Brett Danaher of Wellesley College and I have a new working paper (Reel Piracy: The Effect of Online Piracy on International Box Office Sales) attempting to find evidence on whether piracy, in particular movie downloading via BitTorrent, depressed international movie box office revenue. Our approach is based on the following two insights. First, Hollywood movies are generally released around the world a month or two after initial US release. Second, BitTorrent grew by leaps and bounds from 2003 to 2006. So our question is whether a movie’s box office revenue is lower in a country receiving the movie with a longer lag, after BitTorrent’s diffusion relative to before.
That last clause is important. A longer lag between US and foreign debuts could lead to lower sales for reasons other than piracy. For example, the “buzz” surrounding a movie may peak at US release and decay thereafter. So we don’t view the reduction in revenue with time since US release as evidence of piracy. Rather, we view the post-BitTorrent increase in the impact of the lag as evidence that piracy depresses sales.
We find substantial evidence of piracy displacing sales. In the earlier period of our data just after the introduction of BitTorrent, each week of release lag is associated with 2% lower box office returns. But in the later period after BitTorrent’s widespread adoption, each week of lag is associated with a 3.1% decrease in returns. Further, in the earlier period the relationship between release lag and box office returns is no larger for heavily pirated genres like Sci-Fi and Action than it is for less pirated genres. But after BitTorrent became pervasive, each week of lag is associated with 1.9% lower returns for less pirates genres but with 3.2% lower returns for Sci-Fi and Action. These findings lead us to a conservative estimate that the 2005 international box office revenues were at least 7% lower than they would have been in the absence of pre-release piracy. We observe that studios have been shortening release windows each year since 2003, possibly in reaction.
We also attempt to check whether the spread of BitTorrent depresses US sales, but our basic detection strategy is not available to us for that question since Hollywood movies were generally released first in the US. Instead, we employ a weaker approach, and simply ask whether the time pattern of sales following release changes in the US following BitTorrent. We see no evidence of a changed profile.
A number of bloggers have picked up on the last result, and we have been surprised at blog posts saying that researchers find that piracy doesn’t depress movie sales. We think our marquee result is the opposite: we do find evidence that piracy depresses international sales. We’d blame ourselves but lots of these bloggers don’t seem to read carefully. Some of the posts have me at Mizzou, rather than Minnesota. So much for the wisdom of crowds.
Digitopoly 
Perhaps at some point we will see the release of movies in theater and on DVD simultaneously. The shortened international “release windows” effect is surely occurring with the sale of DVD’s as well.
Either way, none of this bodes well for sales of these goods.
Why are action and sci-fi movies perceived to be more amenable to pirating? Is this an empirical result or a hypothesis?
Scifi and action movies tend to be more dependent on visual presentation than drama/comedy, with strong special effects being a major appeal of the genre.
These visuals tend to be very poorly represented in pirated copies of films, especially videocamera recordings early in the release cycle (which would presumably be the time period for the lost attendance).
My prior would be that visually demanding films would be more robust in preserving audiences due to the theatre experience actually adding value. The target population for different film genres could contradict this intuition.
It’s basically a marketing issue. Most hardcore pirates are kids or young adults, and they are more interested in “effects movies”. “Chick flicks”, comedies, art-house movies, etc are far less pirated.
All you have to do is go to any bootleg DVD shop in Asia and you’ll see all the Die Hards, lots of recent war movies, all the Star Wars movies, etc, along with some “date movies”, but very few comedies or complex-subject movies.
This effect could also be attributed to a lower “shelf life” of certain films. They push for a larger number of screens on release but fall off more quickly. I believe this effect is less pronounced on the non-blockbuster movies. The push for a huge open is also a recent phenomenon.
Hello,
I have a question. How do you calculate sales loss from piracy? Do you equate one download with one less sale?
thanks.
It’s all conjecture though, and nothing newer than 2005, at least not in the article. What about the fact that for the last several years box office sales have been hitting record highs?
One also must consider that in the same period noted above and even more so today there has been an incredible rise in popularity of the home theater. In the last few years especially, huge TVs and even bigger home projectors have come WAY down in price, as have the supporting sound systems. Personally, I rarely go to movies any more and opt to wait for the BluRay and watch it at home on my 47″ HD TV with surround-sound on my Harmon Kardon/Klipsch setup. In the next year or so, I plan to install a 100″+ projector, and expand in to more speakers. Why would I ever go to a theater?
The industry likes to point fingers at piracy, the reality is far less nefarious in that most of those who downloaded the crappy pre-release video wouldn’t have paid to see it to begin with.
I’ll grant you, piracy is a problem, but it is by far not the only challenge, and I’d argue not the greatest challenge, facing the movie industry.
It is perhaps a fruitless task to pin down a cause for “what if” revenues. What an industry reaped in profits during previous years in no way guarantees it would make same in the post-bittorrent era. Let’s not forget that online piracy was around before bittorrent protocol.
BitTorrent directly does not correlate with box office revenue (not that the study claims it does) other than existing during some years that saw a decrease in delayed film releases. Weren’t these the also years that our economy was on a decline after the occupation of Iraq? This study covers the same years the national debt shot up sharply.
I would prefer to see more studies that compare tangible figures, such as the Norwegian study that shows pirates buy more music. http://www.guardian.co.uk/music/2009/apr/21/study-finds-pirates-buy-more-music
Illunatic – After reading this paper, I have no idea why you would bring up a U.S. recession in response, haha. The paper was about international box office sales. And even if there were international recessions, they might depress sales but there is no reason that they should cause time since US release to have a greater effect on box office sales.
You mention that you would like to see studies that provide more tangible figures (how so?). And then you just happen to reference a study that attempts to sound as if piracy increases sales. One that is well known to have very little meaning. Obviously people who pirate music also buy more music…. people who pirate music LIKE MUSIC. The question is how much more music they would have bought if not for piracy. A question that your “more tangible” study does not answer.
I think it would be helpful if you would a) read a paper before attempting to criticize it and b) argue your case from a rational perspective instead of what appears to be a theological one.
You find that piracy displaces box office sales in the case where box office sales are an inferior good: consumers can watch the movie much sooner by pirating. That’s a pretty specific result, though very nicely done. Still, I doubt that would be news to anyone, so it is unlikely to get press at all.