The way Hollywood sees it, every file someone downloads for free is a lost sale. In their fantasy world, millions of peer-to-peer users are desparately eager for their content. If they couldn't download it for free, they would buy it. They want it that bad. But that's not obviously how economies work.
When something is free, you check it out. Consider the free single of the week on iTunes. Never heard of the band or the song, but what the hell, it's free. Might as well download it; if I hate it I can always delete it. If I love it, I might just fork out $9.99 to buy the album. Apple understands this simple concept. Give something away and try to convert some percentage of samplers to buyers. Maybe - what? - two percent of free single downloads are converted into album sales. Say a million downloads = 20,000 album sales * $10/ = $200,000. Sounds good to me.
Record companies would never give anything away, I suppose, because they see ever free sample as a lost sale. At least that must be the conclusion of their legal arguments that they deserve full compensation for each download.
And, yeah, people are greedy. If something's free they might just suck up all of it. Does that mean they would have bought every Beatles album just because they downloaded the whole catalog for free?
Once again, the courts have inserted a degree of reason into specious RIAA arguments. Ray Beckerman reports that U.S. District Court Judge James P Jones of the Western District of Virginia denied the government and the RIAA's request for restitution based on the full value of lost sales. U.S. v Dove is actually a criminal copyright case where the government was seeking restitution from Daniel Dove, who had already been convicted of criminal copyright violations.
RIAA provides proof that 183 sound recording albums were transferred through Dove’s server a combined total of 17,281 times. Multiplying 17,281 by the average wholesale price of a digital album in 2005 ($7.22), RIAA concludes that its member companies suffered economic loss in the amount of $124,768.82. RIAA offers to accept only $47,000 if Dove agrees to “participate in a public service announcement designed to educate the public that music piracy is unlawful and has the potential to result in stiff criminal penalties.”
Does this make sense? Even more ridiculous:
Lionsgate states that Dove “sold over a million units” of the 700 movie titles “at $19 per unit,” resulting in a “$22 million amount of loss to [the] industry.” From this $22 million figure representing the total loss to the movie industry, Lionsgate concludes that since it holds 4% of the movie titles at issue (28 out of 700), it should get 4% of $22 million, which is $880,000.
The judge made clear that neither RIAA or Liongate could get damages based on such speculation.
It is a basic principle of economics that as price increases, demand decreases.
Customers who download music and movies for free would not necessarily spend
money to acquire the same product. Like the court in Hudson, I am skeptical that
customers would pay $7.22 or $19 for something they got for free. Certainly 100%
of the illegal downloads through Elite Torrents did not result in the loss of a sale, but
both Lionsgate and RIAA estimate their losses based on this faulty assumption.
Quite simple, the judge said:
Although it is true that someone who copies a digital version of a sound recording has little incentive to purchase the recording through legitimate means, it does not necessarily follow that the downloader would have made a legitimate purchase if the recording had not been available for free.