Piracy and Movie Revenues: A Critical Review of a Tale of the Long Tail

Abstract

A recent study on piracy entitled Piracy and Movie Revenues: Evidence from Megaupload: A Tale of the Long Tail? serves up the counter-intuitive claim that piracy may increase box office sales for some films. To reach this conclusion, Tale of the Long Tail uses as an "experiment" the January 2012 shutdown of what was likely the single largest online distributor of pirated content — the file sharing website Megaupload. Using data on weekend box office revenues for thousands of films shown in about fifty countries, the authors split this data into pre- and post-shutdown periods, and then apply econometric methods to test for a difference between the two samples, attributed any observed change to the shutdown. Upon close inspection the "piracy helps box office sales" result if found to be an artifact of a poorly designed statistical model, which is, in part, a consequence of the study's authors ignoring the basic economics of the box office. The defect in the Tale of the Long Tail's model is revealed in the dubious implication of that model that a "blockbuster" movie (as the authors define it) will earn no more revenue than a "small movie" and far less revenue than a "mid size" movie. In fact, according to the analysis in Tale of the Long Tail, what the authors define to be a "blockbuster" movie makes only one-fourth (1/4) of the revenues of mid-sized movies. The bizarre result about the benefits of piracy is based upon this dubious implication of the statistical model. In this PERSPECTIVE, I detail this problem with Tale of the Long Tail, and outline a few other defects. There are far too many problems with the study's empirical approach to cover them all in detail, including the fundamental question regarding whether the general "before" and "after" approach can identify the effect of piracy generally, and whether the authors have estimated a model capable of capturing the effect. A thorough analysis of the study is unnecessary since the study's central (and most controversial) finding is easily dismissed.