p2p news / p2pnet: Warner Music, front and centre in 14 class-action lawsuits mostly alleging price fixing, hints in an SEC filing that it fears it may not, this time, escape.

It and fellow Organized Music members Sony BMG, EMI and Vivendi Universal are trying to sue their own customers into buying lossy, overpriced downloads. At the same time, Warner, et al, are being investigated in America at federal and state levels on charges of price fixing and bribery.

Leading the way is New York attorney general Eliot Spitzer and now Warner says it’s, “unable to predict the outcome of these [the class action] suits”.

The Big Four have on the one hand sent some 19,000 subpoenas to customers, including young children, claiming the documents amount to prosecutions, and that the recipients are thieves and criminals. On the other, they say they’re being “devastated” by file sharers, who prefer to use the p2p networks than be ripped off by the labels.

Warner says in the SEC filing the lawsuits are, “all based on the same general subject matter as the Attorney General’s request for information alleging conspiracy among record companies to fix prices for downloads. The complaints generally seek unspecified compensatory, statutory and treble damages.”

Warner, “intends to defend against these lawsuits vigorously, but is unable to predict the outcome of these suits,” it says, going on:

“Any litigation the Company may become involved in as a result of the inquiries of the Attorney General and Department of Justice, regardless of the merits of the claim, could be costly and divert the time and resources of management.

In addition, “the Company is involved in other litigation arising in the normal course of our business. Management does not believe that any legal proceedings pending against the Company will have, individually, or in the aggregate, a material adverse effect on its business. However, the Company cannot predict with certainty the outcome of any litigation or the potential for future litigation. Regardless of the outcome, litigation can have an adverse impact on the Company, including its brand value, because of defense costs, diversion of management resources and other factors.

A ‘largely sympathetic report’
As Ars Technica points out:

One of this month’s top intellectual property stories will surely be the MPAA’s startling revelation that even it had underestimated the threat of piracy against the movie industry. This ’shocking’ confession scored a lengthy and largely sympathetic report in the Wall Street Journal, where we’re told that ’sources’ had revealed that the findings in a report by LEK Consulting were so bad that some studios wanted to suppress the entire thing, and interstudio conflict ensued. What could be so bad that even the people behind Gigli and Aeon Flux and would want to see it lost at the bottom of a river?

The Journal says that it’s the whopping US$6.1 billion ‘lost’ to piracy, which they say represents ‘75% more than previous estimated losses of $3.5 billion in hard goods’ (a claim also put forth by the BBC). The fear, it seems, is that such dramatic figures could hurt the industry by making its enforcement efforts appear ‘laughable,’ and by harming investor confidence. Yet while busily portraying this new study as as shocker that’s causing problems between the studios, the Journal failed to note that the MPAA had already conducted another study, done by Smith Barney in 2003 which determined that $5.4 billion would be lost to piracy in 2005. It’s an odd omission, and an important one, too. Instead of talking about a 75 percent increase in losses, we’d only be talking about 13 percent on the losses that the studios already expected.

Now contrast these statements:

WSJ authors: “But now a study shows the damage is far worse than expected”

MPAA spokeswoman, indirect discourse: “She says the numbers weren’t far out of line with what the industry expected.”

So which is it? Far worse or not far out of line? The Journal’s ’source’ seems to be primarily interested in drama.

However disparities of this nature shouldn’t surprise anyone, not even the lamescream media. The RIAA (Recording Industry Association of America), MPAA (Motion Picture Association of America) and the corporate software industry’s BSA (Business Software Alliance) routinely use creative accounting and overly imaginative statistics when dealing with the corporate media, most of whom are directly or indirectly owned by the entertainment cartels, or heavily influenced by them through advertising, and most of whom will quote the ‘information’ as though it’s accurate and comes from credible sources.

These ‘reports,’ often show up online on sites which quote, or link directly to, the specious mainstream media stories, adding to the entirely false impresssion that the materials they contain are reliable.

Ars Technica’s Ken Fisher goes on:

Of course, the drama steals focus from the real questions (by design?), including those relating to the study’s methodology. Instead, we’re to assume that these studies are trustworthy, and that is a huge assumption. Why? Because whether you’re the Wall Street Journal or Ars Technica, you don’t get to see the study. It’s private. What you get to see are ’summary’ points which you’re supposed to take on face value. I won’t repeat everything that the press materials say, because you can read them for yourself (PDF). I do want to hit some highlights, however, and note some of the massively problematic gaps in the story that should have been raised by ‘reporters’ across the country, but weren’t.

As expected, he says, losses to ‘bootlegging’ were the greatest, estimated at US$2.4 billion.

They dubiously presume …
Where the entertainment and software cartels are concerned, ‘estimates’ are always interesting.

The Economist wondered about BSA statements attributing multi-billion-dollar losses to piracy.

“The association’s figures rely on sample data that may not be representative, assumptions about the average amount of software on PCs and, for some countries, guesses rather than hard data,” it said. “Moreover, the figures are presented in an exaggerated way by the BSA and International Data Corporation (IDC), a research firm that conducts the study. They dubiously presume that each piece of software pirated equals a direct loss of revenue to software firms.

“To derive its piracy rate, IDC estimates the average amount of software that is installed on a PC per country, using data from surveys, interviews and other studies. That figure is then reduced by the known quantity of software sold per country-a calculation in which IDC specialises. The result: a (supposed) amount of piracy per country. Multiplying that figure by the revenue from legitimate sales thus yields the retail value of the unpaid-for software. This, IDC and BSA claim, equals the amount of lost revenue.”

