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PwC Study: Harm Caused by Private Copying in Spain

PwC Study: Harm Caused by Private Copying in Spain

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Assessment of the harm caused by private copying on IP rights holders
Executive Summary of the study prepared by PwC for AMETIC

July 2011

About this document
This document is an Executive Summary of the study prepared by PricewaterhouseCoopers Asesores de Negocios, S.L. (PwC) for the Asociación Multisectorial de Empresas de la Electrónica, las Tecnologías de la Información y la Comunicación, de las Telecomunicaciones y de los Contenidos Digitales (AMETIC) on the harm caused by private copying to IP rights holders in Spain. It has been prepared exclusively for AMETIC in accordance to our Engagement Letter of 19 April 2011. PwC is not responsible for any actions taken by third parties based on this document.

PwC

July 2011 2

Introduction and main findings
Introduction PricewaterhouseCoopers Asesores de Negocios, S.L. (hereinafter, PwC) has been retained by the Asociación Multisectorial de Empresas de la Electrónica, las Tecnologías de la Información y la Comunicación, de las Telecomunicaciones y de los Contenidos Digitales (AMETIC) to assess the damages caused by private copying to intellectual property (IP) rights holders in Spain. This document is an Executive Summary of the study prepared by PwC following the request of AMETIC. The Executive Summary provides an overview of the methodology and main findings of the study. The detailed results and comprehensive descriptions of the information sources used and the calculations made are available in the complete version of the study. The study is largely based on survey data collected from a sample of 1,433 individuals who either purchase or copy musical, audiovisual and/or editorial works. The survey questionnaire was designed by PwC. The fieldwork was commissioned to a company specialised on market research, Instituto DYM. The information collected through the survey included data on expenditure on purchases of original works and private copying habits. The consistency of this information has been checked against data on total market sales obtained from industry sources. In general terms, our approach for the estimation of the damage has consisted in comparing levels of expenditure in musical, audiovisual and editorial works for individuals with different copying habits (e.g., individuals who do private copying v. individuals who do not). Individuals’ expenditure on original works is a good indicator of sales in music, audiovisual and publishing industries. Therefore, should private copying harm IP rights holders, average expenditure of heavy private copiers would be expected to be lower than that of the rest of individuals. Comparison of average expenditure is thus a suitable and direct method to estimate the damage. Private copying habits of each individual have been measured by the total number of copies made over the last year. Accordingly, we have obtained estimates of the average harm produced by each unitary act of copy, which have been subsequently extrapolated to obtain overall figures of damage.
July 2011 3

PwC

Introduction and main findings
Damages have been estimated using econometric techniques (in particular, ordinary least squares or OLS and Tobit), in order to take into account other variables that may explain differences in the levels of expenditure across individuals. Variables considered in the econometric analysis include, in addition to the number of private copies, preference of the individual for each particular type of work, income, age, occupation, sex, education, Internet availability and piracy habits. Damages have been estimated separately for musical, audiovisual and editorial works. Finally, our study includes a proposal of distribution of the estimated damages across the different devices that can be used for private copying. The distribution is based on the weight of each device over the total number of private copies. This study has been prepared from a strictly economic perspective and is only aimed at estimating the damage. Therefore, it does not contain any legal assessment or interpretation. Consequently, the definition of the concept of private copying and the list of devices that can be used for private copying are premises of this study and have been provided by AMETIC. Main findings • Private copying is not widespread across the Spanish population. According to survey data, the percentage of individuals surveyed who made private copies over the last year is only 23.3% in the case of music, 16.7% for audiovisual works, and 12.8% for books. A number of individuals confused private copying with other forms of (licensed or illegal) copying. This is particularly the case of individuals who declared to make private copies of audiovisual DVD and Blu-­ray original works (formats that are in general protected against copying) and copies of electronic files (which are also usually protected). If copies from these formats are excluded, the percentages of individuals who make private copies decrease to 21.8% for music, 11.4% for audiovisual works and 11.6% for books.

