On Twitter, Sebastian Posth recently posted a link to a Social Science Research Network (SSRN) abstract of a paper by Christian Peukert and Jörg Claussen. The two business-school professors have studied the impact of Megaupload.com on box office revenues.
The Megaupload site is the focus of an ongoing criminal investigation. The site’s systems were seized in January of this year amid claims that it had cost copyright holders a half billion dollars or more in lost revenues. I’ve written (sometimes at length) about the relatively weak math underpinning those claims, so I was interested to hear what Peukert and Claussen had found.
According to their SSRN abstract, Peukert and Claussen used the January 2012 shutdown as a way to measure the impact on box-office revenues both with and without Megaupload. The overall methodology is described in a summary, which is available as a free download.
The research indicated that shutting down Megaupload actually had a negative to insignificant impact on box-office revenues for most films. The exception was found to be blockbusters, which they defined as movies shown on more than 500 screens. For these releases, total revenue improved after the site was shut down.
Peukert and Claussen concluded:
“Our counterintuitive finding may suggest support for the theoretical perspective of (social) network effects where file-sharing acts as a mechanism to spread information about a good from consumers with zero or low willingness to pay to users with high willingness to pay. The information-spreading effect of illegal downloads seems to be especially important for movies with smaller audiences. ‘Traditional’ theories that predict substitution may be more applicable to blockbusters.”
Or, as Tim O’Reilly wrote in 2002, “Obscurity is a far greater threat to authors and creative artists than piracy.” In the same post O’Reilly observed:
“Piracy is progressive taxation. For all of these creative artists, most laboring in obscurity, being well-enough known to be pirated would be a crowning achievement. Piracy is a kind of progressive taxation, which may shave a few percentage points off the sales of well-known artists (and I say "may" because even that point is not proven), in exchange for massive benefits to the far greater number for whom exposure may lead to increased revenues.”
One of the things that the abstract does not address is the question of where pirate versions of blockbuster movies were delivered. Although studios are moving toward worldwide “day and date” releases of their biggest films, global availability of many movies still lags weeks or even months behind their debut markets.
If the product wasn’t available in the market when the piracy occurred, the lesson to learn can be stated plainly: Figure out ways to meet current demand. Pirates already have.