John Lourenze Poquiz
When we hear the words ‘free digital services’, we often think of apps and websites that we use day to day, such as search engines, online maps, and social media. Not surprisingly, research aimed at measuring the digital economy often focuses on estimating the value that these services provide to their users. None of the studies, however, tackle the value derived from the consumption of content accessed through digital piracy.
Since the early days of the internet, digital piracy has been considered widely prevalent. A 2007 estimate shows that the file-sharing app LimeWire (for those who can still remember) was installed on 25 percent of the computers worldwide. Estimates by the UK’s Intellectual Property Office (IPO) show that a quarter of the population in the UK engages in the consumption of content accessed through digital piracy. This speaks to how much digital piracy has become ingrained in modern society and the internet landscape.
In this discussion paper, we measure the value derived by households from the consumption of content accessed through digital piracy. While there have been many efforts aimed at measuring the value of free digital services, focusing only on “legal” services would likely understate the value derived from the entire digital economy. The System of National Accounts (SNA) does not discriminate between legal and illegal activities; it recommends that all activities— if they satisfy the production boundary—should be incorporated as part of GDP. As such, if there are efforts to measure the value of legal digital services, it makes sense to also consider the value derived from digital piracy.
As our measurement strategy, we use the price of paid services as a proxy for the value of their pirated versions. This is a common strategy for non-market valuation in the National Accounts. Other non-market activities such as services from owner-occupied housing, agricultural production for own use, and the extraction of groundwater are also measured using this approach. This method is also used for the valuation of ecosystem services and household production for the Environmental and Household Satellite Accounts, respectively.
We found that the gross value from the piracy of music, video (TV series and movies), live sports, software, computer games, and ebooks was between GBP 3.6 billion and GBP 7.5 billion in 2021. This makes up 0.2 percent of household consumption or 8.8 percent of the final consumption of communication services.
According to our calculations, the biggest portion of the total value of digital piracy is attributed to live sports, accounting for 35%. Music and video follow closely, with 28.3% and 23.9% respectively. We have observed a consistent distribution across these products over time, except in 2021 when the value of live sports experienced a sudden increase. We believe that this may have been due to the Euro 2020 football tournament.
Our research shows that the way we measure the value of digital piracy could be impacting how we understand the economy. While the use of communication services is on the rise, the amount of pirated media is decreasing. However, the official statistics fail to take into account the value of pirated content, which means that the growth in the use of communication services might not be as high as we think. Our data reveals that in 2021, the growth in the final consumption of communication services could have been 0.2 percentage points slower if we had accounted for the value of pirated content. This suggests that digital piracy might be having a bigger impact on the economy than we previously thought.
We can explore the extent of digital piracy in comparison to other illegal activities in the UK. To investigate this, we conducted a comparison of the gross value of digital piracy with narcotics and prostitution, the only illegal products recorded in the UK’s National Accounts. Our analysis indicates that the value of digital piracy is similar to that of narcotics, but lower than the value of prostitution. However, it should be kept in mind that not all narcotics and prostitution are illegal in the UK, and the ONS does not provide a breakdown of legal and illegal consumption. Hence, it is conceivable that the value of illegal consumption of narcotics and prostitution is equivalent to or less than the value of digital piracy.
Although our methodology may have some limitations, we are confident that our estimations can offer valuable insights into the extent and changes in the value gained by households through the use of pirated digital products.
The Discussion Paper can be read here.
ESCoE blogs are published to further debate. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the ESCoE, its partner institutions or the Office for National Statistics.
