SL Blogger Challenge: Show Me the Economic Effects of Virtual Content Theft (Updated)

Here's a simple challenge for fellow Second Life bloggers. Here are the most recent economic numbers for in-world spending, as compared to previous quarters, going back to 2006:

In this chart, where is the evidence that in-world content theft is having a substantial impact on the Second Life economy? Recall that the first instance of the CopyBot, often blamed for the most damaging forms of content theft, was in November 2006. Since then, however, user-to-user L$ transactions have increased, often extremely so. Recall also that the number of Residents who spend L$ in-world has remained relatively stable since last year, at around 450K. (It was roughly 300K in 2007.) And while the number of consumers hasn't significantly increased, total transactions between them very much has. If content theft increased, wouldn't consumer spending decrease?

Once again, this is only a challenge regarding the economic impact of content theft. The moral and social impact of such theft, as seen in a recent, mysterious incident reported by Shopping Cart Disco, has a terrible substance of its own. But looking at the broader macro picture, where is evidence of the damage?

Surely I'm missing something obvious; please tell me what.

Update, 9:02am: Typepad seems to be having trouble enabling Comments today, working on that now. SL bloggers, if you post replies on your own blog, be sure to send a Trackback to this post.

Update 2, 11:40am: Comments seem to be working now. If you have trouble, let me know via "Hamlet Au" in SL or via email to hamlet at secondlife dot com.

Comments

[Camille Serpentine]

It's a nice graph, but it doesn't prove anything about whether or not copybotting has affected user to user $transactions in Second Life.

As the number of user to user $transactions increased, so did SL's account population.

All your graph shows is that transactions have increased. But you haven't broken it down into specific types of transactions, amount of transactions, etc. There's too many unknowns to make the assumption you are making.

[Gigs Taggart]

Stop calling it theft... it's not theft. That term is a propaganda term first pushed by people like the RIAA and MPAA to try to imply that every mp3 and movie downloaded was a lost sale.

The correct term is copyright infringement.

[Camille Serpentine]

Your graph is quite deceiving. It is missing key elements to support your statements.

Where is the correlating data of how many accounts there were for the same time periods?

Where is the breakdown of what was spent and how? I'd be interested to see if most of this was actually spent on rentals or the sex trade, and not objects.

[Arcadia Codesmith]

As noted, you can't draw any conclusion from this graph either way. In other words, "look how steep growth was with content theft" begs the question, "how much steeper would growth have been without content theft?" (and yes, theft is a perfectly appropriate term for it -- people who don't like being called thieves shouldn't steal).

[Scarp Godenot]

This parsing of the word theft is pointless. Everyone knows what is being talked about. And even the US federal government calls it theft:
http://www.copyright.gov/docs/2265_stat.html

Just FYI

[AnnOtooleInSL]

The numbers are meaningless until content sales transactions can be isolated and graphed over time. The chart as is mainly reflects land rentals (the cash cow of SL) over time increasing as did the population (who wants a place to put some content to enjoy).

The moment you break out content sales then we can assess the question of content sales over time via metrics. Until then you are stuck with polls which are never accurate because they in no way sample a large enough percentage of the population that actually creates content and is in business selling said content for profit.

So yes Hamlet you are missing something: The right numbers. Therefore you cannot arrive at an irrefraggable set of evidence to make any determination thus you have that nagging feeling of something doesn't add up.

So we can conclude your intuition is on target in respect to something not being right when comparing the numbers to stated opinions. But it still leaves us with nothing much to debate.

And it remains a safe bet most so-called "content theft" is for personal use. That point is probably worth a debate.

[Ciaran Laval]

Lies, damned lies and statistics ;) Others have already covered the main points, we don't know where the money was spent, there are more residents now.

Your graph shows the fall in spend after the gambling ban, but did the gambling ban hurt content creators substantially or was the gambling money only largely moving in gambling circles? I'd say it was the latter.

There is no comparable grid where content theft isn't an issue for us to compare this to, without the data we can't tell whether content theft has substantially hurt the economy.

