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.