Competing with Free: The Impact of Movie Broadcasts on DVD Sales and Internet Piracy

The creative industries have frequently expressed concern that they can’t compete with freely available copies of their content. Competing with free is particularly concerning for movie studios, whose content may be more prone to single-use consumption than other industries such as music. This issue has gained renewed importance recently with the advent of new digital video recording technologies, new digital distribution channels, and Internet piracy. We examine this issue in the context of movie broadcasts on unencrypted over-the-air and cable television networks. We find that, in contrast to competing with free concerns, the dominant impact of movie broadcasts is to promote DVD sales. Movies broadcast on over-the-air networks experience an increase in DVD sales at Amazon.com by an average of 118% in the week after over-the-air broadcast. We then use this empirical observation to estimate the impact of piracy on after-broadcast sales promotion. We find that movies that are available on BitTorrent networks have statistically the same after-broadcast sales gain as movies that are not available on BitTorrent at the time of broadcast. These results should inform both studios marketing their content and policy makers considering regulation of new content distribution technologies.