The Effect of Pre-Release Movie Piracy on Box-Office Revenue

Abstract:     
The availability of digital distribution channels raises many new challenges for managers in the media industries. This is particularly true for movie studios where content can be stolen and released through illegitimate digital distribution channels before, or shortly after, the legitimate release date. In response to this potential threat, movie studios have spent millions of dollars attempting to protect their content from unauthorized release, to prosecute those who might distribute or consume pirated content, and to lobby governments to strengthen anti-piracy laws.

However, surprisingly, there has been very little rigorous research to analyze whether, and how much, movie piracy cannibalizes legitimate sales. In this paper, we analyze this question in the context of pre-release movie piracy. Using data collected from a unique Internet file-sharing site, we find that pre-release piracy significantly reduces a movie’s market potential, although movies with pre-release piracy exhibit a slower sales decline over time. We estimate that the net effect of pre-release piracy can be up to an 8% reduction in box office sales compared with piracy that occurs at release. By comparison we estimate that box office revenue would increase by 24% if no piracy were to occur.

Our study contributes to the growing literature on piracy and digital media consumption in the Information Systems community by presenting evidence of the impact of Internet-based movie piracy, by taking a pre-release perspective to strengthen causal inference, and by differentiating the effect of pre-release movie piracy from the other types of piracy that the extant literature has previously considered.

Number of Pages in PDF File: 46

Keywords: Movies, Digital Piracy, Theatrical Revenue

JEL Classification: M31, O30, L86

working papers series