Crime Inc. Inc.

Growing up in Chicago in the 1970s and 1980s, I have fond memories of watching Bill Kurtis on Channel 2 news. He was sort of a local Walter Cronkite–a personification of the news. At our house, he was on every night.

So I felt some nostalgia when I got a call from a staffer on Kurtis’ current show, Crime Inc., about an episode they wanted to do on media piracy. And also some apprehension, since we’ve been pretty adamant in our work that criminality–and especially organized crime–is the wrong way to look at piracy. But since I’m a regular complainer about press coverage of these issues and an optimist that the debate can be changed, I agreed to help.

The Crime Inc. people sent over an outline that leaned heavily on content industry talking points: job losses attributable to piracy; financial losses to Hollywood, artists, and the economy; downloading as theft; and the role of organized crime.

But they had also found our Media Piracy in Emerging Economies report and wanted to understand our perspective. I explained that we have problems with the way the major industry groups frame these issues. We don’t think piracy is primarily a crime story, but rather about prices, lack of availability, the changing cultural role of media, and the irreversible spread of very cheap copying technologies. They said they understood. It’s a complicated topic.

I said I’d help as long as this didn’t end up as an MPAA propaganda piece. 60 Minutes had done one of those a couple years ago and it was a major public disservice. They said they’d do their best.

Over the next few months I spent four or five hours talking to and corresponding with staff at Crime Inc. I walked them through the difficulties with measuring the impact of piracy, the problems with opaque industry research, the general irrelevance of organized crime, the market structure and price issues that have made piracy an inevitability in the developing world, the wider forms of disruption in the music industry and so on, and so on. I gave them a list of people to talk to, including Internet hero and MPEE support group gold member Mike Masnick. And they did interview Mike for several hours.

The episode aired a few weeks ago. Unfortunately, it is an almost pure propaganda piece for the film and music industry groups, reproducing the tunnel vision, debunked stats, and scare stories that have framed US IP policies for years. Nothing I told them registered. Mike did not appear. The only concession was two minutes at the end for an alternative business model segment focused, strangely, on the Humble Bundle software package.

By the end, I no longer thought this was an MPAA covert op. Rather it looked like a Rick Cotton overt op. Cotton is VP and General Counsel at NBC-Universal, an enforcement hardliner and piracy fabulist to rival Jack Valenti, and one of Crime Inc.’s corporate bosses. He got plenty of airtime to talk about the existential crisis of piracy and the need for stronger enforcement. I have no idea if word came down from him to produce this story (it was the early days of the SOPA fight) or if Crime Inc. was just following the well-worn script on these issues. One doesn’t exclude the other. But it is clear that the show rented itself out to Cotton’s larger enterprise: Crime Inc. Inc., the business of hyping the piracy threat.

So what do we learn from Crime Inc. Inc? Here’s a short summary. I’ll also reproduce some of my end of my correspondence with them below, which goes into more detail.

First–and bizarrely–that there is a massive problem of organized criminal DVD and CD street piracy in the US. And that this is part of a much wider array of linked criminal activities; and that DVD piracy is more lucrative than the drug trade.

I imagine they led with this because it’s more filmable, but it has little to do with present day piracy. I tried to tell them that. Our work does go into this and finds what everyone knows–that DVD piracy has been displaced by sharing and downloading of digital files in the US in the past decade, and that the street trade has been almost completely marginalized. Even at its peak, CD/DVD piracy does not appear to have been a big market. Our 2011 ‘Copy Culture’ survey found that only 7% of American adults had ever bought a pirated DVD. The drug trade claim–ugh. It’s incredible that this bit of nonsense can be endorsed by journalists with some investment in understanding crime.

Second–we get a recitation of impossible-to-kill zombie stats: that media piracy costs the global economy $57 billion/year; that it costs the movie business $6.2 billion/year; that 2 million people work in film/TV production in the US and that piracy has destroyed 373,000 jobs. The problems with these numbers will be familiar to readers of this site, but see below for more detail.

