Data Can Enhance Creative Projects — Just Look at Netflix

by Michael D. Smith and Rahul Telang

January 23, 2018

Nearly five years ago, a show that followed the lives of inmates in a women’s prison shook up television. Orange Is the New Black became an unexpected hit, helping to put Netflix on the map as a creator of innovative original entertainment. The show pushed boundaries with its dark humor and diverse cast, becoming Netflix’s most-watched original series. Uzo Aduba has won two Emmys for her nuanced, empathetic portrayal of a black lesbian woman struggling with mental illness, a character rarely seen on mainstream television.

Orange Is the New Black isn’t just great television — it’s also an example of data-driven creativity in action. With the recent explosion of shows produced by Silicon Valley companies like Amazon, Hulu, and Netflix comes a fear that entertainment will increasingly be shaped by analysts crunching numbers rather than creatives following their artistic vision. Five years in, Netflix’s foray into original content demonstrates that what’s happened is actually the opposite: Data-driven platforms are giving high-quality, innovative entertainment a place to shine. Why? Because they can connect content and audiences in ways that broadcasters never could. (more…)

How Piracy Can Hurt Consumers

Brett Danaher, Michael D. Smith, Rahul Telang

The public debate about Internet piracy is typically seen as pitting the interests of producers versus the interests of consumers. On one hand, the empirical evidence is clear: piracy hurts producers by reducing the amount of money they can make from their creative efforts. But it is easy to see why consumers might like piracy: those who had been willing to pay the market price can now get it for free, and those who hadn’t been willing to pay the market price can now consume content they wouldn’t have been able to access otherwise.

The problem with this way of looking at piracy is that it focuses solely on demand. But there’s another side to all of this: supply, specifically how piracy can affect both the quantity and quality of movies that are supplied to consumers. People tend to neglect this question, but we believe it’s going to become increasingly important to answer in the years ahead. (more…)

Piracy and the Supply of New Creative Works

Brett Danaher, Michael D. Smith, Rahul Telang

Last week we blogged about the peer-reviewed academic literature studying whether piracy harms sales, showing that articles in peer-reviewed journals overwhelmingly find that piracy causes harm to producers by reducing legal sales and revenues. In today’s blog, we will cover a second important policy question regarding piracy: Does piracy harm consumers?

In contrast to the first question, there is little evidence informing this question within the peer-reviewed literature. The reason it is more difficult to determine the effect of piracy on consumers is because there is a major difference between the short run and long run effects of piracy, and it is more difficult to identify and prove long run effects. In the short run, if we assume that the number and quality of creative works produced is fixed, then piracy benefits consumers in two ways. First, consumers who otherwise would have purchased the product at its normal price can now consume the product for free. Second, consumers who otherwise wouldn’t have purchased the product (because their expected value of the product was less than the price) can now consume products they wouldn’t have otherwise been willing to purchase. (more…)

The Truth About Piracy

By:

Brett Danaher, Michael D. Smith, Rahul Telang

Earlier this week, we gave a keynote talk at the Sundance Film Festival about how piracy impacts independent filmmakers. Our talk was based on a paper we delivered to the World Intellectual Property Organization last month, where we presented the economic evidence about three main questions:

  1. Does piracy harm sales?
  2. Does piracy harm consumers?
  3. Can anything be done about piracy?

As academics, we don’t care what the answers to these questions are: a well-identified result that says piracy doesn’t hurt sales is just as interesting as a well-identified finding that it does. In the long run, no one wins by making decisions based on beliefs that aren’t true. (more…)

The Perfect Storm: Snowstorms and the Impact of Theatrical Attendance on DVD Sales

By Michael Smith, Peter Boatwright and Patrick Choi

Everyone knows that movies that are popular in theaters are also popular at home. But no one knows whether increased theater viewing actually causes increased home viewing. Scientifically speaking, this is the difference between correlation and causation. In this instance, it’s difficult to test causation because a movie’s intrinsic appeal affects both measures. To do so accurately, we need an event that changes the number of people who see the movie in theaters, but does so in a way that is completely unrelated to specific movie characteristics.

In our recent paper, we show how snowstorms can provide just such a “perfect” measurement event. When a snowstorm occurs on a movie’s opening weekend in a particular city, fewer people go to see that movie in that city for reasons completely unrelated to the movie itself. In other words, for the purposes of this experiment, snowstorms are essentially random events: Whether it snows in Buffalo versus Minneapolis on the second weekend of November has nothing to do with the characteristics of the movies opening that weekend. (more…)

The Effectiveness of Site Blocking as an Anti-Piracy Strategy: Evidence from the U.K.

