SOPA: The gloves come offJanuary 12, 2012: 12:49 PM ET
Hollywood makes an economic case for the antipiracy measures under debate in Congress. Silicon Valley makes an economic case against them. Neither is pulling any punches.
FORTUNE -- The media industry's claims about how much digital piracy costs both itself and the economy as a whole are hilariously outsized: billions and billions in lost revenues; millions and millions of jobs at risk.
The industry's proposed solution to this is contained in a pair of laws under consideration in Congress (SOPA in the House, PIPA in the Senate). The laws would allow courts to order U.S. Internet companies, advertising networks and payment facilitators to block access to foreign sites that are merely suspected of enabling trade in pirated goods such as movies, music, and knockoff clothing.
Beyond the enormous legal and technological problems with the proposals, the economic drawbacks could be severe.
The tech industry, which opposes the measures, has put out some data of its own showing how much it, and the economy, would be hurt by such a law. All such numbers are squishy by their nature, but in this case, the tech industry (mainly meaning Internet companies) at least bases its estimates on facts and logical assumptions, while the media industry pretty much concocts whatever stories and numbers it thinks will sound the scariest.
For instance, the U.S. Chamber of Commerce (not a host of rubber-chicken dinners like your local chamber, but rather a formidably powerful lobbying organization) says pirate sites "threaten more than 19 million American jobs." The Chamber's Mark Elliot used that number in a letter to The New York Times in November. It's laughable. It supposedly represents the number of people who work in "IP-intensive industries," or whose jobs "rely on" such industries.
First, all those jobs would be "threatened" only if piracy had the potential to utterly destroy all the industries being counted, which obviously isn't the case. Second, the number itself goes beyond even the most liberal possible interpretation of how many people work in (or "rely on") such industries. The movie industry, one of the biggest backers of these proposals, employs a total of about 374,000 people, both full and part time, according to the Congressional Research Service.
Ironically, as Techdirt's Mike Masnick has noted, those 19 million jobs include those in the tech sector (the whole sector!), which opposes the bills.
The media industry also claims that piracy costs the U.S. economy about $58 billion a year, and the movie industry alone $20.5 billion. How these numbers were arrived at is far more convoluted even than the reasoning behind the jobs number. For instance, the $20.5 billion figure is based on supposed "multiplier effects," which turn raw losses of $6.1 billion (itself a questionable figure) into the larger number by causing incremental losses along the value chain. The Cato Institute's Julian Sanchez in November broke down the "reasoning" employed there, while also noting how well the movie industry is doing lately despite its being beset by pirates. Losses from piracy directly suffered by movie studios are actually more like $446 million, Sanchez wrote, "which, by coincidence, is roughly the amount grossed globally by Alvin and the Chipmunks: The Squeakquel."
Nonetheless, lobbyists know that by merely publishing such numbers -- transparently ridiculous or not -- the figures will be cited in media accounts with little or no context, helping to convince both the public and some in government that piracy threatens whole industries and even the whole economy.
On the other side of the coin are the potential economic risks of passing SOPA or PIPA. Assessments of this threat are much more grounded in reality. For instance, a devastating survey of tech investors recently conducted by Booz & Co. found that nearly three quarters of them would be less likely to invest in Internet content companies if such laws were in place. The study was commissioned by Google (GOOG), which vehemently opposes the measures. But unlike some of the Big Media-sponsored studies, this one looks bulletproof, free as it is from obfuscation and serpentine logic: It's a simple survey of investors, who "overwhelmingly" said they'll invest less, or not at all, in Internet content if a SOPA-like copyright law were to pass.
Less investment in online content means there would be fewer startups, and fewer people working for such startups. Big companies like Facebook, Apple (AAPL) and Google would be hampered by the onerous costs and obligations imposed on them.
Throughout the recession, tech in general and digital content in particular were among the economy's few growth sectors. Consider that Facebook apps all by themselves account for 182,000 jobs, according to one study. Consider that eBay (EBAY) alone has created hundreds of thousands of jobs, many of them entrepreneurs who sell through the site. SOPA and PIPA really do put jobs like that at risk. Not all of them, but who knows how many?
In November, Michael O'Leary of the Motion Picture Association of America told the House Judiciary Committee that SOPA represents "a choice between protecting American creativity and jobs or protecting thieves."
Perhaps some supporters of these measures truly believe they would be fair and would boost the economy as a whole. But given the facts of the situation, comments like O'Leary's raise the question of whether Big Media simply wants to stymie the growth of the Internet, and not only that part of it devoted to piracy.