“You might think that if you get something for free, you wouldn’t purchase it,” Bradley offers about novel piracy research. “But it’s not that straightforward.” In the paper, “Avengers Assemble! When Digital Piracy Increases Box Office Demand,” Strategy Professor Wendy Bradley of SMU Cox and coauthors explore how digital piracy impacts the demand for creative goods, specifically movies, with broad implications for the digital world. Content and context are crucial in determining how to deliver and consume creative goods, with release strategies that can be tailored accordingly.

Bradley, with coauthors Ackermann and Cameron, worked on the research prior to COVID, but the pandemic made its message even clearer. With movie theaters closed down, the COVID period highlighted how the way content is consumed—where and how—really matters. “The pandemic forced us to rethink and sharpen the ideas we had been exploring,” Bradley relays. The research gained new relevance during this period as the ways in which people consumed content changed dramatically, highlighting the complexities of digital consumption.

The research delves into the types of movies and how their characteristics affect consumer behavior. Bradley distinguishes between two broad categories of films: “spectacle” and story-driven films. Spectacle films are movies that offer a grand, immersive experience, such as action-packed blockbusters like The Avengers or X-Men, for example. These films are best enjoyed in a theater, where the large screen, surround sound, and the collective experience enhances their impact.

Bradley introduces the concept of “spectacleness” to describe this phenomenon. It’s a combination of tangible and intangible qualities that make a movie more desirable to watch in a theater setting. In the paper, a movie critic admitted to pirating The Expendables, one of the most pirated films, with around 190,000 pre-release copies. He still viewed it at a theater ‘because there’s nothing like the in-theater experience.’ This anecdote supported the authors idea of spectacleness, that a movie theater or other live venue can deliver. Story-driven films that are more narrative-focused, or romantic comedies like 27 Dresses or The Vow, show a different pattern. Given the storytelling aspect, and less visual or auditory effects, they can be enjoyed at home on a smaller screen.

Empirically speaking

Bradley’s research provides empirical evidence that piracy can actually boost box office revenue for certain types of films. Specifically, her findings show that piracy can increase box office revenue by 24% for spectacle films. The reasoning behind this is that even if a movie is pirated and watched at home, the theater experience still holds unique appeal for spectacle films. People might pirate the movie but then decide to watch it again in theaters to fully experience the action, sound, and special effects in the intended format.

In contrast, piracy had a negative effect on the box office sales of story-driven films, reducing revenue by about 26%. For these films, the home viewing experience doesn’t differ significantly from the theater experience, so once pirated, there’s little incentive to pay to see them in theaters.

“We’re not condoning piracy, but there are lessons to be learned,” Bradley says. “If spectacle films drive people to theaters even after being pirated, studios might not need to enforce anti-piracy measures as strictly.” For story-driven films, she explains, it might be crucial to protect intellectual property more aggressively. “Studios could also consider producing certain types of films directly for streaming and others for theaters, which aligns with trends we’re already seeing,” Bradley surmises.

The research looks at the earliest upload of either a low- quality or high-quality pirated copy of movie release. Then, they used publicly-available data on the daily box-office returns for all movies released in the United States going back to 2000, matching the piracy data. Lastly, they leveraged the observable differences across movies in the relative degree of “spectacleness”, allowing the authors to understand which the pirated version is likely to form a complement or substitute to viewing in-theater.

Creative and information goods

The paper highlights that the value of an information good depends on its content and context. Bradley discusses this application: “The term “Netflix and chill” captures this idea well. Romantic comedies, for example, are often watched at home. However, Netflix is testing the “Netflix Houses” concepts in Dallas and Philadelphia, an experiential version of their film and TV portfolio. We see this in music too—streaming music grew, but so did live music events.” This reflects a growing demand for in-person experiences despite the abundance of digital content.

Bradley notes that digitization has many important impacts —and one of them is reminding consumers that ‘they like to consume digital products, but also miss in-person experiences.’

The research explores how her findings could apply to other industries, such as sports, live concerts, and education. The COVID-19 pandemic, in particular, highlighted the differences in how people prefer to consume various types of content. For instance, while some experiences like live theater or sports events have retained their appeal in physical settings, others like classroom education have struggled with digital formats.

Even with considerable research on digital piracy, Bradley and her coauthors are among the first to highlight the specific impact of content type on consumption behavior. “Recently, I heard Matthew Ball, the ex-Head of Strategy of Amazon Studios, mention in an interview “spectacle films” as ones that do best in movie theaters, which felt like validation of our research,” Bradley recalls. “sOur work hopefully starts a new stream of inquiry in this area.”

Bradley’s research challenges the conventional wisdom that piracy is universally harmful to creative industries. By distinguishing between different types of films and their consumption contexts, she provides a more nuanced understanding of how piracy can impact box office sales. Content and context are shown to be crucial in determining the best way to deliver and consume creative goods, and release strategies can be tailored accordingly. In other words, in teasing apart how and where people like to consume digital economy outputs, the research highlights how to capture the value of information goods in creative and related industries.

The paper “Avengers Assemble: When Digital Piracy Increases Box Office Demand,” by Wendy Bradley, Southern Methodist University, Cox School of Business, Klaus Ackermann of Monash University, and Jack Cameron of Bain & Company, is under review.

Written by Jennifer Warren.