Another Study Shows that Piracy Isn’t All Bad

pirateThe effects of piracy have long been debated with organizations like the MPAA and RIAA resorting to draconian tactics to stop it including an attempt to push through legislation that lead to the shut down of a large chunk of the internet. A newly updated study by economists at the Munich School of Management and Copenhagen Business School shows that it’s not all bad and the implications are a bit more nuanced.

The researchers looked at five years worth of data, comparing box office revenues before and after the shutdown of Megaupload.com, which at one point claimed to account for 4% of the daily internet traffic. The theory goes, if piracy really is bad, box office revenue should increase generally after the site’s shutdown.

What they found was the results weren’t so black and white.

We find that box office revenues of a majority of movies did not increase. While for a mid-range of movies the effect of the shutdown is even negative, only large blockbusters could benefit from the absence of Megaupload. We argue that this is due to social network effects, where online piracy acts as a mechanism to spread information about a good from consumers with low willingness to pay to consumers with high willingness to pay. This information-spreading effect of illegal downloads seems to be especially important for movies with smaller audiences.

The theory as to why indie releases were hurt is word-of-mouth. Folks are pirating indie movies and then telling their friends about them, who then see the film. Without the piracy, the word-of-mouth doesn’t happen and people are risk averse, not willing to give something they don’t know a shot. Jeff Bawkes, the CEO of Time Warner which owns HBO, has made the case that this is exactly what has happened with Game of Thrones.

This also plays into the idea that entertainment publishers are less inclined now to support independent work, instead opting for likely big budget mass market works and are in fact pushing policy that makes that even more of a best bet, damn the creators.

Of course the MPAA wasn’t happy with this study and attacked the methodology and its conclusions with a released statement:

An independent review of the academic research … has shown that the vast majority of research available in fact does show that piracy does harm sales. And a recent study from Carnegie Mellon University found that digital sales in countries where Megaupload was popular increased after Megaupload shut down. And in fact, the Munich and Copenhagen paper also finds that box office increased after Megaupload shutdown for an important segment of titles that they don’t clearly define, although it’s hard from the study’s descriptions to determine exactly what the control and treatment sample groups are, among other key factors.

Unfortunately, in order to reach its conclusion, the Munich and Copenhagen study also all but ignores a critical piece of the box office picture – how timing or other factors that are completely unrelated to Megaupload impact the box office performance of small, medium or large films.

The researchers did in fact attempt to work ont he variables that might have led to the outcomes they saw, and describe how they did so in their research paper. There’s also this study by Ofcom that also shows how piracy benefits entertainment.

You can read the full study here.