UCL School of Management is delighted to welcome Zhuang Liu, Western Ontario, to host a research seminar discussing ‘Quantifying the Heterogeneous Effects of Piracy on the Demand for Movies’
The debate on digital piracy has attracted significant public attention. An accurate estimate of the loss due to piracy relies crucially on correctly identifying the substitution between pirated and paid consumption. Using a novel dataset of weekly piracy downloads collected from the BitTorrent network, I estimate a random-coefficient logit demand model of movies to quantify the effect of movie piracy on movie revenue from two distribution channels: box office and DVD sales. Counterfactual results reveal that digital piracy has heterogeneous effects on different channels of sales. When all piracy is removed, US box office revenue will only increase by 2.71% ($ 231 million) while US DVD sales will increase by 36% ($ 527 million) over 40 weeks in 2015. In addition, the effects on sales differ substantially by quality of pirated videos. I find strong evidence that one movie’s piracy have negative indirect effects on other movie’s revenue. Decomposition exercises show that the magnitude of piracy’s indirect effects is much larger than the direct effects on its own revenue. Lastly, I allow piracy to have potentially positive effects on sales through word of mouth (WOM). The positive WOM effects from all pirated consumption have relatively moderate contributions to the industry revenue amounted to $ 68.7 million over 40 weeks in 2015.