Does every act of piracy impact revenue by the current content price?

Question

Many copyright owners claim that every time someone pirates content (e.g. a song, a film, software) that they have lost money.

Some make a stronger claim: that every pirated download is hurting their revenues by the full current price of the content.

For example:

RIAA and Lionsgate Entertainment had both submitted requests for restitution—they had argued that each individual copy of content downloaded through Elite Torrents was the equivalent of a lost sale. For example, the RIAA said that 183 albums were transferred through Dove's server 17,281 times, then multiplied that by the wholesale price of a digital album in 2005 ($7.22) to conclude that its member companies were owed almost $124,769 in restitution,

Source: Judge: 17,000 illegal downloads don't equal 17,000 lost sales

Note: Sometimes, there is a dispute about whether such controversial claims are strawmen:

A representative from the BSA [...] claims they have never argued that every pirated copy is a lost sale. The lead conclusion of their piracy study suggests otherwise [...]

Source: IDC says piracy loss figure is misleading

Is there any evidence-based economic reason to support or dismiss this strong version of the claim: that every pirated download costs the copyright-owner the equivalent of (or close to) the sales price in lost revenues?

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Hint: This has triggered a discussion amongst the moderators (and others) about how such a question could be meaningfully answered. As a result, answers are likely to be subjected to a fair amount of scrutiny. Please ensure your answers are evidence-based.

Answer 1

No, every act of piracy does not impact revenue by the current content price

It is important to look at why this claim even exists and who makes it. Firstly, it certainly isn't a strawman. While not every content rights holder who criticizes piracy or talks about lost revenue equates every download with a lost sale, several do currently or have done so..

Claims of copyright infringing downloads equating to a lost sale

This claim that every download is a lost sale seems most commonly attributed to the RIAA. I could not find anyone from the RIAA making such a claim, however I found a judge stating that seemed to be the RIAA's assumption at least at one point.

RIAA’s request problematically assumes that every illegal download resulted in a lost sale.

Source: http://www.vawd.uscourts.gov/OPINIONS/JONES/207CR15REST.PDF

Evidence against such claims

There are several reasons why it would seem flawed to consider every download a lost sale:

• People downloading who already paid for the content

• People who would lack funds to purchase the content

For example, in the case of software, the pirating of Windows oeprating system software and Microsoft office products has halped cement Microsoft's domiance in the PC software inddustry in developing countries in Asia and Latin America, bringing customers into the fold that could not afford legal versions of the products. In a recent example, Microsoft declared amnesty to software pirates in Russian cyber cafes because it has recognized that (1) under the present economic conditions in Russia, these businesses could not afford to pay the “legal” price for the software,...

Source: Piracy as Strategy?: A Reexamination of Product Piracy

• People downloading to sample who then go on to pay for the content or wouldn't anyway

• People downloading who do not have the option to legally purchase the content

It started from small groups of enthusiasts, who had no options for watching anime other than distributing it illegally. They were even encouraged to do so, though never officially. Many anime creators were fully aware of the fan activities in the United States, and although they could not recognize them as legal, they condoned them

Source: Piracy or productivity: unlawful practices in anime fansubbing

• People who download because they won't purchase a product with DRM

The most often used estimate for the rate of downloads which can be equated to a lost sale seems to be 20%:

A number of academic studies have attempted to estimate the impact that file sharing has had on sound recording sales. The specific estimate of 20% is taken from Pietz, M. and Waelbroeck, P., The Effect of Internet Piracy on Music Sales: Cross Section Evidence , Review of Economic Research on Copyright Issues, 2004, vol. 1(2), pp 78.

Source: The True Cost of Sound Recording Piracy to the U.S. Economy

The actual impact of piracy on content revenue

In addition to the reasons and studies showing that not every download should be considered a lost sale, there have been studies showing that piracy impacts the content industries to a far less extent than is generally claimed and that in some instance can be beneficial.

• A report from the IFPI in 2009 estimates that 95% of music downloads are illegal, and that only 10% of that 95% can be considered a lost sale.

