The Staggering Cost of IP Piracy

Published January 1, 2007

It is obvious that copyright piracy and counterfeiting harm intellectual property owners, who lose the revenue that would have been gained had the legitimate product been purchased. But that is only part of the story.

Piracy and counterfeiting also cause significant and measurable harm to the overall economy, directly affecting upstream suppliers and downstream purchasers, with a cascading effect that includes lost output, lost earnings, lost jobs, and lost tax revenues.

In the first of a series of papers that will provide a comprehensive estimate of the overall impact of piracy and counterfeiting, the Institute for Policy Innovation examined the ripple effect motion picture piracy creates throughout the U.S. economy. Using the Regional Input-Output Modeling System (RIMS) II, a mathematical model maintained by the U.S. Bureau of Economic Analysis, we can estimate the impact of motion picture piracy on economic output, jobs, personal income, and tax revenues.

This study uses, as a starting point, the lost revenue figures from a recent and comprehensive worldwide consumer research study conducted by LEK Consulting and released in May 2006 by the Motion Picture Association of America, which determined U.S. film studios lost $6.1 billion to piracy in 2005.

Applying the RIMS II tool to the LEK loss figures reveals that the true cost of movie piracy to the U.S. economy is far more:

  • Motion picture piracy now results in total lost output among all U.S. industries of $20.5 billion annually.
  • Motion picture piracy costs U.S. workers $5.5 billion annually in lost earnings. Of this amount, $1.9 billion would have been earned by workers in the motion picture industries, while $3.6 billion would have been earned by workers in other U.S. industries.
  • Motion picture piracy costs jobs. Absent piracy, 141,030 new jobs would have been added to the U.S. economy.
  • Motion picture piracy costs governments at all levels $837 million in lost tax revenue. Absent piracy, an additional $147 million in corporate income taxes from motion picture corporations, $91 million in other taxes on motion picture production or sales, and $599 million in personal income taxes from employees would have been paid annually to federal, state, and local governments.

The true cost of motion picture piracy far exceeds its impact on the movie producers themselves, and harms not only the owners of the intellectual property but also all U.S. consumers and taxpayers. It is imperative that government and industry work together to combat this growing problem.

Stephen E. Siwek ([email protected]) is a principal with Economists, Inc. and a specialist in financial and cost analysis. His paper, “The True Cost of Motion Picture Piracy to the U.S. Economy,” was published by the Institute for Policy Innovation in September 2006.

For more information …

“The True cost of Motion Picture Piracy to the U.S. Economy” is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to and search for document #20300.