Megaupload Shutdown Hurts Box Office Totals: Is Piracy Free Marketing?

By David Tobia
November 28, 2012

The shutdown of the Megaupload file-sharing service in January has hurt box office revenues for average and smaller firms, writes Torrent Freak. This could be because word of mouth promotion was negatively affected, as fewer people saw the films on Megaupload.
The report comes from the Munich School of Management and Copenhagen Business School in a study that analyzed weekly data for 1,344 movies in 49 countries over five years.
While negative effects were found in some cases, the report notes that some of these negative effects were negligible. However, the report still concludes that piracy can act as a form of promotion, as people who watch pirated movies can talk about them to friends, who then actually purchase tickets.
“Our counter-intuitive finding may suggest support for the theoretical perspective of (social) network effects where file-sharing acts as a mechanism to spread information about a good from consumers with zero or low willingness to pay to users with high willingness to pay,” notes the report, titled “Piracy and Movie Revenues: Evidence from Megaupload.”
While this theory works for small and average films, it does not work for films shown on more than 500 screens. For these bigger films, Megaupload’s shutdown had the opposite effect and helped increase revenues.

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