Review of Industrial Organization

, Volume 30, Issue 4, pp 291–301 | Cite as

Estimating the Effects of Movie Piracy on Box-office Revenue

Article

Abstract

Piracy is one of the most challenging problems faced by the motion picture industry. The Motion Picture Association of America estimates that US studios lose more than $3 billion annually in box office revenue from piracy. They have launched a major effort to prevent these losses. Yet their efforts are hampered by the ex post, counterfactual, and indirect methods by which losses are usually estimated. This paper addresses these issues directly. We develop and estimate a statistical model of the effects of piracy on the box-office performance of a widely-released movie. The model discredits the argument that piracy increases sales, showing unambiguously that Internet piracy diminished the box-office revenues of a widely released motion picture. The model overcomes a major weakness of counterfactual or “but for piracy” methods widely used to estimate damages. These counterfactual methods violate the “nobody knows” principle because they forecast what the movie would have earned in the absence piracy. The model we present does not violate this basic principle of motion picture uncertainty. We estimate that pre-release and contemporaneous Internet downloads of a major studio movie accelerated its box-office revenue decline and caused the picture to lose about $40 million in revenue.

Keywords

Movie piracy Nobody knows principle Forensic revenue loss estimation 

JEL Codes

L820 Z110 C800 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Bowers B. (2001) Minding the store. Best’s Review 102(7): 93–97Google Scholar
  2. Caves R.E. (2000) Creative industries: Contracts between art and commerce. Harvard University Press, CambridgeGoogle Scholar
  3. De Vany A.S. (2004) Hollywood economics: How extreme uncertainty shapes the film industry. Routledge, LondonGoogle Scholar
  4. De Vany A.S., Lee C. (2001) Quality signals in information cascades and the dynamics of the distribution of motion picture box Office revenues. Journal of Economic Dynamics and Control 25(3–4): 593–614CrossRefGoogle Scholar
  5. De Vany A.S., Walls W.D. (1996) Bose-Einstein dynamics and adaptive contracting in the motion picture industry. The Economic Journal 439(106): 1493–1514CrossRefGoogle Scholar
  6. De Vany A.S., Walls W.D. (1997) The market for motion pictures: Rank, revenue and survival. Economic Inquiry 4(35): 783–797CrossRefGoogle Scholar
  7. De Vany A.S., Walls W.D. (1999). Uncertainty in the movie industry: Does star power reduce the terror of the box office?. Journal of Cultural Economics 23(4): 285–318CrossRefGoogle Scholar
  8. De Vany, A., & Walls, W. D. (2004a). The breakdown of herding. In Hollywood economics: How extreme uncertainty shapes the film industry (Chapt. 3, pp. 89–116). London: Routledge.Google Scholar
  9. De Vany A.S., Walls W.D. (2004b) Motion picture profit, the stable Paretian hypothesis, and the curse of the superstar. Journal of Economic Dynamics and Control 28(6): 1035–1057CrossRefGoogle Scholar
  10. Goldman W. (1983) Adventures in the screen trade. Warner Books, New YorkGoogle Scholar
  11. Hand C. (2001) Increasing returns to information: Further evidence from the UK film market. Applied Economics Letters 8(6): 419–421CrossRefGoogle Scholar
  12. Lee, C. (1999). Competitive dynamics and the distribution of box office revenues in motion pictures: The stable-Paretian hypothesis. Doctoral dissertation, Department of Economics, University of California, Irvine.Google Scholar
  13. Maddison D. (2004) Increasing returns to information and the survival of Broadway theatre productions. Applied Economics Letters 11(10): 639–643CrossRefGoogle Scholar
  14. McKenzie, J. (2003). Box office revenue distributions, Paretian tails, and survival analysis. Ph.D. Thesis, University of Sydney.Google Scholar
  15. Motion Picture Association of America 2005. www.mpaa.org/anti-piracy. Accessed on May 18.Google Scholar
  16. Vogel, H. L. (1998).Entertainment industry economics: A guide for financial analysis (4th ed.). New York: Cambridge University Press.Google Scholar
  17. Walls W.D. (1997) Increasing returns to information: Evidence from the Hong Kong movie market. Applied Economics Letters 4(5): 187–190CrossRefGoogle Scholar
  18. Walls W.D. (2005) Modeling movie success when ‘nobody knows anything’: Conditional stable distribution analysis film returns. Journal of Cultural Economics 29(3): 177–190CrossRefGoogle Scholar
  19. Walls, W. D. (in press a). Cross-country analysis of movie piracy. Applied Economics.Google Scholar
  20. Walls, W. D. (in press b). Economics of motion pictures. In S. Durlauf, & L. Blume (Eds.), The new palgrave dictionary of economics. London: Palgrave Macmillan.Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of California IrvineIrvineUSA
  2. 2.Department of EconomicsUniversity of CalgaryCalgaryCanada
  3. 3.School of Business and ManagementHong Kong University of Science and TechnologyKowloonHong Kong

Personalised recommendations