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In recent years, the term ‘piracy’ has come to be applied to the unauthorized copying of music, movies and computer software. Oodles of sales are lost, we’re told, because of this kind of piracy.

That’s the third kind of piracy. Traditionally, there are two other kinds. The first, of course, is the ocean-going sort, but it’s the second kind of piracy that makes all the others pale into insignificance.

If you grew up in the days before digital music and software piracy there were only two kinds. The waterborne kind, and the kind committed by publishers and studios.

If it wasn’t about stealing stuff off of your boat, it was about publishers and studios cheating authors, film-makers and content-creators out of their money.

And that’s bigger business today than it ever was. Certainly a bigger business than both other kinds of piracy put together.

What it comes down to is a practice called “Hollywood Accounting”.

Let’s look at the Lord of the Rings trilogy of films.

The intellectual property for the three films was licensed from the Tolkien Foundation, and New Line Cinema agreed to pay 7.5% of the gross.

Peter Jackson, writer/director, was contracted to receive a share of the profits (about 3%, I think).

So, the films cost (in round figures) about 280 million dollars to make.

The gross was about 3 billion dollars.

So, that’s about 2.7 billion dollars profit, before we even factor in DVDs and merchandising, right?

Well, no. New Line Cinema did a bit of tricky accounting and called it a loss. So, Peter Jackson didn’t get the hundred million dollars they’d agreed to pay him. As for the Tolkien Foundation’s percentage of the gross (about 225 million dollars)?

NLC blew them off.

The Foundation had to sue to get their money. Jackson had to sue to get his.

Isolated case, right? Wrong.

Harry Potter and the Order of the Phoenix. Hey, look at that! In fact, none of these extraordinarily popular films had a profit on the books, and thus nobody who was supposed to get paid a share of those profits got paid. Unless they had the resources to spend years arranging comprehensive audits and lawsuits. This particular film (the most profitable so far) booked a net loss of $167 million, while making Warner Bros many millions in profit.

Spider-Man? Stan Lee had to sue to get his portion of the gross.

Winston Groom, who wrote the screenplay for Forrest Gump? This extremely successful and profitable movie was booked as a net loss, so Groom got nothing.

Television series Babylon 5? Ditto. Fantastically profitable for Warner Bros (about a billion dollars) but writer/producer Straczynski is told that the production remains in debt, and he doesn’t get a share of those profits.

And on, and on and on.

Not counting a huge merchandising and DVD industry, Hollywood pulls in about 10.6 billion or so annually in North America. Something around half of that turns into profits. However, few films are booked as having made any money at all (only about one in 20), and those that are booked with a profit are generally booked as having almost negligible profits – and thus everyone who’s been promised a share of the profits or royalties gets little or nothing.

Now that is piracy, and on a breathtaking scale. And it’s not just confined to films. The games industry has plenty of examples of similar.

All three kinds of piracy remain a real problem, but the real money is in publishers screwing content creators.

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