Estimating the Effect of Movie Piracy on Box-Office Revenue

Rev Ind Organ (2007) 30:291–301 DOI 10.1007/s11151-007-9141-0

Estimating the Effects of Movie Piracy on Box-office Revenue
Arthur S. De Vany · W. David Walls

Published online: 24 August 2007 © Springer Science+Business Media, LLC 2007

Abstract Piracy is one of the most challenging problems faced by the motion picture industry. The Motion Picture Association of America estimates that US studios lose more than $3 billion annually in box office revenue from piracy. They have launched a major effort to prevent these losses. Yet their efforts are hampered by the ex post, counterfactual, and indirect methods by which losses are usually estimated. This paper addresses these issues directly. We develop and estimate a statistical model of the effects of piracy on the box-office performance of a widely-released movie. The model discredits the argument that piracy increases sales, showing unambiguously that Internet piracy diminished the box-office revenues of a widely released motion picture. The model overcomes a major weakness of counterfactual or “but for piracy” methods widely used to estimate damages. These counterfactual methods violate the “nobody knows” principle because they forecast what the movie would have earned in the absence piracy. The model we present does not violate this basic principle of motion picture uncertainty. We estimate that pre-release and contemporaneous Internet downloads of a major studio movie accelerated its box-office revenue decline and caused the picture to lose about $40 million in revenue. Keywords estimation Movie piracy · Nobody knows principle · Forensic revenue loss

A. S. De Vany Department of Economics, University of California Irvine, Irvine, CA 92717, USA e-mail: [e-mail] W. D. Walls (B ) Department of Economics, University of Calgary, Calgary, AB, Canada T2N-1N4 e-mail: [e-mail] W. D. Walls School of Business and Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong

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