single net job.
Now, it's important to point out that citing content industry numbers is always problematic because MPAA refuses to release any of its data for peer-review or other types of validation. In fact, even the Government Accountability Office was forced to issue a report saying the government shouldn't cite to MPAA backed studies because they "cannot be substantiated or traced back to an underlying data source or methodology." And sometimes, they admit that they just make them up.
Trotting out overblown numbers and misleading rhetoric isn't a new tactic for Big Content. It has long advocated extremist legislative and regulatory measures to protect its industry against "piracy." Movie studios went all the way to the Supreme Court to have the Betamax ruled illegal. And then the head of the MPAA once told Congress "the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone" and should be outlawed.
Today, Hollywood is making the same arguments about the Web and the domain name system. They claim that without the ability to censor the Web, their industry will be destroyed by piracy, despite all the evidence to the contrary. Studies have shown piracy withers in the face of affordable legal alternatives. There's no better example than Netflix, which accounts for 30% of all nighttime Internet traffic. Maybe that is why it seems movie studios are having more trouble competing with Netflix than with pirates. And as far as the larger economy goes, a study done by the CIAA concluded the fair use -- a legal concept that content companies deplore -- is worth more to the economy than copyright law itself.
As in the 1980s, the correct answer from Congress and the courts should be: no, you can't have control of the domain name system. You may want a veto power over every new business that springs up there, but doing so would run contrary to our free market and stifle the innovation that makes the tech sector the engine of America's economy.