Economist: ‘File sharing modest impact on box office revenue’

Koleman Strumpf, a Professor at the University of Kansas School of Business, has conducted a study investigating the economic importance of intellectual property protection. In the paper – Using Markets to Measure the Impact of File Sharing on Movie Revenues – Strumpf suggests there are two main empirical challenges: overcoming the non-random timing of the arrival date of illicit copies and dealing with low statistical power due to limited sample size.

Strumpf’s paper uses markets to address these issues in the context of movies, showing how forward-looking markets can be used to establish the unobserved counter-factual of how movie revenues would change on any possible file sharing release date, particularly those prior to the theatrical premier. “Using movie-level tracking stocks in conjunction with the arrival date of illicit copies, I find that file sharing has only a modest impact on box office revenue,” he writes.

According to Strumpf, Internet piracy remains an area of active interest in academia, policy and industry. Policy-makers and firms are primarily interested in how changes in the nature of intellectual property protection will influence the incentives for and creation of products such as movies, music and books. Academics are interested in these questions as well as broader lessons about the appropriate intellectual property policy regime.

“In this paper I add to the discussion by examining the economic consequences of the leading form of movie piracy, downloads of unauthorised copies on file sharing networks,” he suggests. “This continues to remain a popular source of consumption, and by one measure unauthorised downloads consume about a quarter of internet bandwidth in developed countries (Price, 2013). Most previous work on the economic impact of internet piracy has focused on music (Oberholzer-Gee and Strumpf, 2009), and there are enough differences with movies that further attention is warranted. For example, with movies authorised consumption involves not just the content but a location which provides unique characteristics (large screens and social interaction) which are not bundled with a download. Also almost all consumption occurs over a relatively short period following the theatrical release,” he advises.

“This paper presents estimates of the economic impact of movie piracy over the period 2003-2009. My approach is based on a market in which stocks track the future US theatrical box office of specific movie titles. This market, the Hollywood Stock Exchange (HSX) involves thousands of traders and has a track record of accurate forecasts and rapidly incorporating news.”

He examines how the stock prices respond to releases of movies onto file sharing networks, which he dates using internal records from one of the five largest file sharing sites during his study period. The econometric framework allows him to infer the market beliefs at anytime of a movie’s expected box office, both for the observed state (whether it has reached file sharing networks) and the unobserved state.

Strumpf says he can uncover the average impact of a file sharing release on each day, and use these estimates to appraise economic and statistical significance. “I find these displacement effects to be of modest size and indicating only a small impact on aggregate revenues. This small effect is perhaps the result of low quality initial file sharing copies and the superiority of the theatre viewing experience,” he suggests.

Posted by on Jul 16 2014. Filed under Articles, Consumer Behaviour, Content, Markets, Piracy, Research, Rights.

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