This past week, a DVD quality copy of Expendables 3 leaked onto online pirate sites, weeks before its August 15 box office debut. Along with the news came the usual claims that filmmakers shouldn’t worry about pre-release piracy—it’s good promotion, says David Pierce at the Verge, and internet commenters offer scores of other rationalizations.
But over at the Technology Policy Institute Blog, researcher Michael W. Smith says the unauthorized pre-release copy will likely hurt box office revenues for the film. He and his colleagues studied the effect of pre-release movie piracy on box office revenue and found that, on average, it “results in a 19% reduction in box office revenue relative to what would have occurred if piracy were only available after the movie’s release.”
Smith’s study is the first peer-reviewed journal article to look at this particular form of piracy. It was recently accepted for publication in the Information Systems Research journal, but a pre-publication draft is available at SSRN.
The study casts doubts on claims that pre-release piracy has no impact on theatrical revenue or even has a beneficial effect by generating buzz. On the contrary, Smith finds that “pre-release piracy significantly reduces a movie’s expected box office revenue and that this impact is stronger earlier in a movie’s lifecycle than in later periods.”
Smith concludes the report by noting some of its limitations. It doesn’t look at the intensity of pre-release pirating, nor at the quality of the unauthorized copies, data which may provide additional insights. It also does not consider the effect of pre-release piracy on different types of films, nor does it examine the effects on revenue streams besides the box office, such as DVD sales.
These last two limitations are particularly worth further research. Most films—particularly indie and niche films—don’t ever screen in theaters, and even among those films that do, box office revenue is only a part of overall revenues.
While Smith’s study is the first peer-reviewed article to look specifically at pre-release piracy and its effects, it is not the first to look at the effects of other forms of piracy on films. In fact, in his article, Smith notes that eight peer-reviewed studies so far have looked at the effect of piracy on film sales, and, more significantly, seven of the eight studies have found “that piracy results in significant harm to motion picture sales.” A broader literature review – focusing not solely on films but on other types of works such as recorded music – found that “The vast majority of papers which have been published in peer-reviewed academic journals — papers spanning a variety of methods, time periods, and contexts — find that piracy causes a statistically significant decrease in sales.”
And yet some measure of file-sharing denialism persists. It, first, runs counter to common sense—yes, if people can get something for free they’ll buy less, and if people buy less of something, less of it will be produced. But it also, as seen above, is not supported by the overwhelming majority of empirical evidence.
In ‘The Expendables 3’ Torrent and the Techno-Utopian Delusion, Indiewire writer Sam Adams sees through this denialism, or, as he calls it, “sheer self-justifying delusion.” In doing so, he touches on a larger point.
Adams notes that some of the rationalization for downloading The Expendables 3 is based on the idea that it is not a movie but a show, one in which the experience of watching in the theater takes precedence (and thus justifies watching an illegitimate, lower-quality version). Because of this, he cautions:
And when you’re paying for the experience — not out of curiosity or as a way of supporting an ecosystem that allows the creation of new work — it only makes sense to sample the product beforehand. But in so doing, you’re pushing cinema in a direction where every movie has to be a show: Either it’s big and loud enough to make you feel like you’re missing out by watching it (legally or illegally) at home or it might as well not show up to play.
CNET’s Nick Statt raises similar concerns:
We often complain about “sequelitis” and the onslaught of low-quality, brainless action movies and series reboots, yet don’t ever seem to take responsibility for the fact that our collective unwillingness to pay for things that don’t have formulaic payout is what drives creative decision making.
In the current model, everything from “Boyhood” and “12 Years A Slave” to “Zero Dark Thirty” and “Gravity” are more harmed by systemic piracy because it devalues films as an art form. Risks are not rewarded when the only movie with a concrete return on its investment is a $200 million narrative train wreck about robot cars or a tongue-and-cheek ensemble action flick featuring Rocky, the former governor of California, and Han Solo.
I enjoy such films, as do millions of others. But it would be a shame if that was all we got to see. The ultimate point is that piracy has societal effects beyond any given film’s bottom line.
In Copyright Extremophiles: Do Creative Industries Thrive or Just Survive in China’s High-Piracy Environment? 127 Harvard Journal of Law & Technology 469 (2014). published earlier this year, Eric Priest digs into some of these less obvious effects of piracy in more detail. The claim is sometimes made that maybe copyright—the legal foundation that provides exchange value for creative works—is irrelevant since creativity still exists in areas, such as China, where piracy runs rampant. Priest refutes this by comparing creators in high-piracy areas to biological organisms known as extremophiles.
Just as microorganisms have evolved to thrive in superheated deep-sea vents or highly acidic environments, so too can a subset of creative professionals find ways to monetize their works even in a high-piracy environment. The fact that some monetization models can work for some types of producers or artists in China does not mean that optimal or even near-optimal conditions exist for the development of flourishing, healthy, and stable creative industries. In short, poor copyright enforcement inflicts significant and persistent harms on China’s music and film industries. To invoke the extremophiles analogy, China’s inhospitable creative industry environment may support narrow strains of creative “life,” but with an effective regime of copyright norms and enforcement, China’s creative ecosystem could more closely resemble a lush, diverse rain-forest.
Priest’s research unpacks some of the more pernicious results that piracy has on China’s film and music industries. Along with undermining the ability of a professional class of creators to sustain their livelihoods, high piracy has made these industries “neither robust nor stable” and lead them to become “hyper-dependent on a single revenue stream” (box office for films and ringback tones for music). Priest concludes:
This lack of revenue stream diversity distorts and undermines the creative ecosystem in at least three ways. First, the scarcity of monetization options creates a winner-take-all market dominated by big producers. The paucity of other revenue sources seriously undermines financial support for smaller, independent producers.
Second, rampant piracy and concentration of revenue streams distorts market signals to producers. For example, film producers are incentivized to invest in a relatively narrow range of works that attract the audience whose tastes are most easily monetized – young, urban cinemagoers. Music producers likely are incentivized to produce music that will make the most marketable ringtones.
Third, and perhaps most importantly, reduced revenue stream diversity disproportionately exposes producers to the whims of peculiar markets and exploitation by gatekeeper or monopsonist intermediaries. China’s music industry proves an especially vivid example, as ringback tones gross more than $4 billion annually, but the mobile operators who control ringback tone distribution keep more than ninety-eight percent of that revenue for themselves. The meager two percent that goes to copyright owners amounts to ninety percent of those copyright owners’ total income from recorded music. So if ringtones lose their appeal with consumers, the recording industry will collapse. Without other viable revenue streams to leverage, musicians, producers, and record labels have little choice but to grin and bear it while a state telecommunications monopoly enjoys the great bulk of the rewards of their artistic efforts.
It seems difficult to make a more compelling case for copyright. How creators and the film industry responds to pre-release and other forms of piracy is a wholly separate topic, but the fact remains that any type of piracy has a significant negative effect on revenues as well as the stability and vitality of creative and cultural industries. If we want to maintain robust and independent creativity, we should not be so quick to treat copyright as expendable.
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