29 Pages Posted: 7 Mar 2013 Last revised: 20 Nov 2013

Date Written: September 14, 2013

Abstract

The growth of Internet-based piracy has led to a wide-ranging debate over how copyright policy should be enforced in the digital era. In this paper we analyze the impact of the US government’s shutdown of a major piracy site — Megaupload.com — on digital sales and rentals of movies.

Exploiting cross-country variation in pre-shutdown usage of Megaupload, we find that the shutdown of Megaupload and its associated sites caused digital revenues for three major motion picture studios to increase by 6.5-8.5%. Our results suggest that some consumers will turn to legal channels when a major filesharing site is shut down, and by extension that illegal filesharing displaces digital movie sales.