Megaupload shutdown boosted movie sales, says study

IDG News Service - The shutdown of Megaupload caused an increase in digital sales and rentals of movies, according to a study by two researchers, which is likely to give a boost to the movie industry, which has typically blamed online cyberlockers and file-sharing websites for fueling piracy.

The closure of Megaupload led to a 7 to 10% increase in digital sales and a 4 to 7% increase in digital rentals by units, 18 weeks after the shutdown, for the two studios in its sample, the study reported.

"Thus our findings show that the closing of a major online piracy site can increase digital media sales, and by extension we provide evidence that Internet movie piracy displaces digital film sales," wrote researchers Brett Danaher, assistant professor of economics at Wellesley College, and Michael D. Smith, professor of information technology and marketing at Carnegie Mellon University.

Megaupload founder Kim Dotcom and colleagues, and two companies including Megaupload, were indicted by a grand jury in the Eastern District of Virginia on Jan. 5, 2012 and charged with engaging in a racketeering conspiracy, conspiring to commit copyright infringement and money laundering, and two substantive counts of criminal copyright infringement, according to the U.S. Department of Justice. They were charged with running a criminal enterprise allegedly responsible for worldwide online piracy of numerous types of copyrighted works through Megaupload.com and other related sites.

Digital movie revenues for the two studios were 6 to 10% higher over the 18 weeks following the shutdown across the 12 countries surveyed, than if there had not been a shutdown, the researchers said. The gains in sales and rentals after the closure were higher in countries that had a higher penetration of Megaupload's services. "Much of the positive correlation between the post-shutdown sales change and the pre-shutdown Megaupload penetration is driven by France, Spain, Belgium and Mexico," the researchers wrote.

The researchers cautioned that the boost in legal sales as a result of the shutdown may not have been directly linked to the unavailability of Megaupload, but to measures taken by other cyberlockers in the wake of the shutdown and the publicity it generated.

The research focused on Megaupload's closure to analyze empirically whether policy interventions are an effective way to reverse the negative impact of piracy on media sales. It used sales data provided by the two studios, which included all digital purchases and rentals through their major digital channels aggregated at a weekly level from Sept. 2, 2011 to May 31, 2012.

A recent study by NPD Group, however, suggests that illegal music file sharing declined significantly last year primarily because of the increased use of free, legal music streaming services.