A newly updated study from the Copenhagen Business School and Munich School of Management suggests that digital piracy actually increases box office revenue for small and mid-range movies.
For years we've heard that digital piracy decreases film revenue, and there are studies purporting to show exactly that. What the Copenhagen and Munich team did differently with their study is that they didn't homogenize the movies and their revenues. Instead, they studied how a sharp decrease in piracy affected blockbusters, mid-range movies and small-budget films separately.
The researchers used stats from boxofficemojo.com to study movie revenue before and after last January's shutdown of Megaupload, one of the largest file-sharing sites on the internet and allegedly a pirate haven. The team studied revenues for films released from August 2007, when Megaupload's popular video-sharing extension Megavideo was first launched, to October 2012, 10 months after Megaupload's shutdown began. They found that while blockbusters have flourished during the downturn in piracy, smaller and even mid-range films have experienced a decrease in revenue.
Their explanation for why piracy might raise revenues for small films is intuitive: "Online piracy acts as a mechanism to spread information about a good from consumers with low willingness to pay to consumers with high willingness to pay." In other words, if Alice, a pirate, steals a really good movie and tells her non-pirate friend Bob about it, Bob might want to see the movie too -- but in theaters.
Movies with big advertising budgets benefit least from this effect; there's no doubt everyone who wants to see Elysium knows it's out now and playing in a theater near them. Those who pirate Elysium instead of seeing it in theaters are only hurting the movie's revenues. But for smaller films, piracy's word of mouth marketing generates real revenue -- more revenue than those films lose from being pirated.