Study: Web piracy costing biz $850 mil

Informa's report first to attach figure to growing practice

Online piracy is costing the film biz $850 million per year in forgone revenue, according to a new study.

Study, to be released today by Informa Media Group, finds that the cost of digital piracy is about 25% of that for hard-copy piracy, which the group pegs at $3.5 billion in 2004.

Though it has estimated DVD piracy at between $3 billion and $4 billion, the MPAA has never placed a figure on the costs of Internet piracy conducted over peer-to-peer networks. Informa’s “Film on the Internet” report is the first to attach a figure to the growing phenomenon.

By 2010, digital piracy is expected to nearly double to $1.7 billion, while hard-copy piracy will grow more modestly to $4.5 billion.

News comes as the MPAA recently stepped up its antipiracy campaign online with its second round of lawsuits against alleged downloaders of pirated pics. Member studios are also suing operators of indexing servers that help users locate and download pirated content.

“While an $850 million loss is a significant number, the impact of illegal file-sharing should not be exaggerated,” noted Adam Thomas, study’s author. “Many movie files being downloaded are of poor quality and are unlikely to directly affect whether someone buys a film legitimately. In a minority of cases, these files can also act as an extended trailer for a film and encourage legal purchases for those wanting good quality merchandise.”

Piracy leads to bad buzz

In bad news for studio marketers, study concludes that the biggest threat from piracy may be its tendency to generate bad buzz. “One of the biggest concerns resulting from piracy is the impact of negative word of mouth generated by pirate copies that are traded pre-theatrical release,” study observed. “This is an area in which the film industry is demonstrably vulnerable and large sums are at stake.”

Study also notes that if pirated pics were considered a part of the global film biz in 2004, bootleg DVDs would have represented 4.3% of revenue worldwide, illegal downloads 1.1%.

Meanwhile, the legit online film biz is still minuscule, according to Informa. In 2004, Internet video-on-demand revenues from sites such as CinemaNow and Movielink totaled just $11.7 million. But that figure is expected to grow rapidly to nearly $1 billion in 2010.

With the rise of broadband and success of the online music biz, study concludes that the time may be right to expand those businesses. “Reducing price points, flexible business models and advancements in home networking” will all be key to their success, Thomas argued.