Liye Ma, Alan Montgomery, and Michael D. Smith
Late last month, the online piracy group Hive-CM8 issued an apology of sorts for leaking Quentin Tarantino’s movie The Hateful Eight onto pirate networks before the movie’s theatrical release. But after apologizing (not for the act itself but “the trouble we caused”), the group argued that their leak would actually increase the movie’s theatrical sales. “Since everyone is now talking about this movie,” the group wrote, “we don’t think the producers will lose any money … We actually think this has created a new type of media hype that is more present in the news, radio, and in the papers than Star Wars, and the promotional costs for this were free … This will push the cinema tickets’ sale for sure.”
That’s a provocative hypothesis, and one that many people seem to embrace when it comes to theatrical piracy. After all, they argue, marketers regularly use free trials, samples, and even DVD-screeners to generate promotion for their products. Couldn’t the promotional impact of piracy in the theatrical window outweigh any harm caused by piracy?
In a recent paper we studied that very question, by analyzing the theatrical revenue and the availability of pirate leaks for 831 movies released in theaters from 2006 through 2013. We used a hidden Markov model of consumer behavior to separately identify the positive impact of piracy (through increased awareness and buzz) and the negative impact of piracy (cannibalization of paid legal sales by free pirate content). We found that without piracy, box-office revenue would have been 14-15 percent higher than it is in the presence of piracy. And although the promotional effect of piracy did increase box-office revenue by an average of 1.5 percent—the promotional impact of piracy is far outweighed by the cannibalization effect. In other words, while the pre-release piracy buzz did cause some people to pay to see the movie who wouldn’t have otherwise, it caused far more people to not pay who would have otherwise. That’s a cost that far outweighs the benefit. Moreover, no matter what the size or source of a movie, we found no instances of a movie in our sample that would have benefitted from the presence of piracy during its theatrical window.
Of course, one might ask why piracy reduces overall sales when the other types of free promotions we discussed above (free product trials, samples, and promotional giveaways) generally increase overall sales. Although we can’t answer this question directly from our data, one obvious difference between piracy and other free promotional offers is that the free promotions are almost always limited either in application (only certain people receive the offer), content (only part of the product is given away), or time (you only receive the offer for a limited time). Piracy on the other hand is available to everyone, includes the entire product, and maybe most importantly, can never be turned off after the promotional period is over.