Research Finds Piracy Boosts Box Office Revenues in the U.S. and Canada

We all know that downloading films/Piracy is not allowed and in some countries illegal and a punishable offense as it cuts the revenues of the films. But do you know that Piracy can also have a positive effect on the revenues of the films at Box Office? A recent study from two researchers at Eastern Michigan University and the University of British Columbia has suggested the Box Office revenues grow up in the opening weekend if the film is already out in the piracy market.

The study was recently published by Anthony Koschmann and Yi Qian and it was titled as ‘Latent Estimation of Piracy Quality and its Effect on Revenues and Distribution: The Case of Motion Pictures’. The researchers took the data for case-study from the largest and most popular torrent site The Pirate Bay and monitored the uploads and downloads (seeders/leechers) of pirated movies.

According to the published paper, the cost of global online piracy as lost revenue will double from $26.7 billion in 2016 to an estimated $51.6 billion in 2022 (IBC 2017); for movie and television content creators, lost revenues from online piracy was estimated at 72% of real revenues ($37.0 billion) in 2016. The study finding also suggests that the quality of pirated content presents an important facet regarding the effects of piracy.

The data for this research was collected from six different sources:

1. BoxOfficeMojo.com:- list of impending wide-release movies in the U.S. and Canada
All movies that opened or expanded to at least 200 theaters were tracked for both piracy and performance.

 

2. HSx.com:- This website predicts and estimates opening week revenues. Online users buy and sell ‘stocks’ of movies to reflect the estimated box office revenues for the first four weeks of wide release.

 

3. IMDb.com:- The production budget data was captured from here.

 

4. PirateBay.se:- The pirated film data was captured along with the number of user downloads (leechers) and the number of users with the file to share (seeders) at that time.

 

5. Advertising costs for each film come from Kantar Media’s Ad$pender. The advertising expenses encompassed the twelve months leading up to and including the first week of release.

 

6. Forbes.com:- The star power of actor/actress starring in the film.

 

After analyzing the data, the researcher's findings yielded some interesting results:

The study found that a 1% increase in downloads of higher quality piracy corresponds to a 0.52% increase in revenues in the launch period (the week of the film release).

The post-launch period shows a 1% increase in downloads of higher quality piracy yields a -0.38% decline in revenues.

This study examined the role of piracy quality and its effect on the market. It finds that higher-quality copies can both hurt and help sales. "We contribute to the piracy literature by theorizing that when product uncertainty is high, namely during the launch period, enthusiastic consumers will search out more information to reduce this uncertainty. By better approximating the genuine good, higher-quality copies lower product uncertainty, which better aligns consumer expectations with purchasing. Yet, product uncertainty is lower post-launch as information spreads in the market. As the most enthusiastic consumers have likely purchased, the less interested customers remain, but for these customers higher quality piracy merely cannibalize sales."

The findings point to two key managerial implications, especially because enforcement resources are limited even in the most resourceful nations (Fink et. al. 2016). First, studios could afford to be less stringent on higher-quality piracy in the opening week. Second, since piracy derives from the original product, the genuine good represents a powerful tool for managers. By owning the film, studios can release their sampling variations. Since high-quality piracy helps during launch, managers can use this to their advantage by providing more information to consumers with some degree of high quality (but not full) versions. Post-launch, managers can reduce the available piracy quality by releasing more low quality (and still not full) versions. Studio enforcement efforts could focus on the higher quality copies to turn consumers to theaters, the only channel with a guaranteed full version of the film.

The study however took only PirateBay data for research with BoxOffice data from the U.S. and Canada only. Countries like India where piracy is a big problem and it is not just limited to the internet but also the physical DVDs and even small cinemas were not taken into account in this research.

 

Research conducted a few years back regarding piracy in India has shown that the rise of the MCU films in India has a lot to do with piracy in its earlier days.

The research was published by the National Bureau of Economic Research (NBER) and is available here.

You can also download the research paper pdf here