IFPI Report: Global Music Piracy Cost $4.5 Bil. In 2003

More than one in three physical recordings sold in the world is a pirate product, and an estimated 1.1 billion pirated optical discs were sold in the world last year.

LONDON -- More than one in three physical recordings sold in the world is a pirate product, and an estimated 1.1 billion pirated optical discs were sold in the world last year.

The data were presented by the International Federation of the Phonographic Industry (IFPI) as part of a comprehensive overview of its actions against piracy in the "2004 Commercial Piracy Report," unveiled July 22 in London.

Based on pirate street value, the report says, the global pirate music business was worth $4.5 billion in 2003, representing 15% of the legitimate music market.

"Overall, pirated products are the most serious threat to our business," says IFPI chairman/CEO Jay Berman.

IFPI head of enforcement Iain Grant says the organization is working with government enforcement agencies and international crime investigation units like Interpol to step up action against offenders.

The IFPI also works closely with the World Customs Organization's intellectual-property strategic group, with the aim of making IP protection a priority for customs authorities around the world.

Grant also emphasizes the importance of the IFPI's forensic laboratory, which is used to trace the manufacturing sources of pirated CDs. This is an area, says Grant, where the IFPI cooperates strongly with the Motion Picture Assn. of America and the Business Software Alliance.

One way to appreciate the importance of the issue, he says, is to look at the amount of seizures of pirated goods. In 2003, various enforcement agencies helped seize 56 million pirate products, up from 13 million in 2001. The vast majority of seizures were in Southeast Asia and Latin America.

More than 12,000 "stampers" -- master copies used to press illicit CDs -- were also seized, six times the number in 2002.

Overall, the IFPI has identified more than 1,000 CD plants in the world whose production capacity far exceeds that of the legitimate market, according to Berman. "There's an enormous over-capacity, more than 2.5 times the legitimate demand," he says.

Grant explains that there are two sources for pirated products. One is CD pressing plants, which tend to operate in countries where there are few IP protection laws and loose enforcement. This business, he says, is mostly for export purposes.

Russia, according to the IFPI, exports pirate product to the rest of the world, as does Ukraine. The IFPI has identified in Russia 20 plants (out of the existing 31) that "are involved in piracy," according to Grant.

The other type of piracy source is CD-R burning. These operations are viewed as a business for local consumption. Such is the case in Spain, where small units of CD-R plants produce discs that are sold through a network of street vendors, mostly illegal immigrants.

Grant and Berman are adamant that in both cases, organized crime is behind the piracy schemes. "What we are dealing with is not amateurs -- these are professional criminals," says Grant.

He adds that there is serious concern within law enforcement agencies such as Interpol that profits from this business could help finance terrorist groups. "The concern should be where the profits from these enterprises are going," says Grant.

Another field of action for the IFPI is to urge governments to not only pass strong laws but to enforce them. "Piracy is global -- we need strong optical-disc regulation," says Grant.

"No matter how much we do, at the end of the day, the problem cannot be addressed by the industry alone," says Berman. "Pirates have to be arrested and prosecuted -- that requires government action."

The industry's global anti-piracy actions are costing £50 million ($92 million) per year, according to Grant.