May 14, 2008 2:22 PM PDT

Study: Pirates cost software industry $48 billion

Posted by Anne Broache

Pirates caused the software industry to lose nearly $48 billion in sales last year, even as most countries experienced declines in their piracy rates, according to the latest annual study commissioned by the Business Software Alliance.

The fifth annual report, released on Wednesday, determined that from 2006 to 2007, overall losses grew by $8 billion and worldwide piracy rates increased by 3 percentage points to 38 percent. At the same time, piracy rates dipped in 67 of 108 countries included in the report. (About half of the increased dollar losses are attributable to the declining value of the dollar, BSA said.)

"What that means is in countries in many of the emerging markets where there is an extraordinary growth of PC sales per year, the sales of legitimate software are lagging dramatically behind that," BSA President Robert Holleyman said in a telephone interview, adding that he doesn't see the trend toward overall increased piracy losses reversing itself in the near future.

The study found, for instance, that so-called "emerging markets"--namely Brazil, Russia, China, and India--accounted for 46 percent of all new PC shipments last year but only 17 percent of new software shipments, Holleyman said.

Piracy rates rose in only eight countries, with Armenia, Bangladesh, Azerbaijan, Moldova, and Zimbabwe holding the top five spots for highest piracy rates. The United States, Luxembourg, New Zealand, Japan, and Austria were the countries with the top five lowest piracy rates.

One mildly encouraging spot was Russia, which has experienced a one-year piracy reduction of 7 percentage points, to 73 percent, and 14-point drop over the last five years, thanks in part to stricter government enforcement efforts, the group noted.

The methodology used by BSA and its analysts, IDC, for these reports has attracted a fair share of controversy in the past, with some claiming it overstates the piracy problem.

"They dubiously presume that each piece of software pirated equals a direct loss of revenue to software firms," said a 2005 piece in The Economist, echoing concerns voiced by two pro-fair use trade groups, the Computer & Communications Association and the Consumer Electronics Association.

To derive its figures, the group says (PDF) it considers analyst expectations of how much software was installed on PCs in a particular year versus how much software was paid for or "legally acquired" in the same year. The difference between the amount of pirated and legally acquired software is then used to calculate a country's piracy rate, and that rate is multiplied by the revenue from legitimate sales to arrive at the estimated losses.

Holleyman, for his part, argued the studies actually provide a "conservative" estimate of his industry's losses, in part because it doesn't assume every piece of software downloaded through the Internet is pirated and thus represents a sales loss.

"It's certainly true that not every piece of pirated software would be replaced immediately with licensed software if piracy rates went down," Holleyman told News.com, "but we do believe...that the evidence is that all of the pirated software will be replaced with legitimate software over time because people need good software."