The vast body of academic piracy research has shown that illegal downloading can affect legal revenues in a variety of ways.
Many studies have focused on a negative effect, but there are positive links as well. How piracy interacts with sales often differs from situation to situation.
These finer nuances are intriguing and important to obtain a better understanding of the piracy phenomenon. With a newly published study, researchers from Eastern Michigan University and the University of British Columbia have just added another piece to the puzzle.
In a paper titled, ‘Latent Estimation of Piracy Quality and its Effect on Revenues and Distribution: The Case of Motion Pictures’, Anthony Koschmann and Yi Qian looked at the link between the volume and quality of pirate downloads to see how this affects box office revenues during and after a movie’s release.
The researchers use data from The Pirate Bay to measure the supply (seeders) and demand (leechers) of pirated movies. They also scanned the pirated movie titles to get an indication of the quality. The term ‘CAM,’ referring to camcorder versions, is seen as low quality, for example, while BDRip points to a high-quality Blu-Ray source.
High-Quality Increases Box-Office Revenue
One of the main findings of the study is that an increase in high-quality piracy is linked to an increase in legal box office revenue during the opening week of a film.
“We find that a 1% increase in the quality of the pirated copies, conditioning on a level of piracy downloads (leechers, or number of users downloading the illegal file), corresponds on average to a 0.52% increase in revenues in the launch period,” the researchers write in their paper.
While it may sound counterintuitive that piracy of high-quality movies leads to increased revenues, the researchers offer a plausible explanation. They believe that, early on, many consumers lack information on new movies. These high-quality pirate downloads can, therefore, be seen as a sampling tool.
The Positive Effect Reverses
The same mechanism can also explain the second major finding of the study. After the opening week, the positive link between high-quality piracy and box office revenues starts to reverse into a negative one.
“Post-launch shows a 1% increase in the quality of illegal copies, conditioning on a level of leechers, associates with a -0.38% decrease in revenues,” the researchers write.
Researcher Anthony Koschmann informs TorrentFreak that this effect is likely driven by product uncertainty. Early on, high-quality piracy copies act as a ‘promotional’ tool, but as time passes, pirate downloads mostly cannibalize sales.
“When products like movies launch, product information is limited; higher quality copies provide more information about the product, which reduce uncertainty and encourage consumers as a sampling mechanism. But after launch, more information permeates the market, so higher quality copies function more like substitutes,” Koschmann tells us.
Real World Implications
The researchers believe that their findings can help movie industry executives to make more informed decisions. For example, they can afford not to loosen their anti-piracy efforts during opening week. At the same time, they can release better ‘samples’ themselves in addition to the traditional two-minute trailers.
“Producers can create their own derivations of the genuine good; this creates an opportunity to encourage the right kind of sampling and discourage the wrong kind of cannibalism,” the paper reads.
As with all research, the findings also raise further questions. For example, this study focused on downloads from The Pirate Bay, and it’s unclear if the same is true for other types of piracy, including streaming.
There’s also the possibility that other variables play a role in the observed findings. The researchers did their best to rule out several alternatives through their statistical modeling, but follow-up research is always welcome.
The research, which hasn’t been peer-reviewed, is published by the National Bureau of Economic Research (NBER) as part of its working paper series.
