Estimating the Effects of Movie Piracy on Box-office Revenue

Estimating the Effects of Movie Piracy on Box-office Revenue Piracy is one of the most challenging problems faced by the motion picture industry. The Motion Picture Association of America estimates that US studios lose more than $3 billion annually in box office revenue from piracy. They have launched a major effort to prevent these losses. Yet their efforts are hampered by the ex post, counterfactual, and indirect methods by which losses are usually estimated. This paper addresses these issues directly. We develop and estimate a statistical model of the effects of piracy on the box-office performance of a widely-released movie. The model discredits the argument that piracy increases sales, showing unambiguously that Internet piracy diminished the box-office revenues of a widely released motion picture. The model overcomes a major weakness of counterfactual or “but for piracy” methods widely used to estimate damages. These counterfactual methods violate the “nobody knows” principle because they forecast what the movie would have earned in the absence piracy. The model we present does not violate this basic principle of motion picture uncertainty. We estimate that pre-release and contemporaneous Internet downloads of a major studio movie accelerated its box-office revenue decline and caused the picture to lose about $40 million in revenue. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Estimating the Effects of Movie Piracy on Box-office Revenue

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Publisher
Springer Journals
Copyright
Copyright © 2007 by Springer Science+Business Media, LLC
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-007-9141-0
Publisher site
See Article on Publisher Site

Abstract

Piracy is one of the most challenging problems faced by the motion picture industry. The Motion Picture Association of America estimates that US studios lose more than $3 billion annually in box office revenue from piracy. They have launched a major effort to prevent these losses. Yet their efforts are hampered by the ex post, counterfactual, and indirect methods by which losses are usually estimated. This paper addresses these issues directly. We develop and estimate a statistical model of the effects of piracy on the box-office performance of a widely-released movie. The model discredits the argument that piracy increases sales, showing unambiguously that Internet piracy diminished the box-office revenues of a widely released motion picture. The model overcomes a major weakness of counterfactual or “but for piracy” methods widely used to estimate damages. These counterfactual methods violate the “nobody knows” principle because they forecast what the movie would have earned in the absence piracy. The model we present does not violate this basic principle of motion picture uncertainty. We estimate that pre-release and contemporaneous Internet downloads of a major studio movie accelerated its box-office revenue decline and caused the picture to lose about $40 million in revenue.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Aug 24, 2007

References

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