23 Pages Posted: 28 May 2016 Last revised: 6 Jun 2016

Date Written: May 26, 2016

Abstract

For many years movies have been released using a series of staggered release windows, where releases are strategically timed across different product and geographical markets. These release windows have meant that movies were released first in theaters and several months later on DVD, and in most cases were released first in the United States and later in international markets. These established release windows have come under increasing pressure from digital piracy. In responses, studios have changed their strategies to reduce these delays. Nonetheless, delayed releases persist for a variety of operational, financial, and regulatory reasons, which means that pirated digital DVD rips can be available for several weeks, and in some cases months, before the DVD is legally available in international markets.

Our research seeks to measure the impact of this early piracy availability on DVD sales in legitimate channels. Our methodology uses observed box office revenue in the theatrical window to break the endogeneity between release window timing and DVD sales. Using data from 2009-2011, 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. This result is robust across a variety of different specifications and, as expected, is higher for high piracy countries than for lower piracy countries. Our results show how digital networks have increased the interconnection between geographically dispersed markets, and suggest a continued need for studios, their market partners, and government agencies to revisit established marketing and regulatory practices given the widespread availability of pirated content.