[Gatz]

Assuming the people who stole content sold unit for unit the same amount as the legit creator, then your graph means nothing. Since stolen content is usually sold for much less than the legit content, it would make sense that many more would sell.

...and theft is the proper word. If I stop by your house and take your TV, I can say that I just "borrowed it without permission," but it would be theft.

[Hamlet Au]

"Your graph shows the fall in spend after the gambling ban"

That's a good point, Ciaran. Gambling was probably not a larger part of the economy than avatar accessories, but you can definitely see the economic impact when it was banned. According to T. Linden, avatar accessories are 20% of the economy, but at no point do you see any of the many content theft controversies over avatar accessories causing a similar dip.

[guessing]

Your chart seems to show that copybot MAY have helped increase the amount of commerce in SL, though one would want to see a chart showing the growth in population in the same period in order to eliminate simple population growth as an explanation.

I imagine the complaints about copy theft have to do with the damage to the item Creator. It would be interesting to see a chart with some typical items comparing sales over time...

Item 1
Sales by creator
Sales by rip offs

Item 2
Sales by creator
Sales by rip offs

[Hamlet Au]

"Your chart seems to show that copybot MAY have helped increase the amount of commerce in SL"

That's an interesting argument. When the RIAA argues that song file sharing (what they call "theft") is hurting record sales, there's a strong counter-argument that file sharing is actually increasing awareness (and therefore the market) of music sales.

[Tengu Yamabushi]

"If content theft increased, wouldn't consumer spending decrease?"

Your stats and your inference above are about as valid as those presented at this link, and for the same reasons:

http://upload.wikimedia.org/wikipedia/commons/d/d1/PiratesVsTemp_English.jpg

If anything, the user-to-user transaction volume doesn't necessarily reflect increased sales by content creators... it could just as well reflect sales lost by content creators to discount rippers with the increased volume a function of the overall grid population since since unverified accounts became available (all those alts of Payment Info Used accounts need stuff too).

If anything, it just might show why LL might not care about who is selling what to who (ripped or not) as long as there are sales of items (XStreetSL) and L$ sales (Lindex) from which to skim a percentage.

[Ceera Murakami]

What content theft does or does not do to the overall economy is also missing an important factor: "Who is getting the money?"

Player A is a content creator, making and constantly updating the "Wonder Widget", and selling it at L$500 each. They set that price based on what they thought it would sell for, and how much of their own time and effort went into making it. Maybe he sells 10 of these a month, earning L$5000 a month. If this person felt that L$500 was an appropriate price, I think it is pretty unlikely they would have invested the time and effort to make the same thing and only be able to sell it at L$50 each.

Along comes our copyright infringing content thief, Player B, with some easy to use rip-off tools, and he somehow manages to make a full-perms version of the Wonder Widget. He starts selling them at dozens of locations, through dozens of alts and on XStreet-SL, for L$50 each.

Now sure, there's more people who will buy any item at L$50 than will buy the same item at L$500. But probably not ten times as many. But Player B doesn't care. He sells 50 of these a month at that price, and earns L$2500 a month, for no more effort than clicking the mouse a few times and setting up some vendors.

If even 1/5 of these people would have paid the normal price to Player A if they hadn't been presented with the lower price offer from the conetnt thief, what has this done to Player A's sales? Flatlined it. All 10 of the people who would have bought from him are part of the 50 that now gave money to the thief.

And if Player B does manage to sell 100 a month, or if he charger L$100 instead of only L$50, he earns just as much as the actual content creator, and your chart doesn't show a fluctuation.

But Player A has no incentive to keep creating new stuff. His business has been ruined, his income slaughtered. So he quits making things.

Player B just continues copying other people's stuff and raking in the money. He can easily rip off more products in a month than the combined group of content creators that he is ripping from can replace with new items.

Eventually, you lose all the talented people. But there's still enough existing stuff in world to feed the rip-off artist's pipeline for decades. And if the actual creator has gotten discouraged and quit, there's no one left to prosecute the thief, since LL will ONLY listen to a DMCA take-down from the actual copyright holder, or their legal representative.

