The Business of Piracy
Today, any consumer with a high-speed Internet connection is just a few clicks away from high-quality, no-cost, pirated entertainment content. How does piracy impact sales in legal channels? How do artists, studios, and traditional entertainment distribution channels stay profitable while competing with “free”?
Drawing on data-driven research, IDEA offers strategies for defeating digital pirates by using their own business plan against them. By taking advantage of disruptive distribution channels and nontraditional release dates, creators can dramatically reduce the market impact of pirates by giving consumers what they want, when and where they want it—at a price point that is comfortable for consumers and profitable for the industry.
Entertainment firms and national governments retain many viable strategies and tools to effectively reduce the impact of piracy on the entertainment industry. In particular, content creators can combat piracy by improving the reliability and convenience of legal channels.
The potential economic impact of digital piracy of a given product fluctuates throughout the phases of the product's lifecycle. On average, pre-release piracy causes a 19.1 percent decrease in box office revenue compared to piracy that occurs post-release.
Although movie piracy may stimulate sales through increased word-of-mouth, the negative impacts of piracy far outweigh any promotional benefits. Instead, movie piracy can cannibalize $1.3 billion in potential box-office revenues annually.
While the Internet provides consumers with new opportunities to illegally obtain content, it also contributes to DVD sales. We found that 9.3 percent of the $13.1 billion increase in DVD sales from 2000 to 2003 can be attributed to increased broadband penetration.
Creative artists can use product differentiation and market segmentation strategies to compete with freely available content. When free and paid products appeal to separate customer bases, the presence of free products does not necessarily cannibalize paid sales.
While piracy and other aspects of digitization are usually associated with reducing movie revenues, the growth of digital piracy has also reduced the amount and quality of movies produced. To this end, copyright protection positively impacts content creation.
Although most discourse regarding piracy focuses on the producers, we have found that piracy is also harmful to media consumers. By reducing creative incentives, piracy negatively impacts the quality of films and, by extension, negatively impacts the viewer experience.