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Digital Movie Revenue Climbed After U.S. Shut Down Megaupload: Study

Revenue for Two Hollywood Studios Increased 6% to 10% After Piracy Site Was Taken Down, Researchers Say 3/07/2013 9:49 AM Eastern

After U.S. law enforcement officials shut down file-sharing website Megaupload last year, revenue from digital sales and movie rentals for two major Hollywood studios increased 6% to 10% in 12 countries, according to new study.

On Jan. 19, 2012,  the Dept. of Justice shut down the popular Megaupload.com cyberlocker site, which had claimed more than 150 million registered users and more than 50 million daily visitors. The DOJ charged seven individuals, including founder Kim Dotcom, with “massive worldwide online piracy” and alleged the website had facilitated the distribution of more than $500 million of copyrighted material.

The paper, written by Wellesley College’s Brett Danaher and Carnegie Mellon University’s Michael Smith, examined each country’s pre-shutdown Megaupload penetration rate (the percentage of Internet users who accessed Megaupload or Megavideo during December 2011) and found it was statistically independent of week-to-week changes in sales. They controlled for country-specific trends and the Christmas holiday.

Immediately following the shutdown, "there was a positive and statistically significant relationship between a country’s sales growth and its pre-shutdown Megaupload penetration, such that for each additional 1% (lost) penetration of Megaupload the post-shutdown sales increase was between 2.5% and 3.8% higher (depending on which of our models you believe to be most accurate),” the researchers wrote in a blog post Thursday discussing the study. Danaher and Smith said they found a similar but slightly weaker relationship for digital movie rentals.

The researchers didn’t identify the studios. They thanked the companies for their help in providing data for the study but said the studios “exercised no editorial control or oversight of the research findings.”

The research shows that part of competing with piracy is making content on illegal channels “less valuable to consumers,” Danaher and Smith wrote. “In this regard, our finding of a 6-10% increase in digital movie revenue suggests that even though shutting down Megaupload didn’t stop all piracy, it was successful in making piracy sufficiently less reliable, less easy to use and less convenient than it was before, and some consumers were willing to switch from piracy to legal channels as a result.”

The researchers cautioned that the study only covered 18 weeks after the Megaupload shutdown, “and while we see no sign of sales reverting to original levels, the long-term impacts of the shutdown should be studied,” they wrote.

Separately, last month five major U.S. Internet service providers -- Comcast, Time Warner Cable, AT&T, Verizon Communications and Cablevision Systems -- started issuing warnings to subscribers suspected of sharing copyrighted material using peer-to-peer programs such as BitTorrent. The so-called "six strikes" alert system does not extend to cyberlocker websites that may be similar to Megaupload.

 

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