[Gatz]

Well explained, Ceera! That's exactly what I was thinking, and what I am seeing (and doing myself - I haven't made anything new for ages). Lately, some of my favorite creators are gone without a word when I try to visit, and others haven't made anything new for a really long time.

[Wayfinder Wishbringer]

This blog causes people to think, so I like it. I also like the thoughtful and insightful comments. Excellent discussion.

As has been pointed out, the graph itself proves nothing. There are several things not indicated by that graph:

1. The number of overall user increase during that period. Yes, the concurrent population may remain more or less stable as people come and go, but how much did the new user population jump during that period? New users are notorious spenders.

2. How much of those sales came from stolen items? I just wrote a blog on this recently that discusses that very issue: http://elfclan.ning.com/profiles/blogs/the-disease-of-freebie

3. The chart tends to point to Copybot as a cause for increased sales. Directly after the introduction of Copybot, sales jumped from $39 million to $102 million... BAM! Like a shot. That would strongly indicate that Copybot was being directly employed and used for illegal sales.

4. The chart does not indicate how many merchants were put out of business by Copybot and replaced by Copybot stolen sales.

As someone wisely mentioned above, the graph does not provide enough information to draw valid conclusions. However, one must understand that the raw fact of sales increasing has nothing to do with the impact of Copybot on the system. It could in fact be largely responsible for that increase in sales.

Question: does that make one wonder why LL hasn't slamed down on Copybot use? It sure looks good on their PR sheets, doesn't it?

In reply to the grammar-nazi up there: copyright infringement IS theft. Sugar coat it all you want, theft is theft, no matter what form it takes or what terminology is used.

[Tenshi Vielle]

"The correct term is copyright infringement."

You take something of mine that isn't yours and say it's yours. What's that called again?

[EnCore Mayne]

the sky is falling! the sky is falling! did i distill the worriers who's "education" process commands we all fear what any intelligent designer already knows before they invest time and money into the game. NOTHING can be protected from ripping. how many times does that have to be said? ya think it's ever gonna get better? like make the Lab (at cost of legal proceedings) change the impossible? who's the victim here? and what's their beef? i refer you to my opening statement: "the sky is falling! the sky is falling!"

not all of us are brain dead. if the Issue gets more traffic to Iris Seale's fashion blog, seems the gang's got another hit/disaster on their hands. i am so sick of these people trying to manipulate and maneuver everyone's game to act just like their own. we're not all bitchy, whiny, morons.

what ever happened to OpenLife? aren't the rats jumping ship yet? or are they gonna bleed SL for every fault they have in their despicable souls? (too harsh?) just wait till They set the cops on ya. that's always a pleasant introduction to a contrary voice to their screed. someone's making money from these heavily promoted scare tactics. whoop up the Economy. getting any?

[Hamlet Au]

"Eventually, you lose all the talented people. But there's still enough existing stuff in world to feed the rip-off artist's pipeline for decades"

Do you have any evidence that talented content creators are leaving SL in substantial numbers? I only know of a handful.

[Truthseeker Young]

"If anything, it just might show why LL might not care about who is selling what to who (ripped or not) as long as there are sales of items (XStreetSL) and L$ sales (Lindex) from which to skim a percentage."

Yes. This.

[Hamlet Au]

But ripped items almost always sell for much less than the original design -- that's usually the main motivator for ripping in the first place. And if that became a pervasive phenomenon, less L$ would change hands, and the Lindens would make less revenue. So they have no incentive to allow rampant content theft. However, if content theft was pervasive, user-to-user transactions would decrease, not constantly increase, as it has. Which again means there's no evidence of rampant content theft, least none has been produced yet.

[Ciaran Laval]

" However, if content theft was pervasive, user-to-user transactions would decrease, not constantly increase, as it has. Which again means there's no evidence of rampant content theft, least none has been produced yet."

No Hamlet, this doesn't quite wash. The people who lose out probably aren't the content creators who make the items, they do lose out to a degree because it damages their brand, but the people who lose out are those who sell items at the end of the market that stolen content is sold at.