Brett Danaher, Michael D. Smith, Rahul Telang

It is well established in the academic research that piracy harms sales for entertainment goods;[1] and there is emerging evidence that, by reducing the profitability of content creation, piracy may reduce the quality and quantity of the content that is created.[2]

Given these empirical results, as academic researchers, we have spent considerable effort trying to understand the effectiveness of various anti-piracy strategies that attempt to mitigate the impact of piracy on industry revenues by either making legal content more appealing or making illegal content less appealing (see for example here and here). Our latest research examines an anti-piracy strategy known as “site-blocking” adopted in many countries, including the United Kingdom where we conduct our analysis. In the U.K. courts respond to blocking requests, and where they find cause, order Internet Service Providers (ISPs) to block access to specific piracy-enabling sites. (more…)

Google, Search Ranking, and the Fight Against Piracy

By: Michael D. Smith

Last month, Rahul Telang and I blogged about research we conducted with Liron Sivan where we used a field experiment to analyze how the position of pirate links in search results impact consumer behavior. Given this research, we were very interested in Google’s announcement last Friday that they were changing their ranking algorithm to make pirate links harder to find in search results.

According to the announcement, Google changed their ranking algorithm to more aggressively demote links from sites that receive a large number of valid DMCA notices, and to make legal links more prominent in search results. The hope is that these changes will move links from many “notorious” pirate sites off the first page of Google’s search results and will make legal content easier to find.

(more…)

Using Search Results to Fight Piracy

By: Michael D. Smith

With the growing consensus in the empirical literature that piracy harms sales, and emerging evidence that increased piracy can affect both the quantity and quality of content produced (here and here for example), governments and industry partners are exploring a variety of ways to reduce the harm caused by intellectual property theft. In addition to graduated response efforts and site shutdowns, Internet intermediaries such as Internet Service Providers, hosting companies, and web search engines are increasingly being asked play a role in limiting the availability of pirated content to consumers.

However, for this to be a viable strategy, it must first be the case that these sorts of efforts influence consumers’ decisions to consume legally. Surprisingly, there is very little empirical evidence one way or the other on this question.

(more…)

Does Piracy Undermine Product Creation?

By: Michael D. Smith

(Below is a guest post by my colleague, Rahul Telang from Carnegie Mellon University)

That Piracy undermines demand for products in copyright industries is intuitive and well supported by data. Music, movies, books, software have seen demand degradation due to various forms of piracy. What is not so well supported by data is whether piracy undermines product creation. For example, does piracy reduce the number of movies made, or quality of movies made, or investments in movies? Common sense suggests that this must be true. After all, this is the core principle of copyright. Large scale copyright infringement should affect revenues which in turn should affect producers’ incentives to create.

Despite this compelling argument the data does not support this claim readily. The reasons are many. For one, while the change in demand due to infringement happens more quickly, the production adjustments take time. So unless the infringement is persistent for a period of time, the contraction in production is not readily visible. The technology that leads to widespread infringement (say P2P networks and broadband infra-structure that facilitates online piracy) might also be accompanied by a period where cost of production and distribution declines or new markets open up. The net effect of these two opposing factors is all we can see in the data. And, the net effect could very well be that the production actually has increased!!!. This is not an evidence that piracy does not matter. Finally, there may be distributional bottlenecks (say number of theatres) that may prevent growth in production but might lead to larger investments in movies or in some cases higher input costs (actors and directors become more expensive). (more…)

The Expendables 3 Leak and the Financial Impact of Pre-Release Piracy

By: Michael D. Smith

This past week a DVD-quality copy of the movie The Expendables 3 leaked online three weeks before its planned U.S. theatrical release. According to Variety, the film was downloaded 189,000 times within 24 hours. As researchers, an immediate question comes to mind: how much of a financial impact could movie-makers face from such pre-release piracy?

The effect of piracy on the sales of movies and other copyrighted works has long been scrutinized, with the vast majority of peer-reviewed academic papers concluding that piracy negatively impacts sales. Indeed, in a recent National Bureau of Economic Research book chapter, my co-authors and I reviewed the academic literature, and showed that 16 of the 19 papers published in peer-reviewed academic journals find that piracy harms media sales. (more…)