Many say piracy is threatening the movie industry. But is it really?
Although estimates of the film industry can differ significantly among studies, consultancies and research institutions all predict the same: the global market for movies is ever increasing. E.g. Reuters predicts that the market will reach $139 billion in revenue in 2017 with a CAGR of 4.2% over five years (2012-2017) (Reuters, 2012). If movie production companies say piracy is eating from their revenues, where is that growth coming from?
To start with: not from DVDs. A movie is an information good. The upfront cost is very high, up to millions of dollars before even making any revenue. Thereafter, distribution costs are very low. In the case of a DVD that is only a few cents to produce and distribute (Vapiro & Varian, ?). Therefore, DVDs are considered to be very overpriced. As Vapira & Varian (?) recommend: do not be greedy. If the price for an information good is too high, this attracts new entrants. In this case, piracy websites who earn a significant income through online advertising.
Although movies are downloaded millions of times, that does not mean that those movies would have been bought as a DVD if a download was not available, ‘it does seem fair to assume that not every pirated copy of an audiovisual work represents lost revenue to the content producer’ according to Karsten Strauss from Forbes (2013). Also, a download does not mean the producer loses money. The production costs have already been made and there is no additional cost to the producer that it’s distributed online.
A really large part of the growth will come from unlimited online streaming services like Netflix and Hulu. In 2013, revenue totalled $6.6 billion, but it is estimated to grow to $17.4 billion in 2017 according to a study by PWC (Billboard, 2013). The rise of these streaming services recaptures some users that resorted to piracy, as now there is an instant way to watch a movie or show without illegally downloading it.
Actually, as Reuters (2012) puts it, growth comes from new online and mobile business models in general (including unlimited online streaming services). Take pay per view and video on demand that’s now available via consumer’s own TV subscription and online and mobile websites. In 2016, the revenue of those models will surpass the revenue of physical DVDs and Blu-ray discs in the US (Billboard, 2013).
As a last note, piracy can even help the film industry growth. For example, Game of Thrones, the most downloaded TV show in 2012, strives on the ‘cultural buzz’ it creates: more views on TV and streaming services and increases DVD sales (Forbes, 2013).
Forbes, 2013. TV and Film Piracy: Threatening an Industry? [online] Available at:
<http://www.forbes.com/sites/karstenstrauss/2013/03/06/tv-and-film-piracy-threatening-an-industry/ > [Accessed October 20, 2014]
Reuters, 2012. Research and Markets: Global Movie and Entertainment Industry 2012-2017: Trends, Profits and Forecast Analysis Provides an Overview of the Global Movie and Entertainment Industry. [online] Available at: <http://www.reuters.com/article/2012/07/13/idUS161883+13-Jul-2012+BW20120713> [Accessed October 20, 2014]
Billboard, 2013. Study: Global Entertainment Industry Poised to Top $2 Trillion in 2016. [online] Available at: <http://www.billboard.com/biz/articles/news/global/1565728/study-global-entertainment-industry-poised-to-top-2-trillion-in> [Accessed October 20, 2014]
Shapiro, C., & Varian, H. (1999). Information rules. Boston, Mass.: Harvard Business School Press.