Of bogus figures
Nor is the BSA alone. The RIAA and MPAA rely on the same methods and techniques, if not outright flim-flam.

Last June the MPAA issued a news release that contained false and misleading information regarding a search conducted by the Southern California High Tech Task Force in California. It said items and product used in ‘piracy’ together amounted to a massive $30 million.

However, the owner of the company raided by pseudo-MPAA ‘cops’ and legitimate enforcement officers said she’d been running a normal, legal operation and moreover, “the total value of items removed was $10,540 in DVDs, plus 24 stampers valued at $3,600 each or $15,000″.

Thus, the MPAA’s spurious claim of $30 million was inflated by 2,000%.

And Edward Jay Epstein pointed up a New York Times correction which read, “An article last Sunday about film piracy included incorrect revenue data supplied by the Motion Picture Association of America. Hollywood’s global revenue in 2004 was $44.8 billion, not $84 billion. Of the total, $21 billion, not $55.6 billion, came from sales of DVDs and Videos.” Instead of supplying the New York Times with the actual numbers, “the MPAA sent bogus figures.”

The RIAA said a raid against a New York counterfeit operation had resulted in the equivalent of 421 CD burners being seized. But former Boycott-RIAA owner Bill Evans learned the number was actually 156, so he asked ex-RIAA reality adjuster Amy Weiss how the discrepancy had arisen.

“We stated that the raid was the equivalent of 421 burners, as we need to put these operations in perspective based on burning capacity and output, not the number of physical slots for the discs,” she said. “Since they burn 4x burners - it is roughly 4xs the numbers of burners.”

‘Hard’ and ’soft’
Back to Fisher, as expected, losses to ‘bootlegging’ were the greatest, estimated at US$2.4 billion and, “Generally speaking, this is hard piracy, often (but not always) involving organized crime and illegal distribution (think: guy on the corner selling movies for US$5),” he says.

But the rest largely comprised what he describes as ’soft’ pseudo-piracy, or ‘losses’ stemming from downloads as well as so-called illegal copying.

Nearly US$1.4 billion was ‘lost’ to illegal copying which, according to the MPAA, is “Making illegal copies for self or receiving illegal copies from friends of a legitimate VHS/DVD/VCD” and thus, “the MPAA is counting personal non-commercial backups and transformative ‘ripping’ as piracy (ripping including decrypting DVDs so that the content can be moved to a portable player).

Fisher continues that he found it especially curious to see Hollywood arguing 62% of this kind of piracy happened outside of the US, “because the US is one of the few countries to make the circumvention of DVD access controls illegal. I’m left suspecting that a significant portion of this estimate stems from copying happening in places where local statues do not explicitly forbid it. I’m also left suspecting that what most of us consider Fair Use is being marked as piracy. Hey, the RIAA makes the very same argument.

“Normally you’d check the study, but in this case, the study can’t be studied.”

But the real threat came from downloading, representing US$2.3 billion in ‘losses,” the story says, going on that theMPAA claims international piracy accounts for 80%, but according to the Journal, the study “specifically asked consumers how many of their pirated movies they would have purchased in stores or seen in theaters if they didn’t have an unauthorized copy,” supposedly alleviating the methodological problem of relating downloads to lost revenues.

“What the Journal did not report on was the methodology used in mapping these consumers’ poll responses to the combined domestic and international population. If these losses were calculated using a 1,000-person poll conducted in the United States, then applied to the globe as a whole, then you can see where this has gone awry (actually, you can see the problem no matter what sampling method is used: you cannot control for mass psychology and stay accurate). Unfortunately, the MPAA could not clarify this methodology for me, and no one else covering the story has any information, either. We’re left with the vague assurance that “consumers” apparently admitted what they would have bought otherwise.

“So in the end, the great US$6.1 billion figure looks to have a good deal of questionable padding in it, much like most other ’studies’ that purport to map real financial losses onto piracy, including its softer forms. This isn’t to say that piracy doesn’t exist, or that it’s not harmful (although we do find the words ‘piracy’ and ‘pirate’ to be rather inappropriate). However, the contours and effects of piracy are quite open to debate, and as a result, the best ways to address the problem are up for debate, too. This is particularly clear when talking about ’soft’ forms of piracy, which can easy be massaged to make a situation look dire. And keeping a study private surely doesn’t help, either.”

A couple of years back Felix Oberholzer-Gee of the Harvard Business School and Koleman S. Strumpf of the University of North Carolina at Chapel Hill produced a startling research paper which is still quoted and which made the point that things aren’t nearly as bad as the music industry claims.

“Downloads have an effect on sales which is statistically indistinguishable from zero,” they stated.

If Warner suspects the price fixing and bribery claims will be upheld, it’ll immediately ’settle,’ making sure the settlement terms include a line to the effect that in doing so, it admits ‘no liability’. And it and its brethren will continue with their disingenuous assertions that they’re being ruined by file sharing and file sharers.

Meanwhile, more and more people will open Net accounts and log on, giving the lie to music industry claims that its persecution of its own customers is driving them away from the p2p networks and towards the virtually non-existent online corporate music industry.

Also See:
wondered about - The Economist angers BSA, June 15, 2005
price fixing - 9 radio stations in bribery probe, February 9, 2006
Ars Technica - The problem with MPAA’s shocking piracy numbers, May 5, 2006
massive $30 million - MPAA accused of slander, June 22, 2005
equivalent - Hollywood lies, corporate bull, November 1, 2005
made the point - P2p file sharing heretics, April 8, 2004

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