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By Leah B. del Castill, Business Desk
With additional research/reporting by Meryl S. Marcon
First of 2 parts
The business software and movie industries are
being forced into financially treacherous waters by digital pirates
who have grown bolder and more sophisticated in their operations.
The trend is alarming, and the losses to the government
and private business run into billions of pesos.
Efforts to stop the pirates have recently been
stepped up, but the problem has assumed awesome proportions that it
could take years before it could be vanquished.
Business software refers to the computer
programs and applications that companies use to run their
businesses, from the day-to-day programs for administrative
operations — such as accounting and supply management — to the
more specialized applications suited for a specific
organization’s needs.
The Business Software Alliance (BSA), the
leading organization dedicated to what it calls a “safe and legal
online world,” notes that in spite of greater awareness among
users, software piracy is on the rise around the globe.
The alliance, which holds regional offices in
Washington DC, London and Singapore, counts among its members Adobe,
Apple Computer, Bentley Systems, Macromedia, Microsoft and Symantec.
From 1994, when the BSA through the
Massachusetts-based International Planning and Research Corp.
started to conduct worldwide studies on software piracy, a steady
decline had been graphed. However, the trend has reversed in the
past two years.
In a study released last June, the BSA reports
that software piracy grew to 40 percent in 2001, from 37 percent in
2000. This means that four out of 10 software programs used last
year were illegally copied.
Figures for the Philippines belong to the higher
end of the scale. In 2001 software piracy in the country was up to
63 percent, a two-percent rise from the previous year.
In spite of the increase in percentage rates,
worldwide losses due to piracy in dollar terms dropped by almost a
billion dollars, to $10.97 billion last year, from $11.75 billion in
2000 — a 6.7-percent decline.
The regions of north America, Asia-Pacific and
western Europe taken together absorbed the biggest loss: 85 percent.
In the Philippines, losses dropped to $24.6
million (P1.2 billion) in 2001 from $27 million in 2000.
BSA attributes the drop to the strength of the
US dollar, the decrease in software prices “making the benefits of
original software more compelling against the risks of software
piracy,” and the global economic slowdown.
However, the IPR makes a point worth noting in
its study for BSA, entitled “Seventh Annual BSA Global Software
Piracy Study.” It warned that software companies and the industry
as a whole may be up against more organized pirates. “In 2000, we
started to notice a stability in the level of piracy for developed
countries, rather than the downward trend we expected,” the IPR
said. “We speculated that after the reduction in casual piracy, we
were seeing a core level of piracy that would be more persistent.”
“In 2001, we saw the effects of a worldwide
economic slowdown that hit technology spending particularly hard.
The results of this year’s study indicate that software piracy
rose in response to the pressure of the curtailed spending of the
economic downturn,” it added.
Entertainment media
The entertainment industry has long known the
scourge of video pirates.
In October 1985, when the Videogram Regulatory
Board (VRB) was created through Presidential Decree 1987, losses to
so-called videogram establishments had amounted to some P600 million
annually, robbing the government some P180 million in unrealized
taxes. Back then, videogram establishments referred mainly to movie
houses.
The term “videogram” refers to materials
used in the medium of video, or the analog electronic technology for
recording still or moving images, usually combined with sound. The
images are normally recorded on magnetic tape, hence videotape, but
it may also be recorded on other physical media such as optical
disc.
VRB’s mandate is the regulation of the
“importation, exportation, production, reproduction, distribution,
exhibition, showing, sale, lease or disposition of videograms
including among others videotapes, discs, cassettes or any technical
improvement or variation thereof.”
Research carried out by Eduardo D. Sazon, vice
chairman of the IP Coalition, a loose group of patent, trademark and
copyright stakeholders, points up to the economic damage from
optical disc piracy on the nation’s entertainment industry.
Sazon is also the executive director of the
Association of Video Distributors of the Philippines (AvidPhil), a
trade organization responsible for the distribution of 98 percent of
legitimate video (VHS, VCD and DVD) products sold nationwide, both
for rental and sell-through lines.
He was also the first full-term executive
director of the VRB in 1986.
Sazon’s study, exclusively made available to
The Manila Times, indicate that almost half of the 2000 total
revenues — legal and illegal — realized by the theatrical,
video, cable and music sectors of the entertainment industry comes
from pirate sources and means.
For that year, total revenues generated by the
four sectors amounted to P15.6 billion, 53.5 percent (P8.35 billion)
of which may be attributed to legitimate businesses. The rest, 46.5
percent or P7.25 billion, were earned by pirate businesses.
