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Study: Shutdown of Piracy Sites Ups Digital Movie Sales

7 Mar, 2013 By: Erik Gruenwedel

The shuttering of websites catering to pirated movies and TV shows reportedly can increase digital revenue as much as 10%, according to a new academic study.

Peer-to-peer networks and digital cyberlockers account for more than 25% of Internet traffic — much of it for pirated music and movies, according to Cisco Systems’ Visual Networking Index.

The report, compiled by Wellesley College economics professor Brett Danaher and Carnegie Mellon University IT and marketing professor Michael Smith, tracked online sales and rental revenue of movies after the closure of Megaupload and Megavideo. Cyberlocker MegaUpload was shuttered in January 2012 after the Department of Justice filed criminal copyright charges against its controversial owner, Kim Dotcom.

The researchers found that weekly digital revenue of movies from two studios grew from 10,500 and 15,300 units, respectively, compared with when the piracy sites operated, according to The Wall Street Journal, which first reported the findings set to be released today. Transactional video-on-demand rentals increased 13,700 and 24,000 units, respectively.

The study, which did not disclose the name of the studios, tracked their online retail activities for 18 days following the closure of the piracy sites.

“We conclude that shutting down Megaupload and Megavideo caused some customers to shift from cyberlocker-based piracy to purchasing or renting through legal digital channels,” Danaher and Smith wrote.

The study is the first of its kind to demonstrate the causal effect of shuttering piracy websites on digital sales. The study did not analyze the impact on packaged media, including rental, or theatrical.

The findings are significant since data throughout the years from the Motion Picture Association of America has suggested that billions of dollars are lost each year by the studios to pirated movies. Online access coalitions and civil liberty groups have questioned those claims arguing that piracy is the byproduct of a flawed distribution model.

Indeed, Danaher and Smith acknowledged the results could have been a temporary reaction to the shutdown of Megaupload and Megavideo, and not necessarily indicative of a long-term trend.

“We ... do not know whether the sales increase will persist or if these new consumers will eventually find their way back to alternative piracy channels,”  the professors wrote.

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