Source: DIGITAL MUSIC REPORT 2009

• A report showing that the music industry lost substantially less than estimated

However, the impact of piracy on CD sales was considerably smaller than industry estimates. Further, we estimated that, accounting for both demand losses and price adjustments, the industry lost no more than 6.6% of revenue to piracy.

Source: Piracy and the Legitimate Demand for Recorded Music

• A study of French college students found that piracy had a positive effect

Surprisingly, approximately one third of the pirates declared that watching pirated movies increased their demand for films (for instance, it led them to rent or purchase videos that they would not have rented or purchased otherwise). Using regressions analysis, we find no impact of piracy on theater attendance, and a strong impact on video rentals and purchases. However, movie piracy has no impact on video rentals for respondents who use pre-paid pricing schemes at video-stores.

Source: Piracy and the Demand for Films: Analysis of Piracy Behavior in French Universities

Conclusion

All in all, there does not seem to be sufficient evidence to support the claim that each copyright infringing download hurts profit by the same margin as the price of that content. The studies above show that while copyright infringement can have an effect on revenue it is far less than generally claimed and certainly less than a 1:1 ratio of downloads to lost sales. The affect of piracy on revenue may be different for different industries (music, film etc) but in no case is the impact on revenue anywhere near a 1:1 ratio.

Given that piracy can be shown to be beneficial in some cases that would also disprove the titular idea. The only people or organizations who seem to continue to make the claim are those with an agenda who rely on distorted figures (e.g. the BSA report referenced above) or those who argue from an emotional or moral standpoint.

We have more than enough data to conclusively say, no, every act of piracy does not impact revenue by the current content price.

Answer 2

The RIAA and the IFPI, which is the world wide recording industry association, do not claim a dollar for a dollar losses directly due to piracy.

This it what the IFPI claims:

Piracy rigs the market

• 28 per cent of internet users globally access unauthorised services on a monthly basis, according to IFPI. Around half of these are using peer-to-peer (P2P) networks. The other half are using other non-P2P unauthorised channels which are a fast-growing problem
• Illegal “free” has a negative impact on sales. Research by The NPD Group in the US in 2010 found that just 35 per cent of P2P users also pay for music downloads. P2P users spent US$42 per year on music on average, compared with US$76 among those that pay to download and US$126 among those that pay to subscribe to a music service
• 60 per cent of e-book downloads in Germany are illegal, according to Börsenverein des Deutschen Buchhandels, the organisation representing German publishers and booksellers

—source

These statements may or may not be numerically accurate but they do represent reasonable claims compatible with the existing literature. For example:

• The Effect Of Internet Piracy On Cd Sales: Cross-Section Evidence

We have analyzed the RIAA’s claim that music downloads are causing a substantial decrease in CD sales. Our cross-section regression confirms their fear: we find that music downloading could have caused a 10% reduction in CD sales worldwide in 2001.

Caveat: the situation in 2002 was not readily explainable according to this paper

• The True Cost of Sound Recording Piracy to the U.S. Economy

In this analysis, we have reviewed results of several surveys of consumers of both pirated and legitimate CDs in different markets. We have also reviewed surveys of home video consumers in markets around the world. These surveys generally conclude that if counterfeit channels were not available, many buyers of counterfeit CDs would purchase CDs legally. While the degree to which these legitimate purchases would occur differs by market, it appears nevertheless, that such purchases would comprise a very significant fraction of the total number of pirated CDs now purchased. Indeed, the “substitution” rates cited by survey respondents range from approximately 40% to 70%.

So while it may be interesting to entertain such a hypothesis (that 1 pirated copy is 1 lost sale), it is not something that the music/movie industry is claiming. While the RIAA website is momentarily down, I've accessed the MPAA web site, and they link to "Intellectual Property Theft: A Threat To U.S. Workers, Industries, And Our Economy" which references the same academic sources I've found - and produces the same figures. No 1:1 claims -- on a document clearly blowing their trumpet.