Third–the now traditional guided tour of Mexican street markets, to look for evidence of cartel manufacture of CDs and DVDs. See here and below for more on how this has become a media ritual. In short: are cartels involved? Almost certainly yes, in parts of Mexico where the cartels control most of the informal (and some of the formal) economy. Is this typical of developing countries or the US? No. Will it survive the spread of bandwidth and cheap computers in Mexico? No.

Fourth–that downloading is theft and everyone knows it. End of story. Pity the hipster they found to stage this point. We document more complicated attitudes toward copying and sharing in the US, marked by generally strong concern with the ethics of uploading or ‘making available’ of materials; widespread but weak and largely non-operative concerns with downloading; and virtually no concerns about sharing with friends and family.

Fifth–that piracy is why sympathetic characters like Hollywood stuntwomen have to worry about not having steady jobs or insurance. This is an odd claim in an era of record profits for the major studios, massive corporate welfare for film production, and continued outsourcing of production to non-union, low-wage countries, but hey–it’s a show about piracy.

Sixth–that the SOPA debate was about… I kid you not… “Hollywood vs. high-tech thievery.” Censorship or innovation concerns? No. (Skip to the very end for this somewhat garbled line. I imagine some embarrassed producer telling host Carl Quintanilla to just mumble through it and get it over with.)

That’s not a full list, but life is short and Crime Inc. has already absorbed too much of mine. I’ll add that watching this on Hulu in several sittings was a maddening experience in itself since Hulu resets with every viewing, force feeding the same 90 second Buick LaCrosse commercial each time. [How has this viewer annoyance system survived? And how is this targeted advertising for someone living in Manhattan?]

Uncharacteristically, there appear to be no pirated versions of the episode available online. Which leads me to think that Crime Inc. may have stumbled onto the most powerful anti-piracy strategy of all: make TV that’s only designed to please the corporate boss.


Additional thoughts from Mike: Just to add to Joe’s excellent breakdown of the what happened. I had two roughly hour-long phone calls with Crime Inc. staffers, sent one detailed email to them and also spent an entire afternoon being interviewed on camera by them in San Francisco. In all of that, I corrected various misconceptions, and repeatedly pointed out that these issues were complex and nuanced, and it would be inaccurate to classify things as simply “theft” or to not recognize the wider implications of what was happening. Throughout it all, they insisted that the show would be a balanced exploration of the topic, and they even promised me a DVD of the final program (which has yet to arrive). I should have suspected that the whole thing was going south when we spent an inordinate period of time with the producer coaching me to make fun of Kim Dotcom during the videotaped interview. She literally would take some of my words and suggest alternatives as ways to make fun of Dotcom. I pushed back on a few points and she seemed annoyed that she couldn’t get me on tape saying it exactly the way she wanted. This, apparently, is how the TV sausage gets made. My reward for all of that was apparently to be cut out of the program entirely.

Given how much of my interview was about opportunities, alternative business models, and the recognition that the issues were really business model problems, rather than legal problems having to do with copyright law, I now wonder if my inclusion was solely to try to get me to mock Dotcom on camera, with the rest just being a setup to make me comfortable to say such things. Failing that, my segment got cut out entirely.

I’m sure NBC and Rick Cotton got what they wanted out of the broadcast. But what could have been a valuable and nuanced discussion about the complex problems being dealt with here turned into a simplistic, stereotyped and factually bogus report that reflects poorly on Bill Kurtis, NBC and Crime Inc.

—- —- —- —-

From: Joe Karaganis

To: Crime Inc.

Friday, August 19, 2011

Re: CNBC- Crime Inc.: Media Piracy

I’ve left some comments inline and have made some additional
suggestions. I have to say I’m pretty skeptical about some of these
points. We think the organized crime angle is exaggerated, and that
the main story, over the past decade, is the collapse in prices
associated with copying goods as digital tech has gotten a lot
cheaper–which among other things has crushed margins on commercial
piracy. Even the crooks now compete with free. How much of this
represents a loss to industry is also unclear. The MPAA releases
numbers, as I’m sure you know, but not the underlying research. Same
is true of the BSA and RIAA. Zero transparency. The British government
just released a report that characterized it all as ‘lobbynomics,’
which is generally our view.

