Competing with Free: The Impact of Movie Broadcasts on DVD Sales and Internet Piracy

Abstract:     
Movie studios have long believed that the presence of home recording technology significantly damages the marketability of movies broadcast on free television. This issue has gained renewed importance recently with the advent of high-definition digital television, causing the movie studios to argue that unless copy protection is included in digital television standards, it will no longer be profitable for them to show movies through unprotected over-the-air broadcast channels. Their concern is that digital transmission standards and personal video recorders will allow consumers and pirates to make perfect digital copies of movie broadcasts, resulting in increased piracy and reduced demand for DVDs.

We empirically analyze these concerns and find that the dominant impact of movie broadcasts is to stimulate DVD sales. DVD sales increase by an average of 345-399% immediately after a movie is shown on broadcast TV. These sales gains are approximately four times larger than sales gains from copy protected cable broadcasts.

However, we also find evidence that movie broadcasts stimulate piracy and that movies with pirated copies available through BitTorrent experience a lower DVD sales gain after broadcast than movies that do not have pirated copies available through BitTorrent do. These findings should be should be encouraging to movie studios exploring new ways to monetize their content. These findings should also provide new empirical evidence in the Congressional debate over the broadcast flag and other copy protection technologies in over-the-air TV broadcasts.

Number of Pages in PDF File: 31

Accepted Paper Series