Movie executives see record profits, salaries despite piracy fear-mongering

Movie industry lobbyists like to say that online piracy costs their clients billions of dollars every year, and it's getting worse -- but that's doesn't quite seem to be the case, according to data released this week by the nonpartisan Congressional Research Service (CRS).

The CRS report (embedded below) shows that the movie industry is doing very well, earning record profits and paying executives more than ever, even as it hires fewer workers than it did just a decade ago.

Although a recent National Crime Prevention Council ad campaign tries to make the point that piracy kills jobs, the CRS found that total gross revenues and box office receipts have doubled in the last 15 years. Grosses went from $52.8 billion in 1995 to $104.4 billion in 2009, while box office receipts went from $5.3 billion in 1995 to $10.6 billion in 2010 -- yet hiring still went down.

One thing that has gone up, higher than ever, is executive pay. The CRS report noted that News Corporation paid CEO Rupert Murdoch $33,292,753 in 2011; Viacom gave CEO Philippe Dauman made $84,515,308; Time Warner CEO Jeffrey Bewkes took home $26,303,071; while Disney CEO Robert A. Lger earned $29,617,964. Sony CEO Howard Stringer was at the bottom of the bunch at $4.3 million, having taken a 14 percent pay cut due to losses.

Those salaries are quite hefty compared to the top earners just a decade and a half ago. At Disney, former CEO Michael Eisner's total compensation was $10 million in 1994, while Time Warner was compensating former CEO Gerald M. Levin $5 million, the CRS reported. Historical data for the other executives was not included.

The CRS report further shows that employment by film studios and related service companies has remained relatively stable since 1998. Though there have been spikes and slumps in hiring over the years, about 374,000 people worked full or part time making movies last year, down from 392,000 in 1998. That's on the upswing from a low in 2009, when employment dipped just below 370,000.

Despite what the industry's lobbyists are telling lawmakers, it's impossible to say whether a minor slump in hiring is really reflective of piracy's effects. That seemingly proves the industry's biggest concern is not the Jack Sparrows of the Internet, but rather Netflix CEO Reed Hastings.

"Revenues from the U.S. movie industry’s home entertainment sector have been declining in recent years," the report noted. "According to the Digital Entertainment Group, an industry-funded nonprofit, total U.S. spending on home entertainment, including movies and television content, was $13.9 billion in 1999. Spending rose to a peak of $21.8 billion in 2004, before declining gradually to $18.8 billion in 2010. The decline partly reflects the shift to less expensive video-on-demand services, such as Netflix."

Netflix said that as of Sept. 30, it had 23.79 million customers, a slight decline over the previous quarter due to subscriber losses after a recent price hike. And in spite of the CRS report, Netflix insists it is good for studios.

"Netflix is a boon to the entertainment industry, paying more than $1 billion a year to the studios for licensing rights to stream movies and TV shows over the internet for more than 20 million Netflix members to instantly watch," spokesman Steve Swasey told Raw Story. "In addition, Netflix purchases DVDs for more than 10 million Netflix members who receive discs by mail."

With their convenience factor and low cost of entry, Netflix has become a tremendous success, even as it has depressed sales of home videos. Much like what Apple's iTunes did for music, driving down piracy and opening up new revenue, albeit in smaller streams than what the industry once knew, Netflix is doing for movies. But instead of working with them to provide a compelling alternative to piracy, studios are playing hardball with Netflix, raising prices on their streaming contracts.

Netflix is expected to pay over $1.98 billion next year to keep the bulk of its online library, up from $180 million in 2010. To make matters worse for Netflix, network owners like Time Warner and Comcast are rolling out their own video-on-demand services and setting caps on users' bandwidth consumption. That will ultimately make them pay more for streaming large chunks of data, which cuts into the amount of time people can spend watching Netflix or downloading pirated content.

Netflix at present time accounts for up to 30 percent of Internet traffic in North America during peak hours, according to network measurement firm Sandvine (PDF). That means Netflix far outweighs movies being downloaded from the peer-to-peer network bittorrent, which Sandvine estimates accounts for roughly 21 percent of Internet traffic.

Breaking that figure down further still, a study into online piracy conducted by intelligence firm Envisional Inc., commissioned by NBC Universal and often cited by movie industry lobbyists, claims that just 35 percent of bittorrent traffic was people trading movies illegally. By comparison, another 35 percent was dedicated to sharing pornography not under copyright to studios, and another 29 percent was television shows, books, music, software and games.

But even with those numbers, it is impossible to extrapolate exactly what percentage of the total is purely infringing traffic, as some bittorrent downloads are legitimate. And even if that figure could be determined, studies have shown that those most involved in copyright infringement are typically the movie industry's best customers, meaning a final total number for overall losses due to piracy is impossible to calculate.

As entertainment industry lobbyists hammer members of Congress about the need to fundamentally change the structure of the Internet by passing the Protect IP Act and the Stop Online Piracy Act, Parker Higgins, a spokesperson for technology advocacy group The Electronic Frontier Foundation, said he hopes they remember that even today's declining home video market was once in the studios' cross-hairs.

"The home video market is one that the movie industry tried to crush in its infancy, by trying to outlaw the VCR," he told Raw Story. "This is an industry whose take on new technology you can't really trust."

The MPAA did not respond to a request for comment.

The full CRS report follows.

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CRS Memo

Photo: Flickr user rcosgrove.