Best,

Joe

—- —- —- —-

From: Joe Karaganis
To: Crime Inc.

Friday, August 19, 2011

Re: Possible story elements

Re a possible segment on the effects of piracy on an average Hollywood
union worker and how media piracy affects his income/day-to-day life:

The MPAA doesn’t release any data that would allow a credible estimate
of this. The ‘$6.2 billion in losses’ number that circulates in these
contexts comes from a study in 2005 that MPAA wouldn’t make public. We
asked for it, the US Government Acountability Office asked, the OECD
asked. They wouldn’t release it. This is not a sign of confidence. The
$20 billion in economic losses number comes from an erroneous
extrapolation of the 6.2 number by Stephen Siwek. As it happens, I
think there are ‘losses’ to Hollywood at the margin, given its
dominance of global film markets. I doubt $6 billion is a reasonable
figure. But even if it is, we’re talking about a roughly $70 billion
business. Not a mortal danger. For the union worker, the bigger impact
is almost certainly the outsourcing of production to
low-wage/non-union countries.

One suggestion: when you hear about losses, ask to see the
research–not just the powerpoint or summary.

Re a possible segment on tracing the life of a pirated DVD from
overseas manufacture to US consumers:

There’s virtually no organized DVD piracy left in the US. You can find
itinerant vendors in NY and other big cities selling recent,
low-quality camcordered copies but, in high-income countries piracy is
almost entirely online now. The commodity chain you describe had its
heyday in the early 2000s and disappeared very quickly–first with the
rise of cheap disk burners, then with broadband. The vendor on the NY
subway is most likely selling disks burned in some Chinatown
apartment. Small scale stuff. Still, an interview with such a person
or people could be interesting.

The DVD trade is still big in developing countries, and in places like
Mexico organized crime is said to play a role. We have a Mexico
chapter that documents the growth of a massive cottage industry in
Mexico City–‘organized’ to be sure but not in the form of criminal
gangs. But in places where the drug cartels dominate the economy, they
will also dominate the pirate DVD business. My take on this is here:
http://piracy.ssrc.org/organized-crime-businessweek-edition/

There are basically 2 pirates in the US: (1) the guy running a
bittorrent tracker or indexing site, who is probably making enough
money on web ads to cover his server costs. By most accounts other
than those of the studios, this is very marginal commercial activity;
(2) the kid who uploads in the course of downloading.

There are some more lucrative/better capitalized businesses
overseas–such as cyberlocker sites like MegaUpload or Hotfile, which
clearly facilitate a lot of infringement. MegaUpload gets a lot of
attention because it’s owned by a flamboyant con man/embezzler named
Kim Schmitz. But basically Megaupload is just selling storage. They’ve
made some money by being a couple years ahead of
Google/Amazon/Apple/MS, but cloud storage is becoming a bulk commodity
business. Free or nearly free when bundled with other services. There
are also a bunch of streaming video sites–some free, some requiring
subscriptions. Basically, they all have to compete with free too. It’s
not clear how much money comes through those channels. Paramount
estimated MegaUpload revenues at a couple hundred million. But that’s
guesswork and some (substantial?) portion will be legit.

Re a segment on [Russell] Sprague [film pirate:
http://articles.latimes.com/2005/mar/06/business/fi-sprague6 ].

The dilemma for the studios is that they need a wide, complex
distribution system to ensure that movies get seen, rated, reviewed,
etc. And this system is, by definition, very porous. It takes one
person to upload a movie file. So Sprague gets jail time and at best
they’ve slightly delayed the release of a high-quality pirated
version. Studios have done a lot to clamp down on the distribution
chain, including real time satellite feeds and surveillance within
theaters, but it’s basically an impossible task. Then you get stories
like this:
http://www.techdirt.com/articles/20091203/1531507185.shtml

If they show the movies, they will be copied.

