Digital Piracy and its Impact on Legal Sales

Piracy and Copyright Enforcement Mechanisms
Danaher, Brett, Michael D. Smith, Rahul Telang. 2014. Piracy and Copyright Enforcement Mechanisms, Lerner and Stern, eds. Innovation Policy and the Economy, Volume 14, Chapter 2 (pp. 31-67), National Bureau of Economic Research, University of Chicago Press, Chicago, Illinois. (http://ssrn.com/abstract=2273716)
QUESTIONS: What is the impact of illegal file sharing on the creative industries, both in terms of revenue and incentives to produce new creative works, and how should firms and society respond to the presence of digital piracy?
RESULTS: The vast majority of papers in the academic literature find that piracy reduces sales of entertainment products, which from the perspective of standard economic theory will reduce producer incentives to supply new creative works to the market. However, firms and governments retain many viable options to reduce the impact of piracy the entertainment industries.

The Effect of Pre-Release Movie Piracy on Box Office Revenue
Ma, Liye, Alan Montgomery, Param Singh, Michael D. Smith. 2014. The Effect of Pre-Release Movie Piracy on Box Office Revenue. Information Systems Research. 25(3) 590-603.
QUESTION: “How much does pre-release movie piracy diminish legitimate box office sales?”
RESULT: “On average, pre-release piracy causes a 19.1% decrease in box office revenue compared to piracy that occurs post-release.”

The Dual Impact of Movie Piracy on Box-Office Revenue
Ma, Liye, Alan Montgomery, Michael D. Smith. 2016. The Dual Impact of Movie Piracy on Box-Office Revenue: Cannibalization and Promotion. (http://ssrn.com/abstract=2736946)
QUESTION: What are the relative impacts of piracy on both promoting and cannibalizing legal sales of movies?
RESULTS: Although piracy leads to both promotional and cannibalizing impacts on movie sales, the negative (cannibalizing) impacts far outweigh any promotional benefits. Overall, “if piracy could be eliminated completely from the theatrical window, then box-office revenues would increase by approximately 15% or $1.3b per year.”

Piracy or Promotion The Impact of Broadband Internet Penetration on DVD Sales
Smith, Michael D., Rahul Telang. 2010. Piracy or Promotion? The Impact of Broadband Internet Penetration on DVD Sales. Information Economics and Policy, Special Issue on the Economics of Digital Piracy, 21 289-298.
QUESTION:  What impact does broadband Internet access have on DVD sales?
RESULT: “Increased broadband Internet penetration leads to a significant increase in DVD sales…9.3% of the $14.1 billion increase in DVD sales during our study period can be attributed to increased broadband Internet penetration.”

Competing with Free: The Impact of Movie Broadcasts on DVD Sales and Internet Piracy
Smith, Michael, Rahul Telang. 2009. Competing with Free: The Impact of Movie Broadcasts on DVD Sales and Internet Piracy. Management Information Systems Quarterly, 33(2) 312-338.
QUESTION: What impact does piracy have on DVD sales late in a movie’s lifecycle?
RESULTS: When movies are broadcast on television, which typically occurs 1-2 years after the movies are first shown in theaters, we find no statistically significant evidence that piracy availability negatively impacts DVD sales.