Does Digital Piracy Really Hurt Movies?

Two economists untangle the relation between illegal downloads and ticket sales

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The shadowy nature of illegal media downloading makes it difficult for researchers to analyze the true relation between piracy and lost sales. Does every movie download represent a theater ticket left unpurchased, as the movie industry contends? Or are most downloaders people who never would have bought a ticket in the first place?

Two researchers have come up with a clever strategy to untangle one cause-and-effect relation. Economists Brett Danaher of Wellesley College and Joel Waldfogel of the University of Minnesota noticed that Hollywood studios often wait weeks after the U.S. premier before releasing a movie overseas. During that time, movie fans in foreign locales can find the film on BitTorrent-based file-sharing sites but not in their local theaters. If online piracy displaces ticket sales, these release lags should hurt a movie’s international box-office receipts.

The researchers compiled a database of the weekend box-office returns for the top 10 movies in 17 different countries over three years. They then split the data into two groups: movies released before BitTorrent became popular and those released after. Controlling for everything else that might affect the returns for a movie, the researchers found that post-BitTorrent films made less money than pre-BitTorrent films. The longer the lag, the more they lost.

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More damning, the genres most popular with online pirates suffered the most. “After BitTorrent, the effect of release lag on science-fiction and action movies is much greater than it is for other genres,” Danaher says. He estimates that this type of piracy led to a $240-million annual drop in weekend box-office receipts in the 17 countries studied.

Of course, the study also proves a contention of piracy apologists: people turn to online piracy when that is the only way they can view the content. Danaher mentioned another episode from 2007, when NBC, in a contract dispute with Apple, suddenly pulled its content from the iTunes store. Traffic in pirated NBC content exploded. New laws may help steer people away from illegal downloads, but content providers need somewhere to steer them to.

This article was published in print as "Does Digital Piracy Really Hurt Movies?"

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