Piracy or Promotion? The Impact of Broadband Internet Penetration on Dvd Sales

Abstract

The movie industry represents one area where digital networks have had a particularly strong impact on economic activity. These digital networks provide copyright holders with new sales and promotional channels for their content, while also providing consumers with new opportunities to obtain high quality free copies of this content. Broadband access is a necessary condition for movie piracy and the movie industry has argued that the dominant impact of increased broadband Internet penetration will be increased piracy, and reduced media sales.

We analyze this hypothesis by applying fixed effects and first difference models to a new dataset quantifying changes in broadband Internet penetration and DVD sales at a local level from 2000 to 2003. Contrary to industry concerns, we find that increased broadband Internet penetration leads to a significant increase in DVD sales. Our results are robust across a variety of specifications. Using the most conservative results, we find that 9.3% of the $14.1 billion increase in DVD sales during our study period can be directly attributed to increased broadband Internet penetration. This corresponds to a $1.3 billion increase in DVD revenue and a $630 million increase in profits to movie studios.

Keywords: Information goods, Internet penetration, movie promotion, DVD Sales

JEL Classification: L1, L8, L86, O30