Movie piracy: Displacement and its impact on legitimate sales in India

• Published date: 01 July 2021
• Author: Amit K. Jha,Priyanka Rajan
• Date: 01 July 2021
• DOI: http://doi.org/10.1111/jwip.12190

J World Intellect Prop. 2021;24:237–252. wileyonlinelibrary.com/journal/jwip © 2021 John Wiley & Sons Ltd

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237

Received: 27 March 2021

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Accepted: 21 April 2021

DOI: 10.1111/jwip.12190

ORIGINAL ARTICLE

Movie piracy: Displacement and its impact on

legitimate sales in India

Amit K. Jha

1

|Priyanka Rajan

2

1

Department of Economics, Sri

Venkateshwara College, University of Delhi,

Delhi, India

2

Maharishi Dayanand University, Rohtak,

India

Correspondence

Amit K. Jha, Department of Economics, Sri

Venkateshwara College, University of Delhi,

Benito Juarez Rd., Delhi 110021, India.

Email: amitjha@svc.ac.in

Abstract

This paper brings out the effect of movie piracy on legitimate

sales of the movies in the Indian context. The paper becomes

much more relevant when internet and streaming services are

very much common these days. Based on the survey of

500 undergraduates students of university of Delhi, the paper

finds that first, one unit of unpaid movie viewing displaces

about 0.35 units of paid (first) movie viewings. Second, due to

presence of “sampling effect”one unit of unpaid (first) movie

viewing increases second paid viewings by 0.1 units. Thus, we

find support for incomplete displacement, that is, a displace-

ment rate less than one‐for‐one. Third, these displacements

rates are causing an estimated 6.2% loss in sales of movies

based on back‐of‐envelope‐calculation. The number of lost

movie sales are 6,3123,667 and approximately Rs 12 billion in

Indian rupees as revenue lost due to movie piracy in the year

2019. Finally, Individuals who tend to show greater interests in

movies are in fact contributes towards movie sales even

though their indulgence in piracy cannot be ignored.

KEYWORDS

displacement rates, movie piracy, paid and unpaid movie viewings

1|INTRODUCTION

The new information technology has impacted many industries as it has abridged additional production and circulation

expenditure of many information goods to bare minimum levels. The minimum marginal cost allows sellers to have more

profits and costless distribution allows them to adopt new marketing strategies such as free samples with partial

functionality (Carl & Varian,). However, the same also promote unpaid distribution

1

and redistribution which in fact is a

blatant violation of copyright laws.

Over the last two decades, unpaid distribution (piracy in movies in context of this paper) has been a con-

tentious issue in the information industry, affecting adversely the producers of information products such as

movies and music. The case of India

2

is no different. Despite this, theory gives no obvious assistance on the effect

of unpaid distribution on sales of information goods. On one side, it is believed that unpaid copies are as good as

paid originals especially in music suggesting that there could be a possible one to one displacement, however

movies are different in few aspects which suggest less displacement: first, an unpaid copy of a movie contains the

same information as an original movie DVD but a home video can never perfectly substitute theatrical viewing and

second, information sharing in movies can encourage paid viewings if sharing remains small scale. For example, two

individuals each valuing a movie DVDs at Rs 100 each will not buy it for a price of Rs. 150. However, if they share,

the totting up of their valuation exceeds the price and they buy it collectively. Thus, one can say that since a video

file needs more space in terms of mega bytes (MBs), has kept the size of peer‐to‐peer sharing in movies small and

therefore the stimulation of paid demand through file sharing seems more genuine in movies than music.

Though, there are many studies detailing the effects of unpaid distribution on music industry (Blackburn, 2004;

Rob & Waldfogel, 2006; Zentner, 2006) but we find very few literature dealing with displacement rates for movies

due to piracy. While it is well known that movie piracy displaces the sale of movies in the legitimate market, the

extent of this displacement is an empirical question that has received insufficient attention. This paper bridges this

gap by analysing the displacement issue in the context of motion picture piracy in India. For this purpose, we use

questionnaire based data on movie viewings by 500 undergraduate students of the University of Delhi. We ask

whether unpaid viewings (purchased, copied or downloaded copies) of movies depress or stimulate demand for

various forms of paid viewings (theatrical, legal download and streaming, television and DVD ownership) of movies.

Apart from the displacement aspects, we are also able to provide estimates for the movie sales which were lost due

to unpaid movie viewings in Indian context. This study to the best of our knowledge is a first of its kind in India.

The calculation of the displacement rate is not an easy ask as there are two sets of individuals, one whose

motivation to pay is as high and the other who wants to pay much below the current market price for the movies.

For the former group, we are sure that many of these individuals would purchase the movie, had it not been

available for free,

3

so we expect a one to one displacement in this context, that is, one unpaid viewing displaces one

paid viewing. However, for the second set of individuals we expect zero displacement rates, because it is highly

likely that many of these individuals prefer not to watch the movie in the first place, had it not been available for

free. The overall displacement is a weighted average of the displacement rates for these two sets of individuals.

The remainder of this paper is as follows. We present review of literature and methodology in Sections 2and 3,

respectively. Sections 4and 5discuss empirical specifications and results, respectively, followed by conclusions and

implications for copyright policy.

2|LITERATURE REVIEW

Rob and Waldfogel's (2007) paper, using survey data of 500 University of Pennsylvania college students on movie

consumption, find significant evidence of displacement by employing different cross‐sectional and longitudinal

empirical exercises. They tackle the problem of identification using longitudinal approach. This problem arises from

the fact that the individuals with higher interest in movies are expected to have more of unpaid and paid movie

viewings. Their results show that unpaid first movie viewing displaces paid movie viewings by approximately 1 unit.

The displacement effect of unpaid second viewing is about 0.20 units. Bai and Waldfogel (2012) use the same

methodology—first, on 372 Chinese college students, and then on 3852 Chinese internet users. In both samples,

they find that unpaid movie viewings are nearly three quarters of total movie viewings and displacement rate is

between 0 and −0.14. Their results imply that in China, damages are less, despite having higher movie piracy. This

huge difference in the results between United States and China reflects subjectivity and uncertainty in the

quantification process.

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JHA AND RAJAN