Megaupload Shutdown Boosted Digital Movie Revenues

A new paper suggests that revenues from digital movie sales and rentals were positively impacted after the shutdown of Megaupload. Researchers from Wellesley College and Carnegie Mellon University compared the income from 12 countries with varying Megaupload usage. They conclude that the shutdown caused a 6-10% increase in digital movie revenues for two major Hollywood studios.

megauploadIt is no secret that the MPAA was one of the instigators of the Megaupload investigation, which ultimately led to the shutdown of the company January last year.

According to the Hollywood studios the file-hosting site kept people away from legal movie stores, and they now have some data to back this claim up.

This week researchers from Wellesley College and Carnegie Mellon University released a comprehensive study that evaluates the impact of Megaupload’s shutdown on digital movie revenues.

Titled “Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales,” the paper compared digital movie revenues across 12 countries. These countries vary in the relative number of Megaupload users, allowing the researchers to estimate the effect of the cyberlocker’s demise on movie sales.

“We were interested in studying the effect of a major piracy site shutdown on demand for digital movie sales since we’ve seen the argument that such efforts could be like a game of whack-a-mole, with a new file-sharing site springing up as soon as one is closed,” assistant professor of Economics Brett Danaher tells TorrentFreak.

“We saw the logic of this argument, but could also imagine a world where shutting down such a large site could change the behavior of some types of consumers,” he adds.

After controlling for a wide range of country-specific trends and other variables the researchers conclude that the latter is the case, Megaupload’s shutdown had a significant effect on digital revenues. The data suggest that the income of two major Hollywood studios was boosted by up to 10 percent.

“Our analysis across 12 countries suggests that, in the 18 weeks following the shutdown, digital revenues for these two studio’s movies were 6-10% higher than they would have been if not for the shutdown,” the researchers write in their paper.

“Thus our findings show that the closing of a major online piracy site can increase digital media sales, and by extension we provide evidence that Internet movie piracy displaces digital film sales,” they add.


Megaupload penetration per country

mega-country

The table above shows that Megaupload “penetration” was relatively high in Spain and France, where 17% and 11% of Internet subscribers used the site. With less than 2% it was least popular in the United States.

The researchers used these differences for their statistical model and found that movie revenues were affected positively in countries with a high Megaupload penetration.

“For each additional 1% pre-shutdown Megaupload penetration, the post-shutdown sales unit change was 2.5% to 3.8% higher, suggesting that these increases are a causal effect of the shutdown,” they write.

The shutdown of Megaupload caused a 7-10% increase in the number of digital sales and a 4-7% increase in digital rentals.

The results are based on sales numbers reported by two major Hollywood studios, and the researchers suggest that the effect will be similar for other film companies. Whether the effect will remain over time has yet to be seen though.

The large effect of Megaupload’s shutdown is quite surprising considering the fact that there are still hundreds of other sites offering the same content. According to researcher Michael Smith, Professor of Information Technology and Marketing, for some people “going legal” is the easiest option.

“Not everyone is as sophisticated [to find alternatives] and our results suggest that at least some people decided they were willing to pay a little bit more not to have to go through the “trouble” of finding the content on these other sites,” he told us.

Adding to this, professor Danaher says that the Megaupload shutdown was not an isolated event and also affected the policies and availability of pirated content through other cyberlockers.

In their paper the researchers explain that these results can help policy makers to assess the effectiveness of such interventions. That said, whether Megaupload has violated any laws is still something for the court to decide.

Interestingly, the findings do in part contrast with an earlier study. Last year researchers from Munich School of Management and Copenhagen Business School found that for smaller films box-office revenues decreased after the Megaupload shutdown. The same study found that box-office revenues for blockbuster movies increased in the same time frame.

Update: The study above was condicted as part of Carnegie Mellon University’s Initiative for Digital Entertainment Analytics (IDEA). IDEA’s creation was funded by the MPAA.

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