These guys would make sales at the bargain end of the market if ripped content wasn't in the marketplace and if they were making sales they'd spend more themsleves and the user to user transactions would be larger.

[Hamlet Au]

I'm not sure I follow that, Ciaran. Are you saying bargain content sellers are hurt by content theft? That'd be hard to determine, as a lot of top content creators sell some of their products very cheaply to promote their brand, while others sell their content for L$1 or other low rates because they're more interested in getting their product out there than making a profit. Hard to see how either group is hurt by content thieves. In fact, they probably make it harder for content rippers. How can you sell a lot of ripped content at low rates when there's so much good legit content also sold cheaply?

[Chez Nabob]

The point you're missing, Hamlet, is that (as has been pointed out above) the chart you're using to illustrate your point...well...doesn't.

Allow me to expound by reposting a comment I made over on The SL Revolution...

Anyone who has lost a single sale to someone who has ripped their content has been hurt. Logic tells you that if someone knowingly buys ripped content from a thief instead of buying it from the original creator, then that creator’s business has been hurt.

You could also make the argument that the time a creator spends chasing down IP infringers, filing DMCAs, talking with legal representation, etc. is time taken away from them running their business, creating more content and thereby making more money. Again, it’s clear they’ve been impacted financially by IP theft. None of those numbers will EVER figure into LL’s economic figures.

The real question is to what degree has their business been hurt. Well that question isn’t quantifiable without knowing how many sales of stolen content have been made.

The problem with Hamlet’s argument (as has been pointed out by Luth) is that he isn’t taking into account the influx of users and dollars into the game since copybot was released on the grid, not to mention the fact that all the transactions of stolen merchandise are being counted by Linden Lab as part of their economic figures.

Of course the numbers don’t show a decline!

Again, I think it’s obvious creators have lost sales to copybotters, but I think the decline many creators have seen in sales are due to a lot of other factors (a few of which Luth mentioned above) and not just sales lost to content rippers.

It would be next to impossible for an individual creator to say how much they’ve lost without knowing who has infringed their intellectual property and how many sales those infringers have made.

Only LL would be able to come close to determining an estimated number of the entire market for sales of stolen IP, and even then it would be an estimate. I seriously doubt they’d be willing to ever do that since they are facing a possible class-action lawsuit and doing so would reveal how widespread a problem this is.

To see Luth's post on The SL Revolution, go here:

http://theslrevolution.wordpress.com/2009/10/30/copying-copying-copying/

[Ciaran Laval]

"I'm not sure I follow that, Ciaran. Are you saying bargain content sellers are hurt by content theft?"

Absolutely Hamlet, it's collateral damage. Yes it is hard to quantify and there are many great freebies that impact on this market. XstreetSL will soon do something about this, go talk to Pink about it.

Without stolen content being available in the bargain end of the market we'd have more content creators, whom would be paying for land and expanding our userbase.

[Madddyyy Schnook]

As has already been explained above, this does not show the micro payments of stolen content being sold by copybotters/cryo users or neilslifes or whatever other version of the theft device is.

So i create, someone steals and sells it cheaper or just even passes it out to a group.
I have found my content being passed out back to me in freebie boxes. Infact i was accused of selling a few freebies which were actually MY content that was stolen and given out. year later i saw the item in a sandbox as take a copy.

So theif copys and resells my items. So the increase is content but money not going to the correct person.

[Arcadia Codesmith]

The market pressure at the entry level is cumulative; the effect of stolen merchandise is not overwritten by the cheap/free castoffs of top designers, but adds to it.

Further, copying for "personal use" also contributes to the effect. The person who rips a top-notch designer gown for herself may not have ever been willing to pay retail for it, but having it for free also makes it unlikely that she'll ever part with L100 or L200 for a new designer's initial efforts.

The effect can't be measured without a graph showing what the growth rate would have been without content theft (which would be highly speculative at best). Perhaps the entry-level market is very small. But without it, nobody ever graduates to top designer. Meanwhile, we lose top designers to attrition every year (due to disgust with content theft or for a myriad of other reasons).

