While total US film industry revenue has been increasing, the box office revenue has been steadily declining since 1980. With the advent of file sharing, the film industry wonders if this decline could be in part due to illegal, unpaid copies, or if illegal distribution will hit the movie industry as it has affected the music industry. Authors Rob and Waldfogel use a survey from 470 University of Pennsylvania students to estimate how fast students are replacing paid products with unpaid products like bootleg DVDs and illegal downloads. The authors find that while the current percentage of unpaid usage for products is low (5.3%), the rate of substitution is extremely high. The rate of displacement is high because the people who use unpaid methods would have paid if the unpaid version weren’t available.
Rob and Waldfogel explore not only how much unpaid consumption occurs instead of paid, but also the rate of displacement of paid by unpaid. The first regression used looks at the relationship between the first viewing and the second viewing. While the authors find evidence that seeing a movie by an unpaid method the first time are less likely to view the movie a second time via paid method, Waldfogel and Rob also find a correlation between those that like movies a lot and high number of both paid and unpaid consumption.
A second test of selecting a certain method of first viewing and then seeing the specific subset of second viewings allows the authors to see how many people where using unpaid methods. This test helps answer the first question of how are the students using unpaid instead of paid. For movies seen in the theatre first, 34.9% of those movies were seen again by people who only had paid consumption. Students that had some unpaid consumption saw 30.1% of the movies again in a paid method and 4.5% unpaid. While this is suggestive of a one-for-one displacement, the method doesn’t account for anything like how much the student’s fervor for movies.
To find the rate of displacement that occurs, Rob and Waldfogel do a comparison of the percentages of unpaid and paid in 2005 to 2003.. People who engage in a first viewing unpaid buy .76 unit less of paid first viewing. People who see a movie the second time unpaid buy .2 unit less. On average, consumption sequences (viewing a movie two times) includes 1.3 viewings, so the maximum amount of displacement isn’t one, but 1.3. The 80% displace for first viewings and 20% for second viewings is higher than the displacement numbers for the music industry. Possible high displacement reats are due to the difficulty in obtaining unpaid versions (slow download times, expensive equipment), so only the highly motivated are stealing.
One of the theories in favor of file-sharing that the authors discuss is that of dead weight loss. Unlike the music industry, the movie industry doesn’t receive any benefit from file sharing. At any price, there will always be people who are unwilling to pay for the good. File-sharing reduces the cost of obtaining the good and those that would not have bought it in the first place can now have it. An example from the music industry is how kids find a more eclectic mix of music than can be found on the radio. Listening to new music creates more fans and more concert goers. However, the movie industry doesn’t have this benefit, as the only people burning movies are those that would have bought the movie at full price or those that have the equipment. Right now the cost of stealing movies is too high with the long download times, the expensive equipment and difficulty in finding the movies to download. If file sharing were easier, those that place a lower value on movies might watch, and make the displacement numbers smaller.
As the authors pointed out, the study is not representative of the entire US. If anything, the study is of those most likely to steal movies: college students with the love of movies, access to high-speed internet, the time and zeal to take on such a production and the knowledge of computer technology to do it. The findings in this paper could show us more of what could possibly happen in the worst-case scenario.
While I do know a kid who gets movies from Netflicks, burns them, and has amassed a gigantic library of movies, movies will never be like music. As the authors mentioned and I believe, the utility of movies, or how many times you will watch it, is much lower than music. Even if stealing movies were made easier through faster download times, etc. the marginal utility wouldn’t equal that of music. Consider a situation where music and movies had the same download time. People might download the movies, but the use of the movies wouldn’t nearly be as high as music. Movies are more of an investment in time and enjoyment.
This paper brought up an important subject as piracy is becoming a large problem for industries whose products can be stolen via digital copying. The authors take a limited view into the problem with the small study of only college students. I was unsure if they were trying to get the research and discuss topic starting or had another goal in mind as their research was small. In addition, the discussion of the displacement rates was confusing and I am slightly unclear on how they came up with those rates.