PwC

July 2011 4

Introduction and main findings
• The use of devices for private copying purposes is not widespread either. The maximum percentage of owners who make use of a particular device for private copying is 21.9%, and only exceeds 20% for some devices (including MP3/MP4/MP5/MID, external hard disk drives and blank CDs/DVDs), and only for a particular type of content (copies of musical works). This percentage is generally below 15% for audiovisual works and books, and reach such low values as 1.6% (blank CDs/DVDs for books) and 1.2% (CD/DVD PC recorder for books). Qualitative evidence obtained from the survey indicates that private copying has a negative effect on the sales of musical, audiovisual and editorial works, due to the substitution of purchases of originals by private copies. However, only a fraction of the total number of private copies made have substituted the purchase of originals (and negatively affect industry sales). For instance, in the case of music, over 40% of the individuals surveyed (representing more than 70% of the total number of copies) did not substitute copies by originals at all, or did so in less than 10% of the cases. This percentage amounts to 57.8% of individuals (47.7% of copies) for audiovisual works, and 48.7% of individuals (34.3% of copies) for books. Qualitative evidence obtained from the survey also indicates that private copying has a positive impact on sales. This is due to a combination of effects. First, some individuals value positively the possibility of making copies of originals. According to survey data, this positive effect of private copying accounts for 15.7%, 19.8% and 8.1% of current sales for musical, audiovisual and editorial works, respectively. Second, private copies can promote the awareness of particular artists or works. For example, 45.9% of individuals have stated attending or planning to attend live musical concerts as a consequence of accessing private copies of the performers in question. According to our estimates, the maximum net harm produced by private copying to IP rights holders amounts to 5.37 million for musical works, 7.84 million for audiovisual works, and 2.93 million for editorial works (including books and other publishing works). These estimates are conservative (in the sense that they can overvalue the damage). The existence of a high positive correlation between private copying habits and piracy habits of individuals does not allow rejecting that a part of the estimated damage is actually caused by piracy.

PwC

July 2011 5

Appendix A Qualitative results of the survey

PwC

July 2011 6

Results on private copying habits
By type of work: MUSIC Information has been collected separately for different types of copies (copies from CDs, copies from video-­clips or concerts DVDs, etc.). 23.3% of individuals make copies of at least one of the types considered. If copies of electronic files are excluded, the percentage of individuals who make private copies of musical works amounts to 21.8%. Percentage of individuals who have done private copies of musical works in the last year

83.1% 94.4% 95.5% 95.5% 95.4%

76.7%

78.2% No Yes

16.9% 5.6%
CD copying DVD copying

23.3% 4.5%
Radio recording

21.8%

4.5%

4.6%

TV Electronic Any of CD/DVD copies recording file copying the former or radio/TV recording

PwC

July 2011 7

Results on private copying habits
By type of work: AUDIOVISUAL In the case of audiovisual works, the proportion of individuals who made copies of at least one of the types considered is 16.7%. If copies from DVDs/Blu-­rays and electronic files are excluded (since these formats are or can be copy-­protected), the percentage of private copiers decreases to 11.4%. Percentage of individuals who have done private copies of audiovisual works in the last year

88.6%

97.0%

92.9%

83.3%

88.6% No Yes

11.4% TV recording

3.0% Electronic file copying

7.1% DVD/Blu-­ray copying

16.7% Any of the former

11.4% TV recording

PwC

July 2011 8

Results on private copying habits
By type of work: BOOKS In the case of books, 12.8% of individuals make at least one of the types of copies considered. If copies of electronic files are excluded, the percentage of private copiers decreases to 11.6%. It is observed that the incidence of private copying is lower for books and audiovisual works than for music. This can be due to the lower relative cost (in terms of time and others) of making private copies of musical works. Percentage of individuals who have done private copies of books in the last year

