Digital distribution channels raise many new challenges for managers in the media industries. This is particularly true for movie studios where high-value content can be stolen and released through illegitimate digital distribution channels even prior to the release of the movie in legal channels. In response to this potential threat, movie studios have spent millions of dollars protecting their content from unauthorized distribution throughout the lifecycle of the film, but have focused their efforts on the pre-release period under the assumption that pre-release piracy could be particularly harmful for a movie’s success.
However, surprisingly, there has been very little rigorous research to analyze whether, and how much, pre-release movie piracy diminishes legitimate sales. In this paper, we analyze this question using data collected from a unique Internet file-sharing site. We find that the net effect of pre-release piracy can be a 20% decrease in revenue compared to piracy that occurs post-release.
Our study contributes to the growing literature in the Information Systems community on piracy and digital media consumption by presenting evidence of the impact of Internet-based movie piracy, by taking a pre-release perspective to strengthen causal inference, and by examining a piracy setting that is distinct from the other types of piracy considered by the literature previously.
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Michael D. Smith is a Senior Adjunct Fellow at Technology Policy Institute. He is also a Professor of Information Systems and Marketing and the Co-Director of IDEA, the Initiative for Digital Entertainment Analytics at Carnegie Mellon University. He holds academic appointments at Carnegie Mellon University’s School of Information Systems and Management and the Tepper School of Business. Smith has received several notable awards including the National Science Foundation’s prestigious CAREER Research Award, and he was recently selected as one of the top 100 “emerging engineering leaders in the United States” by the National Academy of Engineering. Smith received a Bachelors of Science in Electrical Engineering (summa cum laude) and a Masters of Science in Telecommunications Science from the University of Maryland, and received a Ph.D. in Management Science from the Sloan School of Management at MIT.
