In Study of Movie Piracy, U.S. Consumers’ Choices Were Influenced By Quality of Pirated Films, Costs of In-Theater Movies
Movie studios face unique challenges in managing their operations. The success of a film relies not only on its artistic merits, but also on studios’ operational decisions, particularly those related to a movie’s initial box office release. A critical concern for the industry is how to manage movie piracy, a form of digital counterfeiting that undermines legal box-office sales.
In a new study, researchers leveraged a unique data set that integrates piracy activity and theatrical performance in the United States to examine consumers’ choices in watching movies via legal versus illegal channels. They found that choices were influenced significantly by the quality of pirated sources and the costs of watching movies in theaters.
The study was conducted by researchers at Carnegie Mellon University, the University of California, Davis, and Boston University. It will be published in Manufacturing & Service Operations Management.
“Movie piracy is rampant, with pirate sites earning about $1.3 billion a year from online ad revenue,” explains Michael D. Smith, professor of information technology and public policy at Carnegie Mellon’s Heinz College, who coauthored the study. “Our work offers insights into the decisions movie studios face around the theatrical delivery of movies.”
Movie piracy differs from traditional counterfeiting, primarily because copying and distributing counterfeits is effortless, fast, and global. These features make it challenging to tackle movie piracy through the conventional strategies used to address counterfeited physical goods. But despite these unique operational challenges and the scale and importance of the movie industry, research on counterfeiting in the motion picture industry is limited.
Researchers developed and estimated a structural econometric model of demand for movies via legal (theatrical) versus illegal (piracy) channels. Then they conducted policy simulations to inform movie studio managers about the expected viability of various operational responses to piracy, including delaying the emergence of high-quality pirated content after a movie’s initial release, reducing the cost of watching movies via legal channels, and improving the quality of in-theater experiences.
The study combined several proprietary data sets documenting piracy activity, the quality of pirated films, and theatrical revenue with public data from the U.S. Census Bureau on local population characteristics and Google search trends reflecting general interest in a film. Among the findings:
“Our findings can inform the decisions of theater companies, as well as policymakers and practitioners in related sectors who have an interest in combating movie piracy,” says Yan Huang, associate professor of business technologies at Carnegie Mellon’s Tepper School of Business, who coauthored the study.
This research was conducted as part of Carnegie Mellon University’s Initiative for Digital Entertainment Analytics (IDEA), which receives unrestricted (gift) funding from the Motion Picture Association of America.
In a new study, researchers leveraged a unique data set that integrates piracy activity and theatrical performance in the United States to examine consumers’ choices in watching movies via legal versus illegal channels. They found that choices were influenced significantly by the quality of pirated sources and the costs of watching movies in theaters.
The study was conducted by researchers at Carnegie Mellon University, the University of California, Davis, and Boston University. It will be published in Manufacturing & Service Operations Management.
“Movie piracy is rampant, with pirate sites earning about $1.3 billion a year from online ad revenue,” explains Michael D. Smith, professor of information technology and public policy at Carnegie Mellon’s Heinz College, who coauthored the study. “Our work offers insights into the decisions movie studios face around the theatrical delivery of movies.”
Movie piracy differs from traditional counterfeiting, primarily because copying and distributing counterfeits is effortless, fast, and global. These features make it challenging to tackle movie piracy through the conventional strategies used to address counterfeited physical goods. But despite these unique operational challenges and the scale and importance of the movie industry, research on counterfeiting in the motion picture industry is limited.
Researchers developed and estimated a structural econometric model of demand for movies via legal (theatrical) versus illegal (piracy) channels. Then they conducted policy simulations to inform movie studio managers about the expected viability of various operational responses to piracy, including delaying the emergence of high-quality pirated content after a movie’s initial release, reducing the cost of watching movies via legal channels, and improving the quality of in-theater experiences.
The study combined several proprietary data sets documenting piracy activity, the quality of pirated films, and theatrical revenue with public data from the U.S. Census Bureau on local population characteristics and Google search trends reflecting general interest in a film. Among the findings:
- The emergence of high-quality piracy sources in the first week of a movie’s theatrical release led to a 7.9% reduction in theatrical revenue in the first eight weeks of release (compared to a scenario in which only low-quality pirated sources were available).
- Higher-income and older consumers tended to be less sensitive to ticket prices but more sensitive to the costs of going to a theater to watch a movie.
- Generally speaking, 15- to 24-year-olds had a relatively higher preference of seeing a movie in a theater than at home.
- The early emergence of digital piracy resulted in a much higher reduction rate, 9.4%, in the first eight weeks’ theatrical revenues of smaller movies (those grossing $100 million to $200 million) versus 4.3% for blockbuster movies (those grossing more than $200 million). This suggests that high-quality unauthorized content may hurt creativity in film production because it does more harm to smaller-budget and independent movies.
- Attempts to combat piracy by reducing ticket prices or increasing the number of movie screenings yielded limited benefits for the industry.
- A more effective strategy involved making operational decisions to delay the emergence of high-quality pirated content, and prioritizing investments in upgrading theater equipment and technology to create a more immersive, comfortable, and engaging environment for in-theater viewers.
- Another approach to reducing the impact of copyright infringement activities is to tackle the problem at its source by reducing the availability of pirated content to consumers.
“Our findings can inform the decisions of theater companies, as well as policymakers and practitioners in related sectors who have an interest in combating movie piracy,” says Yan Huang, associate professor of business technologies at Carnegie Mellon’s Tepper School of Business, who coauthored the study.
This research was conducted as part of Carnegie Mellon University’s Initiative for Digital Entertainment Analytics (IDEA), which receives unrestricted (gift) funding from the Motion Picture Association of America.
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Summarized from a forthcoming article in Manufacturing & Service Operations Management, Operational Decision-Making Around Movie Piracy & Theatrical Release: A Structural Model of Movie Piracy vs. Legal (In-Theater) Consumption, by Zeng, HS (University of California, Davis), Huang, Y (Carnegie Mellon University), Burtch, G (Boston University), and Smith, MD (Carnegie Mellon University). Copyright 2025 Elsevier Inc. All rights reserved.
About Heinz College of Information Systems and Public Policy
The Heinz College of Information Systems and Public Policy is home to two internationally recognized schools: the School of Information Systems and Management and the School of Public Policy and Management. Heinz College leads at the intersection of people, policy, and technology, with expertise in analytics, artificial intelligence, arts & entertainment, cybersecurity, health care, and public policy. The college offers top-ranked undergraduate, graduate, and executive education certificates in these areas. Our programs are ranked #1 in Information Systems, #1 in Information and Technology Management, #8 in Public Policy Analysis, and #1 in Cybersecurity by U.S. News & World Report. For more information, visit www.heinz.cmu.edu.