What Is the Effect of Piracy on a Business?

by Carolyn Gray, Demand Media

Piracy is the illegal reproduction (copy or counterfeiting) of work such as software, recordings or motion pictures. With the advanced evolution of technology, piracy has become easier and, at the same time, more prevalent. Protected music can be downloaded from the Internet without paying for it. Computer software can be programmed by cheap workers offshore copying the design behind the original software. Although most know about software piracy, many people don’t fully comprehend its impact.

Distribution Methods

Pirated material is distributed in two ways. Unknowing consumers buy pirated items. Others buy pirated items knowing they are pirated. According to the Business Software Alliance, software theft costs Industry $51 billion in 2009

Revenue Diverson

Piracy diverts money away from producers and distributors of items such as audio recordings, making those companies who make an investment in production and distribution less profitable.

Tax Revenues

Except in the case where pirated items are sold through retail channels and taxed, tax revenue is not generated from pirated items. For example, when music is downloaded with no tax charged when it is supposed to be, as dictated by tax laws, that revenue is lost as well. Lost tax revenue reduces funds available by the taxing government to spend.

Lessening Piracy

To lessen the effect of piracy on a business, businesses can implement methods to discourage software piracy, such as changes to how software is distributed to make it harder to download. Another way to lessen piracy is to educate the public about the impact of piracy on their lives. For example, piracy causes items to be more expensive because a company does not realize the income it is entitled to and has to charge higher prices for its products to make up for lost revenue.

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