Jonathan Band and Jonathan Gerafi
Notwithstanding the challenges of quantifying the impact of copyright infringement on particular companies or industry sectors, there is a useful neutral source of qualitative information on the likely impact of infringement: the reports prepared by investment advisors concerning publicly traded companies. These equity research reports make investment recommendations (e.g., buy, hold, or sell) based on the companies’ performance and the risks they face.
We have reviewed the equity research reports issued over the past 90 days for eight leading companies in copyright-intensive industries: two software firms (Microsoft and Adobe); two publishers (Pearson and Reed Elsevier); the owners of two major motion picture studios (Disney and Viacom, owner of Paramount); and the owners of two major record labels (Sony, owner of Sony Music Entertainment, and Vivendi, owner of Universal Music Group). In addition to Sony Music Entertainment, Sony owns Sony Pictures Entertainment (which in turn owns Columbia Pictures), while Vivendi also owns the Canal+ motion picture and television production and distribution company.
We found that the overwhelming majority of the equity research reports did not mention copyright infringement as a possible risk factor.
- None of the 14 reports for Reed Elsevier and 18 reports for Pearson identified copyright infringement as a risk factor.
- Only 13% of the 15 reports for Sony and 22% of the 23 reports for Vivendi mentioned copyright infringement as a potential risk.
- Just 8% of the 26 reports for Viacom and 27% of the 26 reports for Disney referred to copyright infringement as a risk factor.
- 26% of the 19 reports concerning Adobe and 41% of the 27 reports concerning Microsoft identified copyright infringement as a risk factor.
- Cumulatively, only 19% (32) of the 168 reports referred to copyright infringement as a possible risk; 81% did not.
The equity research reports that did not list infringement as a risk factor did identify a wide range of other possible risks, both specific to the industry and of more general applicability. In other words, these equity research reports were by no means superficial; they just did not consider copyright infringement as important a risk factor as the other threats confronting the companies under review.
Interestingly, the annual reports for 2012 for six of the eight companies (all but Reed Elsevier and Sony) did identify infringement as a potential risk. This suggests that the analysts writing the equity research reports gave little weight to the companies’ concerns about infringement.
To be sure, one could argue that the analysts did not understand the industries they studied. Nonetheless, these reports are issued by the world’s most sophisticated investment advisors to their clients, the world’s most sophisticated investors. Both the investment advisors and their clients believe that the analysts have expertise in these industries. And the vast majority of the reports written by these analysts simply do not consider copyright infringement a significant enough threat to the subject companies’ financial health to merit mention to potential investors. If the analysts with expertise in these industries are not concerned about the possible impact of copyright infringement, perhaps policymakers should not be either.