Tuesday, August 27, 2013

The Truth About Digital Copyright Infringement’s Effect on the Film Industry

Tuesday, August 27, 2013
Those of us who remember the Recording Industry Association of America (RIAA) music piracy witch hunt of 2004-2007 and the colorful, if not flamboyant ranting of the late Jack Volenti of the Motion Picture Association of America (MPAA) may be predisposed to thinking that online file sharing has had a dreadful effect on the music and film industries.

A recent study, however, may dispel that myth, at least as it relates to the film industry. Researchers from the Ludwig-Maximilians-Universität Munich and Copenhagen Business School have found that far from hindering sales, online file sharing has even had a positive effect on some films’ bottom line. The study looked at a sizable data set- 10,272 movies released in 50 countries from week 31 of 2007 to week 5 of 2013.

On January 19, 2012, the globally popular file hosting site Megaupload.com was shut down and its founder Kim Dotcom arrested. The study found that the shutdown had little effect on the box office numbers for a majority of films. Some films, particular smaller and independent productions, saw a decrease in revenue. Only the top Hollywood films such as Ice Age and Harry Potter saw an increase in revenue after the Megaupload shutdown.

The study cites similar research dealing with the music industry (Bhattachar-jee et al. (2007)) which showed that while big-label titles spent on average less time on the sales charts, smaller labels and independent artists experienced a huge boost in revenue from file sharing.

While no study can correct for all possible variables, the researchers took care to put into place “robustness checks” for the purpose of ruling out alternative causes for the correlation they discovered. The researchers explain their results by highlighting the importance of word of mouth advertising facilitated through social networks. The study identifies two categories of consumers: those willing to pay for content and those unwilling to pay.

It appears that those consumers who are unwilling to pay for content still speak about and promote that content. Some of the people they speak to are those willing to pay for the content. These people then go and make purchases they would not have made but for the endorsement by the “pirate".

The effect of illicit file sharing on a film seems to relate to the film’s advertising budget and general exposure. The reason why big budget films released by major studios are aided by stemming online file sharing is that they have effective brand penetration. Paying customers are more likely to see an advertisement for a major film and therefore do not rely as heavily on social networks to discover these titles. On the other hand, for small and medium sized productions, the publicity accrued through social networks by way of exposure due to file sharing is palpable.

It would therefore seem that the statement that file sharing hurts the content industry may only be true for those who currently hold the biggest piece of the pie. If we assume that the greatest availability of the greatest variety and quantity of content is a worthy goal, perhaps the legislative frameworks surrounding copyright protection would benefit from an overhaul in light of this and similar studies. It’s worth mentioning, however, that the content industry groups that lobby governments for stricter copyright laws are likely influenced to a great extent by the biggest players in the industry; and for them, the study shows that file sharing is still bad for business. 

By James Plotkin LL.L, J.D.
Summer Student with MBM