Within the debate of the rights of copyright versus our privacy and freedom lies another debate, examining whether file sharing is even a danger to the industries.

The MPAA offers an undoubting “yes”, forming the basis for its endless take down requests and attacks. Some scholars agree with the MPAA’s sentiments, while others do not. Digging a little deeper, however, researchers at the Munich School of Management and Copenhagen Business School argue these contradictory results are due to treating movies as a homogeneous unit and find interesting results when dividing movies based on their larger or smaller budgets.

The study takes on one of the most notorious and aggressive acts of copyright protection as its independent variable—the shut-down of the filesharing website Megaupload. Logic follows that if file sharing sites do indeed siphon money from movie ticket sales then the sudden loss of one of the largest sites should, as the paper argues, result in an increase of those sales. What was found, however, was that for the large majority of movies revenue did not increase. Furthermore, mid and small budget movies were actually at risk of seeing their revenue decrease after the shut-down. It was only big budget blockbusters that were able to see an increase of revenue.

The conclusion offered by the study of why this is lies in the marketing of movies by advertisements versus word-of-mouth. Because small budgets cannot afford much advertisements the awareness of their movies by file sharers offers a foundation of cultural popularity, which brings in more paying viewers (as Caitlin Dewey reveals, this is the argument that the creators of the TV series Game of Thrones have made). Because big budget films can afford mass advertisements, their popularity remained unchanged or higher relative to smaller budget films after the shut-down of Megaupload.

Taking this a step further, we can find additional reason for the effect on large and small budget movies in that movie tickets are considered to have an inelastic price. Having an inelastic price means that changes in price result in a relatively small change in amount sold. For movie theaters this means that changing the ticket price does not have a large effect on how many people attend the screening. Your average movie goer who goes to the theater once or twice a month is unlikely to change his habits drastically if his monthly movie budget goes up or down a few dollars. Thus, the concern for many movie goers is which movie to see—a decision highly based on awareness and cultural popularity by word-of-mouth and advertisements. Those who do desire high movie consumption are likely more affected by the price (unless they are rich). However, they are in a minority and do not affect the price.

Thus, the aggressive film downloaders with high movie consumption are unlikely to increase purchases even without file sharing as the price is fixed—the price is too high to consume at their desired / pirating level. As a result, these film pirates help create the popular and cultural foundation for the movie consumption level at the fixed price, while the possible increased consumption by eliminating piracy (individuals who would watch more but do not due to price) is low as the fixed cost would simply lead these individuals to other activities and hobbies.

This falls under a persuasive view of advertisement that says ads are not only important for popularity and making the price more inelastic, “but also presents a barrier to entry that is especially important when economies of scale come into play” (emphasis added)¹. The larger the barrier to entry the more difficult competition, a cornerstone of capitalism, has. Many economists argue that cartels (businesses working together – i.e. the MPAA) cannot last long as inherent competition of capitalism will lead to their separation. The six businesses of the MPAA have been able to take up to 85% or more of global and domestic box office sales. The oligopoly (monopoly of several or more) status of the MPAA is partly reinforced by the quasi-monopoly quality of having the only “must-see” movies, which is further supporting by being the only producers able to afford mass ad campaigns. The closure of Megaupload affords more oversight on cultural popularity to those who hold the budget and the ads, and forfeits the social element of sampling and developing our own cultural interests in a more organic manner.

About Michael Wartenbe

I am a Florida native and member of the Florida Pirate Party. I currently live in Miami where I am working on a PhD in international Relations. I became interested in the Pirate Party when simply studying politics was not enough and because the movement focuses on a sometimes confusing and often forgotten side of our current economic environment–Intellectual Property, which is sure to become an exponentially important topic for the future of our societies.

 

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Within the debate of the rights of copyright versus our privacy and freedom lies another debate, examining whether file sharing is even a danger to the industries. The MPAA offers…