Researchers find Megaupload shutdown hurt box office revenues, despite gains for blockbusters

We’ve heard this one before, over and over again: pirates are the biggest spenders. It therefore shouldn’t surprise too many people to learn that shutting down Megaupload earlier this year had a negative effect on box office revenues.

The latest finding comes from a paper titled “Piracy and Movie Revenues: Evidence from Megaupload” (via TorrentFreak) from last month, conducted by from Munich School of Management (LMU) and the Copenhagen Business School (CBS). Here’s the abstract:

In this paper we make use of a quasi-experiment in the market for illegal downloading to study movie box office revenues. Exogenous variation comes from the unexpected shutdown of the popular file hosting platform Megaupload.com on January 19, 2012. The estimation strategy is based on a quasi difference-in-differences approach. We compare box office revenues before and after the shutdown to a matched control group of movies unaffected by the shutdown.

The study analyzed weekly data from 1,344 movies in 49 countries over a five-year period. Here’s the crux of the results: “In all specifications we find that the shutdown had a negative, yet in some cases insignificant effect on box office revenues.” Not all movies were negatively affected: “For blockbusters (shown on more than 500 screens) the sign is positive (and significant, depending on the specification).”

The researchers try to explain how big blockbusters gained but overall revenues dropped:

Our counterintuitive finding may suggest support for the theoretical perspective of (social) network effects where file-sharing acts as a mechanism to spread information about a good from consumers with zero or low willingness to pay to users with high willingness to pay. The information-spreading effect of illegal downloads seems to be especially important for movies with smaller audiences. ‘Traditional’ theories that predict substitution may be more applicable to blockbusters

Unsurprisingly, the dip in revenues was most visible for average size and smaller films, as people are most likely to see big blockbusters with their friends regardless of what happens on the Internet. Those flicks are less likely to require word-of-mouth promotion by people who used Megaupload to share movies.

Of course this is just one paper, and I’m sure more studies will be done that will dive deeper into the data. By then though, Megaupload’s successor, Mega, will have launched.

See also – Kim Dotcom: New Megaupload will launch January 20 2013, the anniversary of the police raid and With Kim Dotcom’s Me.ga plans scuppered, soon-to-relaunch Mega goes online at Mega.co.nz

Image credit: RAWKU5