Study Suggests Megaupload Shutdown Boosted Legal Movie Sales

Kim Dotcom

Music bizzers also reported higher digital sales

Hollywood studios are quick to offer figures on the cost of piracy, but a new study sheds light on whether efforts to combat it is at all working.

A study conducted by Carnegie Mellon’s Initiative for Digital Entertainment Analytics suggests that the shutdown of cyberlocker giant Megaupload last year had the effect of boosting the sales of digital movies. The findings showed a “positive and statistically significant relationship between a country’s sales growth and its pre-shutdown Megaupload penetration,” according to the authors of the study, Brett Danaher and Michael D. Smith. Their estimates suggested that of 12 countries studied, revenues from digital sales and rentals for two studios were 6% to 10% higher than they would have been had Megaupload not been shut down.

Their results lend credence to arguments that one of the solutions to fighting piracy is to make available easy-to-use alternatives. Although the entertainment industry has argued that piracy puts it at a competitive disadvantage — you can’t compete with free, the saying goes — the authors noted that after Megaupload was shut down on Jan. 19, 2012, consumers still had the option to just move to other pirated content from other cyber lockers.

“In this view a key part of competing with free pirated content is using the same tools that Amazon uses — reliability, ease-of-use, and convenience — to make content on legal distribution channels more valuable than competing content piracy channels,” the authors wrote.

Their study did not study the long term impact of the shutdown, or whether consumers eventually reverted back to pirated sites. Nor did they study the costs associated with the shutdown, which came after an extensive investigation by the Department of Justice and international operation that led to the high profile arrest of Megaupload founder Kim Dotcom in New Zealand. Authorities are seeking his extradition to the U.S.

The full study is available here.

After the seizure of Megaupload, representatives in the music business also reported an uptick in digital sales.

The two studios that participated in the study provided research data, but had no control or oversight of the findings, the authors said. The names of the studios were not disclosed.

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  1. Bri says:

    Correlation does not equal causation!

    If you read the study their justification for causation is the fact that digital media sales went up in numerous countries after Megaupload shut down. Just because something happens across many countries does not indicate causation. This is an absurd justification. Let’s also not forget that this “study” hasn’t been peer reviewed.

    • Susan Q says:

      Well Bri, I’m tempted to apologize since now it’s clear you’ve actually thought about this, but I’m not sure an apology is in order. Your original comment read “If you read the study their justification for causation is the fact that digital media sales went up in numerous countries after Megaupload shut down. Just because something happens across many countries does not indicate causation. This is an absurd justification”

      But in their abstract (as well as the study) they go to great lengths to point at that a simple rise in sales across numerous countries after the shutdown is absolutely not their justification for claiming causality. So your initial comment very clearly made it look like you had read nothing. Their justification was the pattern of the sales increases, which did not relate to Megaupload before the shutdown and then had a strong relationship to Megaupload after the shutdown. This is a very different claim than just saying that sales went up in a bunch of countries. Perhaps you mis-spoke.

      Your more recent comment is more interesting of course. I think the mention of green fairies in the blog post was a hyperbole to make a point. The author seems to be saying that yes, it is impossible to rule out all other interpretations of the data, but asking if you can come up with a realistic one that explains the observations in the data that does not involve megaupload having a causal boost on sales. And then ask yourself how likely that explanation is.

      From what I read, the megaupload penetration was not a predictor of the sales trends across countries for the 4 months prior to the shutdown, and immediately after the shutdown it became a significant predictor (positive correlation). So the question is, why would megaupload penetration be totally unrelated to sales trends (except Christmas week) before the shutdown and then become statistically related to the sales trends (with a positive correlation) immediately following the shutdown unless the shutdown caused an increase in sales?

      The blog author says he’s be interested to know your counter-explanation – I suppose I would too! Until then, the most likely explanation seems to be that the shutdown affected sales.

      As for the Hadopi study, I read it a while ago so I can’t refute or agree with your claims. But I seem to remember that France followed the control group almost perfectly until the awareness of hadopi and then immediately jumped up afterward? And I think that the justification for using hip hop as the most pirated genre was based on several prior peer-reviewed studies? Correct me if I’m wrong.

    • Susan Q says:

      Actually, if you read even just the abstract (half a page), they expressly say that that is *NOT* what they examined nor the justification for their finding.

      If you did actually read any part of the study and didn’t get that, there’s an explanation of why they think the impact was causal… it’s in one of the author’s blogs.

      Healthy skepticism is a good trait, but a criticism that is shown false by the abstract alone is intellectually lazy.

      http://brettdanaher.wordpress.com/2013/03/13/explanation-of-megaupload-study-or-econometrics-101/

      • Bri says:

        Yes, and assuming I never so much as read a word of the study because of my comments is conceited and presumptuous.

        The passage I was referring to in my criticism is as follows taken from the Authors’ original summary article:
        “…Moreover, for this change to be causally related to the shutdown, we must also show that the sales trends in high Megaupload usage countries were similar to those in low Megaupload usage countries before the shutdown, and only changed after the shutdown…
        …The fact that these trends didn’t exist before the shutdown but existed after the shutdown suggests a causal effect of the shutdown on digital sales, and we find a similar (but slightly weaker) relationship for digital rentals. In aggregate, our estimates suggest that, across the 12 countries in our study, revenues from digital sales and rentals for the two studios were 6-10% higher than they would have been if Megaupload hadn’t been shutdown…”

        There’s ZERO evidence that their premise is correct in the first place. How are they actually showing that trends across multiple countries is causal instead of assuming it?

        This point is reiterated in your blog post link:
        “…And some fairies appeared in medium Megaupload countries and told consumers to start buying a few more movies. And no such fairies appeared in low Megaupload countries…”

        Clearly they have no alternate explanation, except to ridicule any possible alternate explanations and along with that, throwing the scientific method out the window.

        Furthermore we can take a look at the actual abstract from the soon to be published study:
        “In terms of robustness, we find that these sales changes are similar for each of the four major music labels, suggesting that our results are not peculiar to any particular label. We also find that the observed sales increase is much larger in genres that, prior to HADOPI, experienced high piracy levels (e.g., Rap and Hip Hop) than for less pirated genres (e.g., Christian music, classical, and jazz). This strengthens the causal interpretation of our results since if HADOPI is causing pirates to become legitimate purchases, its effects should be stronger for heavily pirated music than it is for other music genres.”

        Of course, only degenerates that steal music listen to rap and hip hop! Unfortunately this premise is flawed and they do little to bolster it except to say that it was an EMI survey of the French public. Well, if you are going to mention that in your abstract and use it as evidence to bolster your study then you damn well better have a link to it and it better be legit. And of course there is no mention of the study in the references at the end.

        My original criticism still stands, but clearly you have no interest in talking about the facts, and perhaps it is you who didn’t quite read everything.

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