Carnegie Mellon Study Claims Online Piracy Has Strong Effect On Movie Sales

A new academic paper claims to prove a strong link between the shutdown of file-sharing site Megaupload and a subsequent increase in movie sales — but it uses studio-provided data and comes from an initiative partly funded by the MPAA.

An actor arrests Megaupload founder Kim Dotcom at the launch of his new file sharing site, Mega, in Auckland, New Zealand, on Jan. 20, 2013. Nigel Marple / Reuters

A study released last week offers new evidence that online piracy may have a big impact on movie sales and rentals — taking as much as a 10% bite out of potential studio revenues. It is one of the first academic papers to analyze real-world sales data before and after a major anti-piracy campaign, but it is being met with some skepticism by observers who note that the research was conducted as part of a Carnegie Mellon initiative partly funded by the Motion Picture Association of America (MPAA), and that the raw data was provided by two anonymous studios.

“Piracy is free. That’s a hard price to compete with,” said Brett Danaher, an assistant professor of economics at Wellesley College and coauthor of the paper, titled “Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales,” which was conducted as part of Carnegie Mellon’s Initiative for Digital Entertainment Analytics.

Danaher and his coauthor, Michael D. Smith, a professor of information technology and marketing at Carnegie Mellon, studied movie sales and rental data provided by two Hollywood studios from multiple countries both leading up to, and in the wake of, the shutdown of the file-sharing website Megaupload.

Danaher and Smith’s research indicates the studios’ revenues were 6–10% higher than they would have been if Megaupload had not been shut down by authorities. If the research holds up, it could provide ammunition for groups like the MPAA and Recording Industry Association of America, who say their industries have been significantly impacted by online piracy and have lobbied law enforcement agencies aggressively to take action against pirating websites.

Megaupload, a massive file-sharing site that boasted 50 million hits daily in its heyday according to the indictment against founder Kim Dotcom, was shuttered in a spectacular international operation executed over several days in January 2012. (Dotcom himself was arrested during a raid on his house involving 76 officers and two helicopters; he is currently fighting extradition to the U.S.)

In the 18 weeks following the site’s shutdown, the study’s authors found that sales and rentals of movies through legal means increased significantly, and the increase by country directly correlated to the amount that the residents of that country used Megaupload.

Speaking by phone, Danaher said he doesn’t believe that shutting down Megaupload deterred hardcore pirates, but he said it did appear to have been enough of an inconvenience that it deterred a modest share of illegal downloaders.

“If you have legal digital channels and you shut down Megaupload, then maybe
you’ve got these marginal consumers that say, you know what? It’s just 15 bucks at iTunes,” Danaher explained.

Another factor contributing to the spike in legal sales and rentals, Danaher and his coauthor suggest, may have been that the site’s shutdown was public enough to compel other pirating sites to take steps to protect themselves from similar raids. Danaher said there was evidence that those sites made changes, like requiring passwords to download material, that may have also served to redirect would-be pirates to legal alternatives.

The study’s conclusions, however interesting, have yet to be subjected to the rigorous scrutiny of a peer-reviewed academic journal. Danaher said he submitted it to “a very good journal” (though he declined to specify which) three months ago, but is still waiting for the review process to finish.

“We’ve presented this at a bunch of conferences with economists who have given feedback, so it’s been vetted in that sense, but it has not been through the peer-review process yet, and it probably won’t be for another six months,” Danaher said.

Danaher also acknowledged that since the study was released online Wednesday, some commenters have raised concerns about the source of the study’s funding and data. “Here we can see a very clear trend on studies commissioned by the MPAA lobby” read one comment on the TorrentFreak piece; “Research funded by [missing info] ?” read another.

The sales and rentals data used from the study, Danaher explained, was given to him and his coauthor by two major studios, which provided the information on the condition of anonymity.

The data was requested through Carnegie Mellon University’s Initiative for Digital Entertainment Analytics, which, Danaher openly admits, is funded in part by an gift from the MPAA.

“We are not hiding the fact that part of the funding for IDEA is through an unrestricted gift from the MPAA,” Danaher said. “That said, this study used no [IDEA] funding whatsoever — we did this because we’re academics, we get paid a salary by our university, and our job is to produce research. We received no funding for the study. The only thing we received through IDEA was the data.”

Danaher hopes to conduct more extensive research on the subject — this study examined just 18 weeks of data. He’d like to see if the trend holds up over 36 weeks and longer.

He may just get a second chance — Megaupload’s founder Kim Dotcom announced plans for a new site, called Mega, this January.

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