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Lost sales, also referred to as lost revenue, income or profit, is a term used in the context of Internet piracy to refer to sales that did not occur because potential customers have chosen not to buy a product but to obtain it from an illegal source for a lower cost or for no cost. Figures for lost sales usually assume that consumers who use pirated content would always choose to purchase the product at the market rate, if the illegal sources were not available.
The content industry has endorsed studies concluding that the value of lost sales amounts to billions of U.S. dollars. However, other scholars and free culture and copyleft activists argue that the industry figures are grossly inflated, because some individuals who obtain pirated copies would not have purchased the content, even if the opportunity for piracy did not exist.
Usage of the concept
Representatives of the content industry such as BSA have argued that every pirated copy is a lost sale. Similar arguments have been made with regards to sales of counterfeited goods.
Such uses of the term have been criticized, primarily due to its assumption that if illegal (pirated) copies were not available, the consumers of such a pirated copy would instead purchase the product at an average market rate. Critics of the "lost sales" concept note that some consumers, for example those in developing countries, or those with lower income such as students, may not be able to afford the market price of certain products and if there were no pirated copies available, it is likely they would simply not purchase the ones available at the market price. Others may treat pirated goods as samples that entice them to buy the product later on. It has been suggested that the better term would be "retail value of pirated [goods]", and that equating such a concept with financial loss is fallacious. Treating each pirated copy as a lost sale, and using an estimate for the number of pirated copies in existence, multiplied by their retail value, as tangible loss of profits by the industry has been called disparagingly "copyright math" (a term coined by writer Robert Reid) that leads to overestimation of the content industry losses. In academic literature there is no consensus that the concept of piracy is clearly correlated with reduction of revenue of sales of the pirated product, and estimates of lost sales have been similarly criticized, with a 2010 U.S. government report noting that many commonly cited figures cannot be substantiated. Similarly, estimates of lost sales translated to concepts such as lost jobs or reduction in individual or national incomes have been shown to be highly problematic.[self-published source?]
A 2009 court case, United States v. Dove, ruled that the content industry equation of lost sales with illegal downloads is not valid, with the judge noting "Those who download movies and music for free would not necessarily purchase those movies and music at the full purchase price... although it is true that someone who copies a digital version of a sound recording has little incentive to purchase the recording through legitimate means, it does not necessarily follow that the downloader would have made a legitimate purchase if the recording had not been available for free."
- Joe Karaganis (2011). Media Piracy in Emerging Economies. Lulu.com. p. 54. ISBN 978-0-9841257-4-6.
- Barry Kernfeld (1 October 2011). Pop Song Piracy: Disobedient Music Distribution Since 1929. University of Chicago Press. p. 3. ISBN 978-0-226-43183-3.
- Brett Robert Caraway (25 February 2013). "Survey of File-Sharing Culture". In Manuel Castells; Gustavo Cardoso. PIRACY CULTURES: How a Growing Portion of the Global Population is Building Media Relationships Through Alternate Channels of Obtaining Content. Xlibris Corporation. p. 228. ISBN 978-1-4797-3227-2.
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- OECD (19 June 2008). The Economic Impact of Counterfeiting and Piracy. OECD Publishing. p. 142. ISBN 978-92-64-04552-1.
- Victoria L. Crittenden (13 March 2015). Proceedings of the 1992 Academy of Marketing Science (AMS) Annual Conference. Springer. p. 265. ISBN 978-3-319-13248-8.
- Clifton D. Bryant (27 April 2012). Routledge Handbook of Deviant Behavior. Taylor & Francis. p. 437. ISBN 978-1-134-01557-3.
- Sean Swan (Ed) (2012). On the Cyber. Lulu.com. pp. 15–16. ISBN 978-1-105-70991-3.[self-published source]
- Martin Cave; Kiyoshi Nakamura (1 January 2006). Digital Broadcasting: Policy and Practice in the Americas, Europe and Japan. Edward Elgar Publishing. p. 167. ISBN 978-1-84720-160-7.
- Harry Henderson (2009). Encyclopedia of Computer Science and Technology. Infobase Publishing. p. 445. ISBN 978-1-4381-1003-5.
- Lionel Bently; Jennifer Davis; Jane C. Ginsburg (28 October 2010). Copyright and Piracy: An Interdisciplinary Critique. Cambridge University Press. p. 393. ISBN 978-1-139-49222-5.
- Sandra Weber (1 August 2003). The Personal Computer. Infobase Publishing. p. 89. ISBN 978-0-7910-7450-3.
- "CD Projekt – Pirated games are not lost sales, DRM is "a lot" for legitimate users to put up with". VG247.com. Retrieved 2016-06-08.
- Edward Lee (November 2013). The Fight for the Future: How People Defeated Hollywood and Saved the Internet—For Now. Lulu.com. p. 12. ISBN 978-1-304-58361-1.
- "Copyright Math: the best TED Talk you'll watch all year". Boing Boing. 2012-03-16. Retrieved 2016-06-08.
- "From gigabytes to petadollars: copyright math begets copyright currency". Ars Technica. Retrieved 2016-06-08.
- Raustiala, Kal; Sprigman, Chris (2012-01-12). "How Much Do Music and Movie Piracy Really Hurt the U.S. Economy?". Freakonomics. Retrieved 2016-06-08.
- "How Copyright Industries Con Congress". Cato Institute. 2012-01-03. Retrieved 2016-06-08.
- "Judge: 17,000 illegal downloads don't equal 17,000 lost sales". Ars Technica. Retrieved 2016-06-08.