Piracy and Box Office Movie Revenues: Evidence from Megaupload
University of Zurich - Faculty of Economics, Business Administration and Information Technology
Copenhagen Business School - Department of Innovation and Organizational Economics
Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management); London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)
June 22, 2015
In this paper we make use of a quasi-experiment in the market for illegal downloading to study movie box office revenues. The sudden shutdown of the popular file hosting platform Megaupload.com on January 19, 2012 significantly (and unexpectedly) changed the availability of illegal movie downloads overnight. We compare box office revenues of movies that were available on Megaupload to those that were not pre- and post-shutdown and find that box office revenues of a majority of movies did not increase. The average effect is even negative. We show that only movies that premiere in a relatively large number of theaters benefitted from the closure of Megaupload. This is consistent with word-of-mouth effects, where online piracy can act as a mechanism to spread information about a good from consumers with low willingness to pay to consumers with high willingness to pay. This information-spreading effect of illegal downloads seems to be especially important for movies with smaller audiences, while for movies aimed at large audiences, the substitution effect between free and paid consumption weighs more heavily.
Number of Pages in PDF File: 31
Keywords: Piracy, Movie Revenues, Megaupload, Natural Experiment
Date posted: November 17, 2012 ; Last revised: June 29, 2015
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