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Yes, Piracy Costs Content Creators a Fistful of Dollars

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A month ago, I examined the academic literature surrounding what turns out to be a very tricky question for empirical researchers to answer—does digital theft of music and film have a measurable negative impact on profits for content creators? Methodologies addressing the question are fraught with complications, and while the majority of papers surveyed in a recent review of the literature (Hardy et al.) find that online piracy is not, in fact, a victimless crime, some past studies remain inconclusive. The literature is sometimes inconclusive because it is very difficult to prove that content being stolen has a negative impact on revenue in an era in which almost all digital content is stolen to some degree. However, research of late has been clearer in identifying significant causal impacts of piracy on profits and content creation in the music and film industries. As academics hone in on the question, results are beginning to coalesce around exactly the answer you would expect—online piracy has a negative impact on revenue and content creation in both music and film.

(First, I should note that as literature reviews go, Hardy et al. actually does more than others to highlight inconclusive results. Another survey, “Assessing the Academic Literature Regarding the Impact of Media Piracy on Sales” by Smith and Telang, concludes that the vast majority (25 of 29 empirical papers) conclude that yes, digital content theft hurts media sales. Smith and Telang find the skew towards negative financial impact especially strong in papers published in highly-regarded peer review journals.)

One example of recent research that demonstrates the negative effects of content theft in a more straightforward manner asks, what happens when copies of movies are leaked before their release data? In 2013, Carnegie Mellon University research (Ma et al.) developed a method to predict box office profits based on a variety of factors, including critical reviews, genre, advertising budgets, and other variables. They found that movies leaked early earned 20 percent less in box offices than similar films that weren’t leaked. This illustrates a very clear picture about just how much piracy can cost content creators. Clearly piracy in this case did not induce thieves to go out and watch the movie a second time at the theater.

Another interesting research question which has recently been answered is whether piracy can negatively impact content creation. University of Minnesota Professor Joel Waldfogel made headlines in 2011 when he published a paper which analyzed the rate of music creation, but failed to identify a significant causal relationship between digital theft and content production. The paper notes that album releases have gone up since the Napster era, making identifying the negative impact on piracy difficult. However, arguing that piracy is harmless because album releases have increased since the 1990s would be as ridiculous as merchants a few hundred years ago claiming that actual piracy on the high seas did not negatively impact shipping because raw profits had risen. Nonetheless, Waldfogel stated that there was no harm done to content creators.

But Waldfogel kept up his research, employing more sophisticated methodologies. In 2014, Waldfogel published a paper examining the production of Indian Bollywood films before and after VCRs, a technology that allowed for widespread distribution of pirated copies of films. This time, he was able to show in a rigorous way that piracy had a profound negative impact on the creation of Bollywood films.

Measuring piracy is a difficult problem that has taken academia a while to solve. Just measuring piracy, an illicit and therefore hard to track activity, is tough. And researchers have to prove more than simply lost revenue. Copious research has countered claims that piracy is de facto publicity that spurs sales for individual recording artists or that increases in merchandising opportunities offsets the lost revenue from pirated films. While the literature is still open to new contributions, current research and analysis is demonstrating more and more that piracy has a measurable, negative impact on content creation and profits, which shouldn’t be a surprise to anyone.

 

 

Photo Credit: Matt Watson

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About the author

Adams Nager is an economic policy analyst at ITIF. He researches and writes on innovation economics, manufacturing policy, and the importance of STEM education and high-skilled immigration. Nager holds an M.A. in political economy and public policy and a B.A. in economics, both from Washington University in St. Louis.