Movie Piracy: A look at the effects on revenue

I have written previously about piracy and how to combat it. One thing I haven’t spoken about, is the impact of piracy, mostly because I haven’t been able to find any decent sources on the subject. While I have been certain that the claims made by the industry have been extremely off target, I have not had any good rebuttal to them – that is, until recently.

University of Kansas economist Koleman Strumpf has taken a critical look at the impact of file-sharing on box-office revenues. In a paper called Using Markets to Measure the Impact of File Sharing on Movie Revenues, he writes the following

The empirical strategy considers how stock prices respond to news about file sharing, using both arrivals and non-arrivals as shocks. Because the approach exploits price variation for all movies which are unavailable on file sharing networks, the case for unbiased estimates is particularly strong for the period prior to the theatrical opening. The estimates indicate that the displacement effect is quite small, both on a movielevel and in aggregate. The effect is precisely estimated. This is perhaps not surprising given the low quality of early file sharing releases and the lack of amenities such as theater sound and video systems.

One consistent result is that file sharing arrivals shortly before the theatrical opening have a modest positive effect on box office revenue. One explanation is that such releases create greater awareness of the film. This is also the period of heaviest advertising. In conjunction with the main estimates, this suggests that free and potentially degraded goods such as the lower quality movies available on file sharing networks can have some beneficial effects on intellectual property.

Well, how about that? Not only does it seem that the losses claimed by the industry are not as large as they claim; file sharing has a consistent, if modest, positive effect on box office revenue.