Piracy and Movie Revenues: Evidence from Megaupload: A Tale of the Long Tail?

Abstract:     

In this paper we make use of a quasi-experiment in the market for illegal downloading to study movie box office revenues. Exogenous variation comes from the unexpected shutdown of the popular file hosting platform Megaupload.com on January 19, 2012. The estimation strategy is to compare box office revenues before and after the shutdown, controlling for various factors that potentially explain intertemporal differences.

We find that box office revenues of a majority of movies did not increase. While for a mid-range of movies the effect of the shutdown is even negative, only large blockbusters could benefit from the absence of Megaupload. We argue that this is due to social network effects, where online piracy acts 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.

Number of Pages in PDF File: 30

Keywords: Piracy, Movie Revenues, Megaupload, Natural Experiment

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