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Estimating the Effects of Movie Piracy on Box-office Revenue

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  • Arthur Vany

    ()

  • W. Walls

    ()

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.
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Suggested Citation

  • Arthur Vany & W. Walls, 2007. "Estimating the Effects of Movie Piracy on Box-office Revenue," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(4), pages 291-301, June.
  • Handle: RePEc:kap:revind:v:30:y:2007:i:4:p:291-301
    DOI: 10.1007/s11151-007-9141-0
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    File URL: http://hdl.handle.net/10.1007/s11151-007-9141-0
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    References listed on IDEAS

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    1. De Vany, Arthur S. & Walls, W. David, 2004. "Motion picture profit, the stable Paretian hypothesis, and the curse of the superstar," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1035-1057, March.
    2. David Maddison, 2004. "Increasing returns to information and the survival of broadway theatre productions," Applied Economics Letters, Taylor & Francis Journals, vol. 11(10), pages 639-643.
    3. W. Walls, 2005. "Modeling Movie Success When ‘Nobody Knows Anything’: Conditional Stable-Distribution Analysis Of Film Returns," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 29(3), pages 177-190, August.
    4. De Vany, Arthur & Lee, Cassey, 2001. "Quality signals in information cascades and the dynamics of the distribution of motion picture box office revenues," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 593-614, March.
    5. De Vany, Arthur & Walls, W David, 1996. "Bose-Einstein Dynamics and Adaptive Contracting in the Motion Picture Industry," Economic Journal, Royal Economic Society, vol. 106(439), pages 1493-1514, November.
    6. De Vany, Arthur S & Walls, W David, 1997. "The Market for Motion Pictures: Rank, Revenue, and Survival," Economic Inquiry, Western Economic Association International, vol. 35(4), pages 783-797, October.
    7. Arthur De Vany & W. Walls, 1999. "Uncertainty in the Movie Industry: Does Star Power Reduce the Terror of the Box Office?," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 23(4), pages 285-318, November.
    8. Chris Hand, 2001. "Increasing returns to information: further evidence from the UK film market," Applied Economics Letters, Taylor & Francis Journals, vol. 8(6), pages 419-421.
    9. W. David Walls, 1997. "Increasing returns to information: evidence from the Hong Kong movie market," Applied Economics Letters, Taylor & Francis Journals, vol. 4(5), pages 287-290.
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    Citations

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    Cited by:

    1. Wojciech Hardy & Michał Krawczyk & Joanna Tyrowicz, 2014. "Internet piracy and book sales: a field experiment," Working Papers 2014-23, Faculty of Economic Sciences, University of Warsaw.
    2. Cox, Joe & Collins, Alan, 2014. "Sailing in the same ship? Differences in factors motivating piracy of music and movie content," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 50(C), pages 70-76.
    3. Stan J. Liebowitz & Alejandro Zentner, 2016. "The internet as a celestial TiVo: What can we learn from cable television adoption?," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 40(3), pages 285-308, August.
    4. Mandel Philipp & Süssmuth Bernd, 2012. "Determinants of Digital Piracy: A Re-examination of Results," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 232(4), pages 394-413, August.
    5. Tylor Orme, 2014. "The short- and long-term effectiveness of anti-piracy laws and enforcement actions," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 38(4), pages 351-368, November.
    6. Brett Danaher & Michael D. Smith & Rahul Telang, 2014. "Piracy and Copyright Enforcement Mechanisms," Innovation Policy and the Economy, University of Chicago Press, vol. 14(1), pages 25-61.
    7. Francis Lee, 2009. "Cultural discount of cinematic achievement: the academy awards and U.S. movies’ East Asian box office," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 33(4), pages 239-263, November.
    8. J. McKenzie & W. D. Walls, "undated". "File Sharing and Film Revenues: An Empirical Analysis," Working Papers 2013-01, Department of Economics, University of Calgary.
    9. Adermon, Adrian & Liang, Che-Yuan, 2010. "Piracy, Music, And Movies: A Natural Experiment," Working Paper Series 2010:18, Uppsala University, Department of Economics.
    10. Rúben Meireles & Pedro Campos, 2016. "Digital Piracy: Factors That Influence The Intention To Pirate – A Structural Equation Model Approach," FEP Working Papers 573, Universidade do Porto, Faculdade de Economia do Porto.
    11. repec:eee:iepoli:v:40:y:2017:i:c:p:41-47 is not listed on IDEAS
    12. Stan J. Liebowitz, 2013. "Internet piracy: the estimated impact on sales," Chapters,in: Handbook on the Digital Creative Economy, chapter 23, pages 262-273 Edward Elgar Publishing.
    13. repec:kap:jbuset:v:143:y:2017:i:3:d:10.1007_s10551-015-2789-8 is not listed on IDEAS
    14. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
    15. Dalton, John T. & Leung, Tin Cheuk, 2017. "Strategic decision-making in Hollywood release gaps," Journal of International Economics, Elsevier, vol. 105(C), pages 10-21.
    16. Darlene C Chisholm, 2011. "Motion Pictures," Chapters,in: A Handbook of Cultural Economics, Second Edition, chapter 39 Edward Elgar Publishing.
    17. Emmi Martikainen, 2014. "Does file-sharing reduce DVD sales?," Netnomics, Springer, vol. 15(1), pages 9-31, July.
    18. Paul Stepan, 2013. "Film," Chapters,in: Handbook on the Digital Creative Economy, chapter 35, pages 399-408 Edward Elgar Publishing.
    19. repec:eee:indorg:v:52:y:2017:i:c:p:188-215 is not listed on IDEAS
    20. Moez Hababou & Nawel Amrouche & Kamel Jedidi, 2016. "Measuring Economic Efficiency in the Motion Picture Industry: a Data Envelopment Analysis Approach," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 3(3), pages 144-158, December.
    21. Stan J. Liebowitz, 2014. "The impacts of internet piracy," Chapters,in: Handbook on the Economics of Copyright, chapter 13, pages 225-240 Edward Elgar Publishing.
    22. McKenzie Jordi & Walls W. David, 2016. "File Sharing and Film Revenues: Estimates of Sales Displacement at the Box Office," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(1), pages 25-57, January.
    23. Wojciech Hardy & Michal Krawczyk & Joanna Tyrowicz, 2015. "Friends or foes? A meta-analysis of the link between "online piracy" and sales of cultural goods," Working Papers 2015-23, Faculty of Economic Sciences, University of Warsaw.

    More about this item

    Keywords

    Movie piracy; Nobody knows principle; Forensic revenue loss; estimation; L820; Z110; C800;

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