90.3%

93.4%

87.2% 98.3% 98.8%

88.4% No Yes

9.7%
Photocopying

6.6%
Scanning

1.7%

1.2%

12.8%
Any of the former

11.6%
Photocopying or scanning

Electronic Electronic book copying book printing

PwC

July 2011 9

Results on private copying habits
BY DEVICE: all types of works Survey data allow determining the types of copies made by each individual (e.g., copies from DVDs/Blu-­rays, electronic files, etc.) and whether the individuals use a particular device to make the copies of any type. However, they do not allow distinguishing the types of copies made by each device (i.e., whether the private copies made by a particular device are copies from, for example, DVDs/Blu-­rays or electronic files, etc.). In any case, for each device, it has been calculated the percentage of owners that use them for private copying out of the total number of owners. The calculated percentages are maximum levels that only exclude the individuals that have stated copying only DVDs/Blu-­ray audiovisual works and/or electronic files of any type of work. The effective percentages of use of devices for private copying are surely smaller. The main findings of the analysis of these percentages are the following: • Regarding musical works, the maximum percentage of use for private copying is 21.9%, and it only exceeds 20% for some devices (including MP3/MP4/MP5/MID, external hard disk drives and blank CDs/DVDs). The percentage of use for private copying is between 15% and 20% for USB keys/pen-­drives and CD/DVD PC recorders, and it is lower than 15% (and even smaller than 5-­10% in some cases) for the rest of the devices (flash memory cards, ebooks, tablet PCs, video game consoles and mobile telephones). As for audiovisual works, the maximum percentage of use for private copying is 15.2% (DVD recorder for TV set). The percentage of use is between 10% and 15% for external hard disk drives and blank CDs/DVDs, it is between 5% and 10% for USB keys/pen-­drives and CD/DVD PC recorders, and it is lower than 5% for the rest of the devices (MP3/MP4/MP5/MID, flash memory cards, tablet PCs and smartphones). Regarding books, the maximum percentage is 16.8% and only exceeds 10-­15% for multifunction equipments and scanners. The percentage of use is 6.8% for ebooks and is smaller than 5% for the rest of the devices. The utilisation percentages are especially low for CD/DVD PC recorders (1.2%), blank CDs/DVDs (1.6%), smartphones (1.9%), flash memory cards (2.1%) and MP/MP4/MP5/MID (2.3%).
July 2011 10

PwC

Negative effects from private copying
The table below shows survey data on the degree of substitution between originals and copies for the different types of works (music, audiovisual works and books). For instance, in the case of music works, 25.8% of the individuals (accounting for 29.1% of the copies) declared that none of the copies made in the last year replaced an original. In general, the degree of substitution is higher for books than for audiovisual works, and for audiovisual works than for music. Again, this can be due to the higher relative cost of making copies of books and audiovisual works, which may lead individuals to be more selective and copy only those works that are really interesting for them. Substitution of originals by copies: percentage of individuals, and copies made by those individuals as a percentage of the total number of copies (made by all individuals) (response to the question included in the survey questionnaire: Think of private copies made over the last year. If you would not have been able to make them, would you have purchased the original of the work, instead?)
MUSIC AUDIOVISUAL BOOKS

% % % % % % individuals copies individuals copies individuals copies No, in any case Less than 10% of cases Betwen 10% and 50% of cases More than 50% of cases DK/DA TOTAL 25,8% 17,8% 24,8% 29,3% 2,5% 100,0% 29,1% 41,1% 9,9% 19,8% 0,1% 100,0% 37,5% 20,3% 21,7% 19,2% 1,4% 100,0% 34,0% 13,7% 18,8% 27,2% 6,3% 100,0% 34,8% 13,9% 19,0% 32,3% 0,0% 100,0% 22,4% 11,9% 11,6% 54,2% 0,0% 100,0%
July 2011 11

PwC

Positive effects from private copying
Individuals who value positively the possibility of making copies of originals Previous studies suggest that individuals can value positively the possibility of making copies of an original work and, therefore, their willingness to pay for the original work is higher if it can be copied – see Varian (2005). Survey data show the following percentages of individuals that value positively the possibility of making copies: • • • Music: >15.7% of the individuals Audiovisual: >19.8% of the individuals Books: >8.1% of the individuals
81,8% 77,3%
DK/DA

Responses to the question: Think of the last original that you have purchased. Would you have purchased it if no copies could be made from that original?
2,5% 3,0% 1,7%

15,7%

19,8%

8,1%

90,1%

No Yes

The percentages above indicate that, in the absence of private copying, and if only positive effects are taken into account (i.e. disregarding the substitution effect), there would be a drop in music sales of 15.7%. The reduction in audiovisual and books sales would be 19.8% and 8.1%, respectively. Attendance to music concerts due to private copying •

Music

Audiovisual

Books

45.9% of the individuals surveyed stated that they have attended or are about to attend a music concert as a consequence of accessing a private copy of the performer in question
July 2011 12

