Stop Arguing Over Theatrical Windows and Start Worrying About Piracy Windows

By | June 10, 2016 1:44 pm PDT

As you may be able to infer from the semi-sarcastic headline of this post, we were all set to have some fun commenting on a recent academic study with the protracted title, “Windows of Opportunity: The Impact of Piracy and Delayed International Availability on DVD Sales“. As many such papers do, it received a great deal of press when it was published earlier this week by Carnegie Mellon University’s Initiative for Digital Entertainment Analytics (IDEA).

Thus, it was our intention to do a write up which scrutinized the study’s findings, research methodology and conclusion. Surely it doesn’t take a PhD candidate to know that the staggered international release of entertainment content may lead to piracy and in turn the piracy reduces revenue earned from alternate release platforms. So, why bother writing about the study at all and bring it further attention? Especially since the paper focuses primarily on revenue earned from DVD and Blu-Ray sales, rather than what we care about most here at CJ; theatrical exhibition and the creation of content destined for cinemas.

To be sure, we don’t merely want to consider the study, which for the most part seems to be solid, but more so the way in which it was interpreted by the media (which is how most will learn about the paper) and highlight an important point many outlets overlooked in their coverage.

First, let’s look at the study, which was written by Michael D. Smith and Rahul Telang, two professors at Carnegie Mellon University. They set out to measure the impact piracy has played on DVD sales in international territories when a movie’s international release is delayed or staggered. As the researchers confess, they understand the operational and legislative need for delayed international releases and that they’re not the first to go about proving that piracy negatively affects home video revenue. However, they wished to measure its impact quantitatively. To do so, they came up with the following model for how to calculate an exact percentage drop:

Carnegie Mellon Study Piracy Window Model

If you look at that equation and actually understand it, then absolutely go ahead and read the published paper, you’re likely to find it fascinating. If, like us, you have to look up the definition of “endogeneity” only to have it described as “a fancy word for a simple problem” which occurs when an explanatory variable is correlated with the error term, and still are uncertain what it means, then you may want to stick with the abstract.

The bottom line is that, as we all know, delaying the release of a film in an international territory pushes back the date when it is available on DVD and Blu-Ray in those countries, and revenue from the latter declines should a title be accessible through digital piracy. But by how much? Let’s let the researchers answer that:

Our results suggest that an additional 10-day delay between the availability of digital piracy and the legitimate DVD release date in a particular country is correlated with a 2-3% reduction in DVD sales in that country.

Smith and Telang review their methodology for calculating the figure derived from their model and it holds up for the most part. The one issue with the study, as they admit, is that it relies on box office and sales data from the years 2009 to 2011. In a rapidly changing industry such as motion picture distribution, relying on data from over five years ago can produce results which do not correlate to present-day market conditions.

The professors even tested their findings by looking at countries with known piracy issues such as Italy and Spain.

When we run our regressions on Spain and Italy alone, we observe a 10% drop in sales for every 10-day delay in legal availability, as compared to a 2% drop in sales for every 10-day delay in the entire sample.

What Smith and Telang have identified is a “piracy window” in which the availability of a film title via illegal download directly relates to a measured decrease in DVD and Blu-Ray sales.

It now pays to look at how the media outlets misinterpreted the study, or more accurately, mis-represented the “windows” being addressed in the research. With all the coverage of public spats over theatrical release windows in which films can only be shown in theatres, maybe it should not be surprising it was these windows that were alluded to so heavily in most news coverage of the Carnegie Mellon paper.

Purposeful or not, what else is one to think when reading headlines such as “Delayed DVD Releases Just Lead To More Pirating” or “DVD Release Delays Boost Piracy and Hurt Sales, Study Shows” or even, “Piracy Study: The Longer the DVD Window, the Worse the Sales“? When clicking on these headlines we fully expected to read a story about theatrical release windows. The article from Media & Entertainment Daily is a great example. It begins:

The time between the theatrical release of a new film and its availability on DVD almost always sees the movie hit piracy sites, but now a new study actually puts a number to how much piracy impacts a film’s bottom during that span.

It isn’t until the third paragraph that the article turns toward international markets, which happens to be the whole point of the study. While most of the news stories published about the research paper did ultimately mention this, some seemed to imply that it was North American theatrical release windows that were at fault for any damages caused by the piracy window.

Even fewer media outlets included a little fact that could infer bias on the part of the researches. Only Torrent Freak and Vocativ revealed that one of the biggest backers of IDEA is the Motion Picture Association of America (MPAA). The trade group, which represents studios and distributors, has been underwriting the institution since 2012. The MPAA now gifts IDEA USD $1 million of its USD $72 million each year.

Does this mean that Smith and Telang are carrying water for the MPAA in the debate over shortening theatrical release windows? Not directly, however they do mention the need to modify staggered international distribution:

Our results suggest that studios and exhibitors should reconsider delayed international movie releases in the presence of global piracy.

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