60 Minutes ran a story on November 1st 2009 called “The Movie Pirates”. Link here. The story discussed two forms of movie piracy the first are wholesale illegal DVD suppliers and the second are on-line video sharing programs.
The illegal DVD wholesalers are usually run by organized crime looking to diversify their operations. Organized crime operations have lower fixed cost of entry and economies of scope in the DVD piracy industry as they have a preexisting network of nefarious employees and connections to the black market.
The on-line video sharing programs sell movies at their marginal cost of zero. In the story a police officer demonstrated that there are no marginal costs incurred when “sharing” movies on-line to either the recipient or sender. There is a fixed cost to creating and sustaining these programs but the story did not cover this aspect.
Output is increased by both methods of piracy
The illegal DVD wholesalers can sell closer to the marginal cost of producing a movie on a DVD as they do not to cover the high fixed cost of producing full length films. And they are encouraged to sell closer to their marginal cost through competition from other illegal wholesalers and video sharing programs.
Since “sharing” charges the consumer the marginal cost of zero output increases further. “Sharing” allows anyone with a computer and internet access to enjoy any movie that they value enough to spend the time watching it. As consumption of movies is expanded to where marginal cost equals demand society is better off (this of course does not account for the reduction in new movies caused by such pirate transactions not paying for movies pesky high fixed production cost).
Product Substitutability
All forms of movie viewing are not the same. It may not be fair to judge all movie experiences as perfect complements; it may be possible that pirates are tapping into a market that major film studios cannot access. Watching a movie on a legal DVD differs from seeing the same movie in the theaters as you can pause, rewind, and watch extra material – like interviews, and deleted scenes – on legal DVD's not to mention their durability relative to going to the theater, yet you cannot replicate watching a movie with a large audience.
Watching a movie on a computer monitor is inferior to watching it on a television screen or in the movies. The extra material that comes with legal DVD’s is not available on illegal DVD’s or video sharing and has to be found on-line if possible, an added inconvenience. The pirated material is shot on a camcorder in a movie theater which leads to bad sound and shots taken out of focus, shaky, and slanted. The bad shooting could be a form of product crimping. Some illegal DVD wholesalers put their logo on their DVD sleeve possibly to differentiate themselves from poorer quality rivals. All in all pirated material is an inferior good which are sold to people with low demand and hence sell to more consumers increasing societal output.
(P.S.) I don’t know why the high quality illegal DVD wholesalers or consumers would think that poorer quality pirates would not try to copy high quality logos.
I saw the same story and had some of the same questions. I sometimes think that movie studios and record labels exaggerate the effect of piracy on their bottom line. The experience and quality of pirated vs. non-pirated content is very different and almost makes them different products. Also many of the people who watch pirated movies have a value below the price and would never buy the full priced ticket or DVD anyway. Then there are people who may have had no value for the movie before they saw the pirated version, but after they see it there value goes up and they decided to buy the DVD.
I think the movie studios need to quit their bitching and either see pirated movies as marketing or figure out a new sales and price scheme that allows them to capture more of the consumer surplus from low value customers.
I would disagree about the content of downloadable films. As soon as the film is released in any other format other than for movie theaters, the material can be ripped from the dvd. This includes films for screening for awards before they come out on dvd. Also, I do think that the ease with which these movies are now available has changed the individual consumer's approach to watching films in general. For example, there are some who may not have been willing to pay for a one time theater experience, but would have been willing to purchase certain dvds when the price fell low enough. This is the market that the industry has lost. Furthermore, I was in walmart at 5 am on black friday (not by choice, it was a traumatizing experience and i think i need counseling) and noticed that many dvds, that i'd heard of before, were on sale for $2. In previous years you would have to pay $5 for the sale dvds and they tended to be of the 'straight to video' variety. This is a clear indication that profit margins on dvd sales for the industry have shrunk tremendously. $2 is fairly desperate. But nonetheless the ridiculous $9 charge to attend a movie once at the theater clears me of all sympathy, pirate on.
I saw the same story and had some of the same questions. I sometimes think that movie studios and record labels exaggerate the effect of piracy on their bottom line.
ReplyDeleteThe experience and quality of pirated vs. non-pirated content is very different and almost makes them different products. Also many of the people who watch pirated movies have a value below the price and would never buy the full priced ticket or DVD anyway. Then there are people who may have had no value for the movie before they saw the pirated version, but after they see it there value goes up and they decided to buy the DVD.
I think the movie studios need to quit their bitching and either see pirated movies as marketing or figure out a new sales and price scheme that allows them to capture more of the consumer surplus from low value customers.
I would disagree about the content of downloadable films. As soon as the film is released in any other format other than for movie theaters, the material can be ripped from the dvd. This includes films for screening for awards before they come out on dvd. Also, I do think that the ease with which these movies are now available has changed the individual consumer's approach to watching films in general. For example, there are some who may not have been willing to pay for a one time theater experience, but would have been willing to purchase certain dvds when the price fell low enough. This is the market that the industry has lost. Furthermore, I was in walmart at 5 am on black friday (not by choice, it was a traumatizing experience and i think i need counseling) and noticed that many dvds, that i'd heard of before, were on sale for $2. In previous years you would have to pay $5 for the sale dvds and they tended to be of the 'straight to video' variety. This is a clear indication that profit margins on dvd sales for the industry have shrunk tremendously. $2 is fairly desperate. But nonetheless the ridiculous $9 charge to attend a movie once at the theater clears me of all sympathy, pirate on.
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