Content theft is only one piece of the puzzle, but it's an important one. It may be impossible to stop it entirely, but it certainly is feasible to make it easier to track, take down, and prosecute.

[Hamlet Au]

"The problem with Hamlet’s argument (as has been pointed out by Luth) is that he isn’t taking into account the influx of users and dollars into the game since copybot was released on the grid"

Chez: I did, actually. As I said, the number of users who spend L$ has not grown much since 2007, post-Copybot. It was 300K then, it's 450K now. 90-95% of new users who joined SL after Copybot did not stay long enough to even spend L$, so they didn't contribute measurably to the economy. The increase in spending since then is mostly a function of existing users.

"the chart you're using to illustrate your point...well...doesn't."

Do you understand what my point is? My point is that it's difficult to see any evidence of content theft's economic impact in these numbers.

But once again, I'm only talking about the *economic* impact, not the social impact of content theft. That's definitely a big issue, but a somewhat different one.

[Chez Nabob]

Yes, I do understand your point, and I'm surprised you don't see why your chart doesn't prove it.

450k is a 50% increase over the 300k number you cite. I'd call that a pretty significant jump in new users that your are blithely dismissing.

Those new users will naturally spend more money, not to mention the fact that all the sales of stolen content are part of the transaction data.

Of course the chart you are using doesn't show a dip!

You cannot use this chart to say IP infringement has had no effect on the SL economy because the necessary data to show exactly what effect it has had on the economy isn't in this chart.

The truth is that neither you nor I have any idea what effect IP infringement has had on the SL economy. Again, only LL could even come close to providing a number (which would take some work on their part, tracking down sales of known items that have been taken down via the DMCA process), and even that would only hint at the number because there is even more ripped content out there that creators haven't uncovered and therefore would not be figured into the total.

As I said, LL will NEVER release that information. If Stroker and Munch's lawsuit is granted class-action status, providing such an estimate would be pretty damning for the Lab.

[Hamlet Au]

"450k is a 50% increase over the 300k number you cite. I'd call that a pretty significant jump in new users that your are blithely dismissing."

Chez, it would be significant jump if most of those users were spending a significant amount of L$ in-world, but 180,000 of that 450K spend less than L$500 a month:

http://nwn.blogs.com/nwn/2009/07/unconsumed.html

That's roughly 90M Linden Dollars, which seems like a lot, but really just a tiny fraction of the total economy. For comparison's sake, look at the chart in that link. 1024 Residents spend over L$1M a month-- i.e. over ONE BILLION LINDEN DOLLARS. So those 180K comprise maybe 2-3 percent of the total in-world economy, maybe even less. (Someone wanna do the math?)

[Chez Nabob]

"Chez, it would be significant jump if most of those users were spending a significant amount of L$ in-world, but 180,000 of that 450K spend less than L$500 a month"

It still is a significant jump, Hamlet.

There are 450K users (actually 465K according to the report you referenced in your comment above) are spending money in SL. That is still a huge increase (over 50% that are spending money that weren't there before) since the introduction of copybot.

And how much has the population of "big spenders" ($10 US dollars and over) increased since that time? Do you have those numbers?

Has the number of users spending at the upper levels (L$1M plus) increased more dramatically over that period? Do you have those numbers?

How many more users are spending less than L$500 over that period of time? Do you have those numbers?

Again, you're throwing around a lot of information, but there's not enough data to illustrate your point. You'd need to know the increase in users for each category for the same period of time as your chart above.

As I've said twice now, you have no idea what the effect of copybot has been on the SL economy. The proper data is not broken out. Data showing total user-to-user transactions in the face of an over 50% increase in people spending money in-world does not reveal what effect copybot has had on the economy.

Once more, LL would have to break out every transaction of items sold in which a DMCA has been filed to even come close to revealing the effect on the SL economy, and that would be a less-than-accurate assessment as not every piece of ripped content has had a DMCA action against it.

Continuing to try to prove your point with numbers that have no bearing on the data you actually need to reveal the effect, doesn't change the fact that you don't have the data you actually need to reveal the effect.

[Tetsuko Yorimasa]

Original content is simply too expensive...