Saturday, July 16, 2005

Piracy - why some of it is good.

Is piracy good. There are numerous arguments floating about how it is good or it is not good. Here is one more (?) perspective. Lets start with an example. A (say, Harry Potter and not the new one) book, would on an average cost about 250 INR (1 USD = about 42 INR). This is a substantial sum for any middle class family in India (or any developing nation). The point I make is that for a child in such a family, it would be impossible to ever read the book if it were not for piracy. There are no libraries, book lending clubs and chances are, that the school that the child goes to also does not have the resources to buy a new book.

Second lets take a look at DVD players. The cost of an original DVD would be anywhere in the reaches of 500 INR. The average, lower end player costs about 4000 odd INR. At this rate the player costs only about eight times the cost of an average DVD. For a little loss (barely discernible even in reasonably high end home theater systems) in quality, I can get 5 movies for 100 INR (pirated, obviously). If DVDs continued to be costly as they are today, DVD players would not get sold. Part of the reason DVD players itself get sold in places like India is because of piracy. (There is no research to prove this, but I have seen this in a substantial sample of reasonably well to do people).

So, coming to the argument as to why some piracy is good. This kind of low intensity piracy, creates a market where none existed before. It is true for both the child who wants to read a book and the DVD aficionado. They sample products that they would not have sampled, had the price been the original sticker price. The child grows up, reads about the evils of piracy and eventually buys a hard copy of the book. Most of the books on the roadside book shelves are usually best sellers at the best book stores as well and the clientele isnt the same. The DVD aficionado watches pirated movies and finally buys the original of those selected movies he likes. People who listen to mp3's, usually buy the original CDs of the better songs. It is not true of everybody everytime, but piracy does help introduce customers to a product and increases sampling. As people move up the income chain and education, they also realise that piracy is, well, not the right thing to do. Thus pirates and legitimate manufacturers cater to two distinct spectrum of customers with only a slight overlap. Within certain limits, pirates may actually be doing the manufacturer a good turn.

Again, duplication of, say, electronic goods, drugs or copying designs of cars to provide an inferior quality is a great thing to do. Copying a design cannot be excused and it is not an excuse for expanding the market, even though, in a broad sense they would still cater to two different ends of the market. That type of piracy, amounts to stealing. (So, am I saying stealing is a bad idea, but small leakages are permitted? Well, almost.)

In India local audio CDs used to cost about INR 300 when they were introduced. Piracy thrived. Price points went down slowly and now they usually cost about INR 99. A newly release audio casette would cost about 55 INR. More people today, tend to pick up the CD than the cassette. CDs of older movies (even hits) cost about INR 42 on an average. Lower priced editions of books are available for sale in India/Lanka/Nepal etc. This is the route to eliminate piracy. Fortune can be made at various levels in the pyramid. If companies dont, pirates will.

Therefore some types of piracy and some amount of it is actually good (not that it can be killed completely by any means, only organised piracy can be curbed to a certain extent, which it must). Besides if I can get DVDs for 20 rupees, why does the manufacturer need to sell it at a super premium rate? Ceteris Paribus, if a manufacturer sold a million CDs at 200 rupees each, he can sell a billion at 20 rupees each, cant he?

Update: Some traditional downloading myths are being challenged here in a new research. It says that

...The research clearly shows that music fans who break piracy laws are highly valuable customers," said Paul Brindley, director of The Leading Question.

"It also points out that they are eager to adopt legitimate music services in the future."

"There's a myth that all illegal downloaders are mercenaries hell-bent on breaking the law in pursuit of free music."

Thats some food for thought.

18 comments:

Aadisht Khanna said...

Neelakantan,

you could replace the word 'piracy' with 'differential pricing' in your post and make the same argument, but legal.

Content manufacturers probably could price their products differentially and still make money. I personally think it's a technology problem, not a willingness-to-pay.

The bad effect of piracy that you neglected to point out (and which actually could be a bogeyman) is that piracy revenues could be flowing into organised crime and propping up terrorism.

Neelakantan said...

If companies dont address markets (Microsoft for instance is now reaching out by various means), gaps will be exploited by pirates. So, if it means companies reach out by differential pricing, so be it. But, since all markets cannot be addressed simultaneously or the market itself may not exist, here is where the pirates step in and create a market.

Anonymous said...

I have found that its actually cheaper to buy legitimate dvds, cds or vcds here in India as compared to buying it in U.S. Its a bit easier to fight film piracy as compared to Music, but its battle which the companies cannot win. That is why some are turning towards providing music and even movies online at cheaper prices i.e the success of iTunes which has now sold over 500 mil songs since it started.
Btw like your blog a lot, blogrolled you today.

Jatin
www.twentyonwards.blogs.com

Neelakantan said...

Thanks for the kind words!! The success of iTunes and the like is all part of companies going down to service the markets themselves, rather than leave it for pirates.

Anonymous said...

I think they sell a million for 200 is bcoz they dont think, 10 million will buy it for 20.....

vin said...

If there was no piracy, the companies would have much larger sales volumes thus bringing the cost of production down and thus the prices coming down as a result of it(economies of scale)

Arun Chabria said...

I believe the key question is what value do we place on intellectual property? How much are we willing to pay for an original piece of work? While not legal I feel that piracy acts a good price discovery mechanism and testing ground for products that are other wise not readily accessable or overpriced.

Anand said...

"Ceteris Paribus, if a manufacturer sold a million CDs at 200 rupees each, he can sell a billion at 20 rupees each, cant he?"

Dude, you forget the fact that the principal investment for the pirate is just the cost of one original copy or even less. But the manufacturer has to pay for the intellectual rights of the work. And what about the slice to the middle men and retailers?

Further, as anon pointed out, you need to have a billion people to buy it, ain't it?

Neelakantan said...

Apples success with iTunes is the latest which shows that "at the right price, people will buy". Whethere it will be a billion, perhaps not.

But, I repeat, if companies dont service markets, pirates will step in.

Mridul Narayanan said...

If not for piracy i wonder how many in India would ever be able to use Microsoft Windows or other Microsoft products.

Anonymous said...

Not many at all - they would go for Open source alternatives, reducing the Microsoft user base and reducing the value of their software due to the network effect.
Which is why Microsoft does not want zero piracy or 100% copy protection.

steve_o said...

I agree with the comments about the pricing. Seems like if they lowered the price, more people would buy, they would have just as much money, but then a bigger audience to push an upgrade product to.

other piracy news

Anu said...

I visited your blog only today.. Nice work.

As far as pirated DVDs go, in Chennai (thats where Im from) to go to a cinema theatre and watch a movie for a family of four would cost around 600 rupees. For 30 rupees, you get 3 english movies or 2 tamil movies on one DVD. Its simpler this way for a middle class family that makes say 8000 rupees a month. And with movies like Da vinci Code being banned in Tamilnadu, pirated DVDs are the only way around, I think.

Neelakantan said...

Piracy supports Terror. Dont buy Pirated DVDs.

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