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Julian Sanchez of the Cato Institute has published an article explaining why the MPAA's "calculations" for losses due to web piracy are, at best, an exaggeration, and at worse, an outright "con" job.

The MPAA quotes that $20.5 billion are lost every year due to piracy, just in the United States alone, based on analysis published by the Institute for Policy Innovation (IPI). However, Sanchez has dismantled the IPI's assessment and found glaring errors, including sometimes triple counting the estimated losses, which were far-fetched to begin with.

Counting every illegal download as a potential lost sale has already been criticized in a report by the US Government Accountability Office (GAO), but IPI's calculations apply further multipliers to these already exaggerated set of numbers. For example, a $10 DVD sold by a studio, out of which $7 goes to the DVD manufacturer and $2 goes to the transportation company, the IPI's figures would calculate the economic benefit as $10 + $7 + $2. That's $19 worth of economic benefit, or losses due to piracy, for a $10 DVD!

And as Sanchez further points out, and this also referencing the GAO report, the money people don't spend on movies due to illegal downloading aren't simply lost. In most cases, the money is spent on other parts of the economy, and so there is zero net loss to the overall economy in this case.

There is, however, a loss to the movie industry. When Sanchez removes the double (and triple) counting, as well as focusing solely on US loses, he puts the annual figure closer to $446 million (this is still assuming most illegal downloads would have resulted in a sale). For comparison purposes, this equates to only 16% of the worldwide gross for Avatar.

On the other hand, the cost of implementing new legislation, such as the senate's proposed Protect IP Act (PIPA), would cost the tax payer almost $10 million per year, and could cost the private sector even more. Critics have already called PIPA and the House equivalent, SOPA (Stop Online Piracy Act), as tax payer bailout for the entertainment industry, that for the most part, is still extremely profitable.