New study shows shutdown of filesharing site helped blockbusters, but hurt smaller flicks

A new study by European researchers suggests that the shutdown by the U.S. Department of Justice last January of giant filesharing site Megaupload had complicated effects on the movie industry.

The study finds that Megaupload’s disappearance benefited blockbuster movies — fewer people downloading the biggest films illegally meant more tickets sold at the box office.  But the picture for all of the other, non-blockbuster, films was more complex.  Megaupload’s shutdown appears to have actually decreased box office revenues for a wider category of non-blockbuster films.

The researchers speculate that less popular films may have suffered from Megaupload’s disappearance because fewer illegal downloads meant less word of mouth promoting good but lesser-known films. Put another way, there are lots of people who don’t engage in illegal downloading, but who hear about less popular films from those who do. Cut off the illegal downloads, and you cut off a potentially significant source of promotion. Which means that it’s possible — although it is important to understand that this study does not offer definitive proof — that illegal downloading is, on net, a benefit for at least those (many) films that don’t enjoy the sort of marketing budget that Hollywood devotes to Transformers 3.

So, what does this all mean? It’s another example of how the effects of illegal copying are much more subtle than we are willing to acknowledge. Some movies are hurt by illegal filesharing. Other movies benefit. That may not change your views on the ethics of filesharing. But it does raise the question why the United States government is spending what will eventually likely amount to tens of millions of taxpayer dollars to prosecute Megaupload impresario Kim Dotcom. If this study has the picture right and filesharing does not appear to impose big social harms, should filesharing be an area of criminal prosecution by the U.S. government? Or should it be left to Hollywood to sort out through civil lawsuits?

Megan McArdle on The Knockoff Economy

Writing in The Daily Beast, influential journalist and economics blogger Megan McArdle picks up on a feature of The Knockoff Economy that we’re always happy to have someone notice — we are not IP abolitionists, and we think that IP law has an important role to play in encouraging creativity. And although we think that industries like food, fashion, and others that innovate without much reliance on IP have something to teach us about the future of traditionally IP-reliant industries like music and film, it’s important not to over-state the degree to which these very different sorts of industries are likely ever to run on the same logic.

Indeed, a central message of our book is that all creative industries are different. Some need IP more than others. Some don’t need it at all. Now, despite these obvious differences, the IP system tends to treat all creative industries alike. Copyright law, for example, imposes the same basic rules on hundred-million-dollar motion pictures and two-cent shampoo bottle labels. And patent law imposes the same rules on new drugs, which are often stupendously expensive to produce, that apply to Amazon’s patent on a “one-click” method of online ordering, which someone probably dreamed up and implemented in a few weeks and at very little cost. (Actually, that Amazon patent never should have been granted in the first place. “One-click” was obvious to anyone who thought about the issue at all, not least because the previous ordering method required two clicks.)

McArdle draws from our work something that we very much hope to get across — we should start thinking about ways to make IP law better at addressing the different characteristics of very different creative industries. Do fashion, food, football, and fonts need more IP? Not that we can see. Does the pharmaceutical industry need the high levels of IP protection it enjoys under current law? Well, considering how expensive it is to discover new drugs and get them through FDA-compliant clinical trials, the case for patent protection in pharma is much, much stronger. How else would pharma companies attract the kind of capital they need to get new drugs off the lab bench and into the FDA pipeline?

So fashion and food may be on one end of the spectrum (the low-IP end), and pharma on the other. And in the middle sit a variety of other, important creative industries. Let’s just consider one we tend to obsess about — music. For decades, music was a high-IP industry — that is, it relied on strong and enforceable copyright as the basis of its business model. Well, along came Napster in 1999, and we all know what happened next. The music industry’s copyright-centered business model went “poof”. And we doubt that there’s anything that the industry, or government, can do that will make copyright work again as the central piece of the music industry’s business model.

So it’s time to start thinking about what a less copyright-reliant music industry could look like. In some ways, that shift is already happening. The live concert, which is really selling an experience rather than a product, is much harder to copy than a CD or digital download. And so live music is re-emerging as a growth area. That’s just one of a host of changes that are, over time, likely to make the music industry less susceptible to copying. Time will tell, but we’re betting that in 20 years the music industry will look more like fashion than pharma. And it will be making a lot of great music — and some money as well.