Competing with free: the effect of post-release piracy on box-office revenue
The availability of digital distribution channels raises many new challenges for managers in the media industries. This is particularly true for movie studios where content can be stolen and released through illegitimate digital distribution channels before, or shortly after, the legitimate release date. In response to this potential threat, movie studios have spent millions of dollars attempting to protect their content from unauthorized release, to prosecute those who might distribute or consume pirated content, and to lobby governments to strengthen anti-piracy laws.
However, there has been very little rigorous research to analyze whether, and how much, movie piracy cannibalizes legitimate box-office sales. In this paper, we analyze this question in the context of post-release movie piracy. We also consider whether going to the movies is substitutable by watching a pirated version at home. Even though there is a lag between the release in cinema-theaters and a DVD-release (that is when a pirated copy of a good quality is made available), we consider making decision at the certain moment, so time lag does not make any difference.
Our study contributes to the growing literature on piracy and digital media consumption in the online community by presenting evidence of the impact of digital piracy, by differentiating the effect of post-release movie piracy from the other types of piracy that the extant literature has previously considered.