The Business of Piracy
Today, any consumer with a high-speed Internet connection is just a few clicks away from high-quality, no-cost, pirated entertainment content. How does piracy impact sales in legal channels? How do artists, studios, and traditional entertainment distribution channels stay profitable while competing with “free”?
Drawing on data-driven research, IDEA offers strategies for defeating digital pirates by using their own business plan against them. By taking advantage of disruptive distribution channels and nontraditional release dates, creators can dramatically reduce the market impact of pirates by giving consumers what they want, when and where they want it—at a price point that is comfortable for consumers and profitable for the industry.
Research Results
We examine moviegoers’ choices between consuming content via legal theatrical channels and illegal piracy channels. We focus on how two important factors affect this choice: the picture quality of piracy sources (a function of studio security investments) and the costs associated with legal channels.
Entertainment firms and national governments retain many viable strategies and tools to effectively reduce the impact of piracy on the entertainment industry. In particular, content creators can combat piracy by improving the reliability and convenience of legal channels.
In a study published in a top peer-reviewed journal, we find that, on average, pre-release piracy causes a 19.1 percent decrease in box office revenue compared to piracy that occurs post-release.
Although movie piracy may stimulate sales through increased word-of-mouth, the negative impacts of piracy far outweigh any promotional benefits. Instead, movie piracy can cannibalize $1.3 billion in potential box-office revenues annually.
While piracy and other aspects of digitization are usually associated with reducing movie revenues, the growth of digital piracy has also reduced the amount and quality of movies produced. To this end, we find that copyright protection positively impacts content creation.
Although most discourse regarding piracy focuses on the producers, we have found that piracy is also harmful to media consumers. By reducing creative incentives, piracy negatively impacts the quality of films and, by extension, negatively impacts the viewer experience.
While the vast majority of the economics and social science literature finds that piracy harms sales, citations in the law literature tend to gravitate toward the minority of papers finding no harm from piracy. We document this disparity in citations and explore various explanations for it.
This Piracy Landscape Study, produced for the United States Patent and Trademark Office, summarizes the economic literature on the impact of piracy on legal sales, the impact of piracy on creativity, and the effectiveness of anti-piracy measures.
Creative artists can use product differentiation and market segmentation strategies to compete with freely available content. When free and paid products appeal to separate customer bases, the presence of free products does not necessarily cannibalize paid sales.
While the Internet provides consumers with new opportunities to illegally obtain content, it also contributes to DVD sales. We found that 9.3 percent of the $13.1 billion increase in DVD sales from 2000 to 2003 can be attributed to increased broadband penetration.
Media Outlets & Op-Eds
We discuss how and when piracy might increase sales for niche movies and the implications of this finding for policymakers.
We discuss the empirical evidence on the effectiveness of website blocking as a potential piracy solution to the widespread availability of live sports piracy.
Our research shows that reducing the home entertainment release window in Korea from 90 days to 30 days did not cause a statistically significant decrease in box office revenue.