Misleading headlines are nothing new in the news business and so it’s no surprise to experience déjà vu reading the misleading headlines trumpeting a study released this week by researchers at the University of Munich and Copenhagen Business Schools, “Piracy and Movie Revenues: Evidence from Megaupload: A Tale of the Long Tail?” Never mind that nearly identical headlines circulated in fall of 2012 when an abstract for the same study was originally released and rebutted.
Now, nearly a year later, this new (old) study purports to show that the feds shutdown of notorious pirate site Megaupload in early 2012 was bad for the movie business at least in terms of non-blockbusters.
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.
What about “smaller” independent films that don’t have a theatrical release?
Comparisons of box office revenues aside–and despite obvious weakness in their methodology–the study’s authors fail to give any consideration to the fact that most indie films released these days do not have theatrical releases. Shouldn’t such films be included as “movies with smaller audiences?” Why are their revenues not factored into this study?
For these “smaller” films the only way to earn revenue is through VOD, DVD, and TV sales–placing them in a head-to-head competition for viewers against pirate cyberlocker sites like Megaupload. With a mere click of a mouse Megaupload users could download a movie (for free). Why go to iTunes and pay to watch a film when one could just as easily download it in HD for free? No matter the spin, Megaupload diluted legit sales for these “smaller” films. To argue that Kim Dotcom’s business model (which earned him millions) bolstered filmmakers’ revenues is just delusive.
The Megaupload shutdown did have a positive impact on digital sales
After controlling for country-specific trends and the Christmas holiday, a country’s pre-shutdown Megaupload penetration rate (the % of Internet users that accessed Megaupload or Megavideo during December 2011) was statistically independent of its week-to-week changes in sales. However, immediately following the shutdown, there was a positive and statistically significant relationship between a country’s sales growth and it’s pre-shutdown Megaupload penetration, such that for each additional 1% (lost) penetration of Megaupload the post-shutdown sales increase was between 2.5% and 3.8% higher (depending on which of our models you believe to be most accurate).
The fact that these trends didn’t exist before the shutdown but existed after the shutdown suggests a causal effect of the shutdown on digital sales, and we find a similar (but slightly weaker) relationship for digital rentals. In aggregate, our estimates suggest that, across the 12 countries in our study, revenues from digital sales and rentals for the two studios were 6-10% higher than they would have been if Megaupload hadn’t been shutdown.
As in 2012, the MPAA wasted no time in releasing a statement denouncing the study:
An independent review of the academic research available has shown that the vast majority of research available in fact does show that piracy does harm sales…And a recent study from Carnegie Mellon University found that digital sales in countries where Megaupload was popular increased after Megaupload shut down. And in fact, the Munich and Copenhagen paper also finds that box office increased after Megaupload shutdown for an important segment of titles that they don’t clearly define, although it’s hard from the study’s descriptions to determine exactly what the control and treatment sample groups are, among other key factors. Unfortunately, in order to reach its conclusion, the Munich and Copenhagen study also all but ignores a critical piece of the box office picture – how timing or other factors that are completely unrelated to Megaupload impact the box office performance of small, medium or large films.”
If studios determine that “shutting Megaupload” hurt their profits why wouldn’t they adjust their marketing and distribution strategies to mirror the cyberlocker business model? Hollywood is in the business of making money and they don’t seem to be rushing to give away free downloads of their movies to generate buzz and box office.
Ultimately it’s the rights holders–not online pirates–who have the legal right to decide how their copyrighted work is distributed and marketed. Study or no study, the reality is that Kim Dotcom is a parasite who made millions by feeding of the work of others. His loss is our gain.