Megaupload Shutdown Hurt Smaller Films, Helped Blockbusters

• Ernesto
• August 23, 2013
• MegaUpload

While the major movie studios have all praised the demise of Megaupload, new data suggests that the shutdown has impacted part of the industry negatively. Extending previous work, European researchers show that the closure of the service had both positive and negative effects on box office revenues. Using weekly data from 10,272 movies in 50 countries spanning over several years, the researchers found that the Megaupload shutdown actually hurt smaller movies.
It 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 the box office, resulting in hundreds of millions in losses. However, new data shows that this claim may not hold ground, at least not for all movies.
This week researchers from Munich School of Management and Copenhagen Business School published new data that reveals how the effects of the shutdown vary based on the size of the movie, defined by the number of cinema screens it shows on.
The researchers extended a previous paper and the new analysis is based on 10,272 movies showing in 50 countries. Based on this data they found that only very large movies benefited from the shutdown, while revenue for most smaller and medium-sized movies decreased.
“We find that box office revenues of a majority of movies did not increase. While for a mid-range of movies the effect of the shutdown is even negative, only large blockbusters could benefit from the absence of Megaupload,” the researchers write.
We contacted Christian Peukert, one of the authors, who confirms the counter-intuitive finding.
“The results of our analysis suggest that the shutdown of Megaupload did not – as one might expect – generally increase box office revenues of movies,” Peukert tells TorrentFreak.
Looking at the overall picture the data suggests that average post-shutdown revenues are roughly 12% lower. This is also visible in the figure below which clearly shows a drop in revenue after January 2012.

Box office revenues before and after the shutdown

What’s striking about the findings is that the shutdown effects are not the same for all movies. According to the researchers the negative impact on smaller movies can be explained by a drop in word-of-mouth promotion from pirates, which affects smaller movies more.
“Smaller movies usually have smaller marketing campaigns, making word-of-mouth therefore a more important success driver. If some of this word-of-mouth effect is then taken away with the shutdown of illegal content, performance of smaller movies is likely to be hit harder,” the paper notes.
The increase in blockbuster revenues, on the other hand, is the classic replacement effect the MPAA had expected. That is, people pay for a box office ticket instead of downloading the movie for free. Word-of-mouth promotion may also occur for blockbusters, but the data shows that it’s outweighed by the replacement effect
“It could be that for most movies both effects balance, but for some movies the promotional effect outweighs the replacement effect and vice versa. If the promotional effect was especially important for smaller movies with lower traditional marketing budgets, this would explain our findings,” Peukert tells TorrentFreak.
The researchers ruled out several alternative explanations and also looked into the impact of Megaupload’s demise on the availability of pirated titles. Using The Pirate Bay as a comparison, they find that the shutdown had no significant effect on the availability of pirated movies on the Internet.
“The one striking implication of this study is that it is difficult to reduce negative effects of online piracy by shutting down the supply of illegal downloads,” Peukert says.
As any study of this kind, however, the statistical findings have to be used with caution.
“It is important to keep in mind that any statistical analysis can only provide estimates. The precision of an estimation always depends on a number of factors, such as method and type of data. We therefore prefer the most conservative, qualitative interpretation of our findings,” Peukert notes.
It will be interesting to see how Hollywood interprets the findings. When the researchers published an early working paper last year based on a limited set of movies, the MPAA said the results were “not clear or compelling” and that it would reserve comment until the full paper is published.
For Kim Dotcom and his team the research is not likely to change much. They continue their legal battles in the United States and New Zealand, which may take a few more years.