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&gt; [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&gt; [Accessed October 20, 2014]

Shapiro, C., & Varian, H. (1999). Information rules. Boston, Mass.: Harvard Business School Press.

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3 responses to “Many say piracy is threatening the movie industry. But is it really?”

  1. 343077ks says :

    You make some interesting points. I think you prooved that streaming services are threatening to the movie industry and that streaming services are maybe more threatening to the movie industry than piracy is.

    However, in my opinion, that does not mean that piracy is not threatening to the movie industry as well. I do think that piracy is threatening to the movie industry, however, in my opinion, the movie industry has an influcence on the existence of piracy. First of all, the prices of DVDs are too high. Secondly, new movies appear on different dates in different parts of the world. If you want to see a movie in the Netherlands, that has not yet been appeared in the movie theather, you can just go to the internet and download an illegal copy someone has streamed in another part of the world. Thus, the film industry should first look at the reasons piracy exists in the first place before it blames income losses on piracy (http://vorige.nrc.nl/dossiers/auteursrecht/europese_unie_internationaal/article1859451.ece, 2005).

  2. 363232sl says :

    I totally agree on the points made about the prices of DVD’s. For the big blockbuster studios, I don’t think that piracy is very threatening. A lot of people want to see those movies as soon as they are released, which results in lots of revenue from movie theaters. Also, a lot of true fans of the movie want to have the DVD (even with such prices) to watch the movie over and over again. I do think that these big studios lose money because of piracy but not that is threatening them. It’s a different story for the small independent film-makers. These people may have spent years raising money for the movie. Then these film-makers are totally dependent on local distributors in all countries to take risk and invest in the making of a film before it is made. Distributors are not able to take the risks they used to because of piracy. Once a movie is copied or made available online, it reduces the value of that film around the world. What this means to the consumer is not that some producers don’t get rich, it means the product doesn’t get made.

  3. 311354rh says :

    I don’t believe piracy is threatening the movie industry. It’s an outdated mental model held in place by the status quo because they don’t like change. They think the changes will be spoil their lunch. But I know from the research that weaker copyright material is actually beneficial for our society! See here for instance, https://www.techdirt.com/articles/20100621/0933449895.shtml Some of the arguments include that sharing has increased significantly as opposed to decreased, thus the market hasn’t been hurt at all. They believe it has to do with our perception in that we don’t see downloads as substitutes but as complements. And from the research it shows that ancillary markets have greatly increased their output because of those complementary goods, without actually decreasing output. All the talk surrounding piracy is geared towards protecting the industries, rather than discussing what copyright is actually really about: “Copyright exists to encourage innovation and the creation of new works; in other words to promote social welfare.” But hey, we’ve seen the forces at play can’t be stopped and will fundamentally change all the entertainment industries. Apple already has, for instance.

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