Many films are available prior to theatrical release. These come from
screeners or copies made from film within the distribution chain.

Post release, people will camcord the films. Better and better
versions will emerge. Eventually, someone will make a high-quality
copy of the soundtrack and these will get merged.

DVD/Blu-ray releases will be copied immediately and circulated online.

Re economic losses: If I download a Hollywood movie instead of buying
the DVD, that money does not disappear. I spend it on something
else–groceries, rent, health care, etc. That expenditure generates
tax dollars, jobs, business investment, etc. Very probably, it
contributes more to economic productivity than additional marginal
expenditure on leisure goods. In other words, the piracy of US
movies/TV within the US affects those industries, but not really the
larger economy.

If some Brazilian kid downloads a Hollywood movie, there may be a loss
to Hollywood if there was some reasonable chance that he would have
paid to see it (or bought the DVD). With DVD prices at $15-20 in
Brazil, that likelihood is very low. But at the margin, there is a
loss, and it’s a real loss to the US economy. (By the same token, it’s
a net gain to the Brazilian economy. This is marginal for movies, but
very important for software.)

All the countries you mentioned would have been very big exporters 8-9
years ago. You could have added Russia, Bulgaria, and the Ukraine to
that list. Now, not nearly as much. There is still some international
trade in discs but most of the remaining production is now local and
the most of the distribution is online.

Here’s how I’d frame this–independent for now of questions of filmability.

Everyone knows that there’s a lot of piracy of movies, music, and
software. Industry claims billions in losses, etc. and is pressuring
gov at all levels to ramp up enforcement. This includes the COICA bill
[SOPA’s antecedent], which will create a process for censoring sites
and search results (and probably achieve nothing and possibly break
the Internet); the recent ‘6-strikes’ deal between MPAA/RIAA and the
big ISPs, which threatens to cut off your internet service on the
basis of industry accusations of infringement; and proposals to turn
the Internet into a massive surveillance tool for copyrighted
content–from monitoring software on your computer to monitoring by
ISPs and cloud services of your activity. The current law is also
pretty strict! The receipt of even small numbers of infringing digital
goods is a criminal offense under the US NET Act, punishable by up to
250K per infringement and 3-5 years in prison. It goes almost
completely unenforced because it would apply to tens of millions of
people.

So this is shaping up to be our new war on drugs–but it will make
that war look like great public policy in comparison. The Dems support
it because there’s Hollywood money at stake; the Republicans support
it because there are big business interests at stake. Everyone also
likes a law and order issue, and will hype the side of it that has any
connections to ‘serious’ crime of the types people care about. So in
come child porn and terrorism. But everyone also knows that this is a
business model issue, linked to the dependence of the studios and
major labels on obsolete media–the DVD and CD. The profit margins
associated with those goods are shrinking quickly, but there’s some
money to be made in the interim by getting the government to pay for
enforcement.

Re your proposed Mexico segment, I can endorse a variation on that….

The way to do this is to start with piracy rather than organized
crime–maybe framed by recent US efforts to control it
internationally. Then look at the economic drivers of piracy: low
incomes, high prices, very cheap tech. Then you look at the informal
markets in Tepito and the struggle between vendors and the
municipality and state, grounded in periodic efforts to suppress
and/or control the informal economy (40% of Mexico, roughly). Then you
say: in some parts of Mexico–especially poor, low-bandwidth
parts–the cartels control much of the economy, and consequently the
pirated disc business. Then you observe that all of this physical
media piracy is becoming obsolete as Mexican broadband access and
digital infrastructure grows. So whatever else happens, both the
cartels and the Tepito-style vendors will be out of this business
soon. Then you look at the MPAA and its efforts to get the Mexican gov
to crackdown–and observe the schizophrenic split between the
US-educated trade negotiators, who sign Mexico up for anything, and
other parts of the government, which won’t because piracy is
tremendously popular and generally viewed as sticking it to the
gringos. It’s an interesting story!

If you lead with the Mexican cartels’ role in piracy, you’ll slide
into the MPAA talking points.

Cheers,

Joe

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