Theaters alone, while earning P4.5 billion in
legitimate income, lost P2 billion to pirate showings of movies.
In terms of pirated material, movie discs take
the cake. Revenues lost to pirated video — in all formats —
amounted to P2.45 billion. On the other hand, legitimate video
businesses earned only P1.05 billion.
Employment, taxes
The damaging economic effects brought about by
the piracy of business software and digital entertainment materials
become more grim when the consequences on employment and taxes are
considered.
According to Sazon’s study, the country’s
entertainment industry alone employs about 135,000 workers, with the
bulk — 85,000 — coming from the theatrical sector.
Multiply this figure (135,000) by five, the size of a typical
household, and this would amount to over half a million people
(675,000 persons) linked to and dependent on the entertainment
industry for their livelihood. Sazon estimates that such an
employment size would amount to an annual pay of P9.72 billion.
In addition, Lualhati Buenafe, VRB executive
director, in an interview with this newspaper, said that for every
film produced, there are 500 persons employed, from the director
down to the lowest-level employee.
If the piracy business — which earns a little
less than a billion pesos than the legal business — were to be
legitimized, its income would be enough to support the entertainment
industry and the people that depend on it almost twice over.
On the other hand, BSA estimated that employment
created by the packaged software industry in the Philippines last
year amounted to 973, for a total of 2,656 direct and indirect jobs.
But in a study for BSA, PriceWaterhouse made it clear that “these
figures underestimate the total employment generated by the software
industry because they do not include the significant number of jobs
related to software installation and maintenance that have been
generated in virtually every large company, government agency, and
other major IT user site.”
Jobs generated by the software industry include
those in the making of software itself; publishers; those in the
distribution, development, training, integration, and consulting
services; and those in supporting industries like suppliers of goods
and services. Thus, the total number of jobs generated could run up
to the thousands.
In addition, even as the number of jobs
generated by the software industry may seem miniscule compared to
other, more labor-intensive industries, the study noted that “many
of these jobs are in highly skilled, highly paid areas such as
research and development, marketing, sales and service.” These
areas have been touted by many economists as essential to propelling
the country in the so-called knowledge economy.
In terms of lost taxes, the case for fighting
piracy again takes on billion-peso terms. Sazon estimates that for
every P3 paid by the legitimate entertainment business to
government, P1 is lost in unpaid tax that could have been collected
from the pirate business. As of 2000, Sazon said that legal
entertainment businesses paid the government a total of P3.51
billion in taxes, while P1.7 billion in taxes was lost due to
piracy.
As expected, the theatrical sector was hardest
hit — P2.25 billion was collected in taxes, while P1 billion was
lost.
On the other hand, as of 1996, BSA, through the
PriceWaterhouse study, “conservatively” estimates that the
software industry contributed $25.9 million — some P678.8 million
given the 1996 average exchange rate of $1:P26.21.
For the year 2001, “assuming growth in tax
payments proportional to the market growth rate, the packaged
software industry could contribute a total of $62.0 million annually
to the Filipino government revenues.” This translates to P3.16
billion given the 2001 average exchange rate of $1:P50.99.
Types of software piracy
The use of unlicensed software commonly falls
under five types: end-user piracy, client-server overuse, Internet
piracy, hard disk loading and software counterfeiting.
The most damaging type of piracy, according to
BSA, end-user piracy or more appropriately “corporate end-user
piracy” occurs when organizations make additional copies of
software without authorization.
Client-server overuse occurs when too many
employees on a network — over the limited user license granted by
software companies — use a central copy of a program at the same
time.
Internet piracy is considered by BSA as
“perhaps the single greatest threat to electronic commerce.” It
happens in three ways: one, pirate Web sites allow free software
download in exchange for uploaded programs; two, online auction
sites offer counterfeit, out-of-channel, copyright-infringing
software; and three, peer-peer networks allow unauthorized transfer
of copyrighted programs.
Hard disk loading is committed by computer
vendors that load illegal copies of software onto the machine’s
hard disk. Computers are supposed to be sold out of the box only
with the operating system (OS) licensed to a particular OEM
(original equipment maker). The OS allows application programs to
interact with the computer’s hardware. To make the sale of
computers more attractive, some sellers load them with illegal
copies of software applications needed by the buyer.
Software counterfeiting is the illegal
duplication and sale of copyrighted material with the intent of
infringing on the copyright. Counterfeit software copies often
incorporate the software program and related packaging, manuals,
license agreements, labels, registration cards and security
features.
(To be continued)
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