Hollywood is out with a new study estimating the cost that piracy has to the US economy. Not surprisingly, they are using the result to try and convince Congress to put more stringent copy protections into place. In the study, they estimate that piracy costs the economy $20 billion a year in lost revenue and are emphasizing that this results in $800 million in lost taxes.

Piracy is definetely a problem for the movie industry, but I question whether or not it’s appropriate to point to the $20 billion number because they aren’t calculating how much revenue the movie industry is losing out on per se, but how much revenue the economy loses because Hollywood isn’t hiring more people and those people aren’t spending money on other goods. In fact, the study actually ignores what else consumers might be spending their money on with the supposed $6 billion a year that Hollywood is “losing” from piracy.

While piracy does have a cost, it’s hard for me to feel very sympathetic to the movie industry because despite the role that the internet has played in P2P distribution, they’ve still made more money off of DVD sales then they ever could have pre-internet. I have no doubt that piracy is a big issue, but Jason Schultze with the EFF, rightly identifies what the study isn’t telling you in the article.

“In other words, let’s say people are forgoing paying for $6 billion in movies by downloading or consuming illegal goods but end up spending that $6 billion on iPods, computers and HDTV sets on which to watch the movies, which leads to $25 billion in job creation in the computer/software/consumer electronics field,”

Using the same logic employed in the article, you could argue that Walmart’s aggresive cost cutting on DVDs is costing the overall economy $12 billion in lost revenue or that Netflix’s threat to the video stores is really costing the economy $5 billion a year, but the truth is that even though people can save money by using Netflix or shopping at Walmart, they will still spend the money that they saved and that money ends up trickling down into other areas of the economy even if it doesn’t end up in the fat cat movie execs coffers.