PwC

Appendix B Estimated damage and distribution across devices

PwC

July 2011 13

Estimated damage and distribution across devices
MUSIC The tables below show the estimated (net) damage of private copying on music sales. Main hypotheses in this calculation include: (i) average reduction in consumer expenditure (as a proxy for industry sales) of 4.2 cents per copy, estimated by using econometrics;; (ii) participation of IP rights holders on music sales (excluding VAT) of 17.3%;; and (iii) damage distributed across devices according to their weight on the total number of copies. Copies of electronic files have not been regarded as private copies in the calculations. The damage is shown broken down by devices and separately for devices included in the Order PRE/1743/2008 and for other devices included in the study in order for it to be as complete as possible. Devices included in the Order PRE/1743/2008
% External hard disk drive Flash memory cards CD/DVD recorder of computer MP3, MP4, MP5, MID Blank CDs/DVDs USB pen-­drive Mobile telephone (excl. smartphones) Smartphone TOTAL 17.0% 14.4% 14.6% 13.1% 13.5% 11.5% 6.4% 5.5% 95.9% Euros 914,557 775,128 784,733 701,465 725,413 615,833 341,890 294,346 5,153,364
July 2011 14

Other devices
% Tablet PC Video game console Ebook TOTAL 3.7% 0.4% 0.1% 4.1% Euros 196,777 20,920 3,071 220,768

TOTAL DAMAGE MUSIC: 5,374,132 EUROS (100.0%)
PwC

Estimated damage and distribution across devices
AUDIOVISUAL The tables below show the estimated (net) damage of private copying on audiovisual sales. Main hypotheses in this calculation include: (i) average reduction in consumer expenditure (as a proxy for industry sales) of 27.4 cents per copy, estimated by using econometrics;; (ii) participation of IP rights holders on audiovisual sales (excluding VAT) of 25.2%;; and (iii) damage distributed across devices according to their weight on the total number of copies. Copies of DVDs/Blu-­rays and electronic files have not been regarded as private copying for the purpose of this calculation. The damage is shown broken down by devices and separately for devices included in the Order PRE/1743/2008 and for other devices included in the study in order for it to be as complete as possible. Devices included in the Order PRE/1743/2008
% External hard disk drive DVD recorder for TV set Blank CDs/DVDs USB pen-­drive Flash memory cards MP3, MP4, MP5, MID CD/DVD recorder of computer TOTAL 28.5% 18.1% 13.5% 13.0% 12.2% 7.0% 6.9% 99.2% Euros 2,232,667 1,415,655 1,059,027 1,015,956 958,408 549,782 538,682 7,770,177
Smartphone Tablet PC TOTAL

Other devices
% 0.8% 0.0% 0.8% Euros 63,339 1,810 65,149

TOTAL DAMAGE AUDIOVISUAL: 7,835,326 EUROS (100.0%)
PwC July 2011 15

Estimated damage and distribution across devices
EDITORIAL The tables below show the estimated (net) damage of private copying on editorial sales (including books and other publications). Main hypotheses in this calculation include: (i) average reduction in consumer expenditure (as a proxy for industry sales) of 15.5 cents per copy, estimated by using econometrics;; (ii) participation of IP rights holders on editorial sales (excluding VAT) of 11.82%;; and (iii) damage distributed across devices according to their weight on the total number of copies. Copies of electronic files have not been regarded as private copying for the purpose of this calculation. The damage is shown broken down by devices and separately for devices included in the Order PRE/1743/2008 and for other devices included in the study in order for it to be as complete as possible. Devices included in the Order PRE/1743/2008
% Multifunction injection equipment Multifunction laser device equipment USB pen-­drive Scanner Flash memory cards Blank CDs/DVDs CD/DVD recorder of computer Photocopier TOTAL 40.8% 38.5% 6.4% 2.3% 1.8% 1.5% 0.6% 0.0% 92.0% Euros 1,197,628 1,128,990 188,563 68,604 51,399 45,304 18,632 1,400 2,700,519
July 2011 16

Other devices
% External hard disk drive Tablet PC Smartphone MP3, MP4, MP5, MID Ebook TOTAL 5.6% 0.9% 0.7% 0.6% 0.2% 8.0% Euros 163,707 26,456 19,972 17,983 5,187 233,305

PwC

TOTAL DAMAGE EDITORIAL: 2,933,824 EUROS (100.0%)

© 2011 PricewaterhouseCoopers Asesores de Negocios S.L. All rights reserved.

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