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Does Piracy Create Online Word of Mouth? An Empirical Analysis in the Movie Industry

Author

Listed:
  • Shijie Lu

    (Bauer College of Business, University of Houston, Houston, Texas 77204;)

  • Xin (Shane) Wang

    (Ivey Business School, Western University, London, Ontario N6G 0N1, Canada;)

  • Neil Bendle

    (Ivey Business School, Western University, London, Ontario N6G 0N1, Canada)

Abstract

Anecdotal evidence suggests that counterfeiting/piracy can help create online word of mouth (WOM) and through this boost demand, but how powerful is such WOM? To answer this question, we conduct a descriptive study with some attempts to establish near causality. We estimate the impact of piracy on WOM and ultimately revenue by applying a panel data method to all movies widely released in the United States from 2015 to 2017. In identifying the effects of piracy we make inventive use of Russian piracy data to construct instrument variables for piracy in the United States. This is possible because the key piracy site, The Pirate Bay, has been blocked in Russia since 2015. We find movies with prerelease piracy are associated with lower revenues despite the WOM effect. Critically, however, we show a positive correlation between postrelease piracy and WOM volume, and we extend the field by finding that the presence of postrelease piracy is associated with an approximately 3.0% increase in box office revenue. We also note the impact of a raid by the Swedish Police that temporarily took down The Pirate Bay website in December 2014. The period when the site was down experienced a decline in WOM volume and revenues, consistent with the effect of lower postrelease piracy predicted by our models. Our findings suggest approaches to target scarce antipiracy resources, such as focusing on tackling damaging prerelease piracy.

Suggested Citation

  • Shijie Lu & Xin (Shane) Wang & Neil Bendle, 2020. "Does Piracy Create Online Word of Mouth? An Empirical Analysis in the Movie Industry," Management Science, INFORMS, vol. 66(5), pages 2140-2162, May.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:5:p:2140-2162
    DOI: 10.1287/mnsc.2019.3298
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    References listed on IDEAS

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    4. Christian Peukert & Margaritha Windisch, 2023. "The Economics of Copyright in the Digital Age," CESifo Working Paper Series 10687, CESifo.
    5. Shijie Lu & Koushyar Rajavi & Isaac Dinner, 2021. "The Effect of Over-the-Top Media Services on Piracy Search: Evidence from a Natural Experiment," Marketing Science, INFORMS, vol. 40(3), pages 548-568, May.
    6. Bradley, Wendy A. & Kolev, Julian, 2023. "How does digital piracy affect innovation? Evidence from software firms," Research Policy, Elsevier, vol. 52(3).
    7. Franses, Philip Hans, 2021. "Modeling box office revenues of motion pictures✰," Technological Forecasting and Social Change, Elsevier, vol. 169(C).
    8. Jordi McKenzie, 2023. "The economics of movies (revisited): A survey of recent literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 480-525, April.
    9. Julia Schmitt & Klaus M. Miller & Bernd Skiera, 2021. "The Impact of Privacy Laws on Online User Behavior," Papers 2101.11366, arXiv.org, revised Oct 2021.
    10. Anthony Koschmann & Yi Qian, 2020. "Latent Estimation of Piracy Quality and its Effect on Revenues and Distribution: The Case of Motion Pictures," NBER Working Papers 27649, National Bureau of Economic Research, Inc.
    11. Can Sun & Yonghua Ji & Xianjun Geng, 2023. "Which Enemy to Dance with? A New Role of Software Piracy in Influencing Antipiracy Strategies," Information Systems Research, INFORMS, vol. 34(4), pages 1711-1727, December.
    12. Emaad Manzoor & Nikhil Malik, 2023. "Designing Effective Music Excerpts," Papers 2309.14475, arXiv.org.

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