New Study: Impact of Pre-Release Piracy

People like to quibble about the harm done to the motion picture industry by online piracy. They split hairs over things like whether or not each pirated view represents a lost sale or chime in with arguments that piracy is a form of promotion or a natural market reaction to outdated practices.  If a lot of the arguments for piracy sound like rationalizations, it’s because they are.  And when you hear rationalizations you’re hearing the voices of people who know that what they’re doing is wrong.  But even if we were to take any of the pro-piracy rationalizations as serious analysis, they fall completely apart the moment we’re talking about one of the more obnoxious practices in the whole paradigm — pre-release piracy.

It’s happened a lot, but most recently, The Expendables 3 was leaked online three weeks before it was scheduled for theatrical release.  There’s no other way to put it:  pre-release piracy is a dick move.  It says to everyone who worked on the film, most of them regular folks with regular jobs, that you’re actually eager to see the film but that your own narcissistic desire to be ahead of some imaginary curve is more important than all the investment of money and labor that made the film in the first place.  More than any other form of piracy, pre-release piracy is a huge middle-finger to the grips, electrics, camera department, wardrobe, props, etc. that their jobs mean nothing compared to your need to see a mediocre-quality version of the film on a small screen before anyone else sees it in the theater where it was designed to be released.  Okay that’s my opinion, but what about the impact?

A new study by researchers at The Technology Policy Institute at Carnegie Mellon University is the first to examine the effect of pre-release piracy on revenue. Their conclusions state that, on average, predicted box-office revenues can be reduced by 19% by pre-release piracy compared to post-release piracy.  Theatrical release is the one window when there are no other legal means of viewing a film, and market changes caused by digital technology advances have closed that window considerably.  DVDs go on sale much sooner than they used to after a theatrical release, and some films are released in theaters and through VOD channels simultaneously.  Audiences for big, action films like the Expendables franchise tend to want to see these movies with friends, in theaters, and on big screens.  Profitable opening weekends are a critical slice in the pie-chart of returns investors are seeking when they fund these rather expensive films.

People reading this will, no doubt, have various reactions, including at least a few sentiments directed against big, Hollywood action movies; but that is a flawed lens through which to view the problem.  The Expendables 3 isn’t necessarily my kind of fare per se, but that is entirely beside the point.  What matters in the macro view is whether or not the effect of piracy poisons the ground where legitimate business should otherwise thrive.  When that happens, it’s detrimental to the entire, economic ecosystem in the industry.  Anyone who thinks they can cherry-pick-pirate what they consider the “corporate” fare out of existence and protect whatever their idea of a “better” film might be, is sorely mistaken.

In the big-movie market, if investors are scared off major motion picture investment because pre-release piracy threatens the most critical phase of first sales, that means fewer films get made overall and that the only big films that do get made employ financial models to offset expected losses.  In other words, if it can’t be in a Happy Meal, it won’t be on the screen.  But the smaller movie market has similar challenges with regard to windows of opportunity to recoup investments, and that translates into the probability of making the next film.  If those windows are artificially closed by piracy that preempts the real market from voting with its pocketbook, this will not result in a healthier industry by whatever measure, economic or cultural, you prefer to use.

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