Archive for the ‘Intellectual Property’ Category

The Perfect Storm: Snowstorms and the Impact of Theatrical Attendance on DVD Sales

Wednesday, August 12th, 2015

By Michael Smith, Peter Boatwright and Patrick Choi

Everyone knows that movies that are popular in theaters are also popular at home. But no one knows whether increased theater viewing actually causes increased home viewing. Scientifically speaking, this is the difference between correlation and causation. In this instance, it’s difficult to test causation because a movie’s intrinsic appeal affects both measures. To do so accurately, we need an event that changes the number of people who see the movie in theaters, but does so in a way that is completely unrelated to specific movie characteristics.

In our recent paper, we show how snowstorms can provide just such a “perfect” measurement event. When a snowstorm occurs on a movie’s opening weekend in a particular city, fewer people go to see that movie in that city for reasons completely unrelated to the movie itself. In other words, for the purposes of this experiment, snowstorms are essentially random events: Whether it snows in Buffalo versus Minneapolis on the second weekend of November has nothing to do with the characteristics of the movies opening that weekend.

Using this information and examining box office and home video sales data, our results allow us to ask “when fewer people attend a movie’s opening weekend in a particular city, does that change the number of DVD and Blu-ray sales for that movie in that city when DVDs and Blu-ray Disks are released a few months later?”

Our results show that theatrical demand actually causes increases in DVD/Blu-ray demand. Specifically, a 10 percent increase (decline) in theatrical attendance causes an 8 percent increase (decline) in DVD/Blu-ray demand. This result suggests that there is significant differentiation between these two products, meaning that theatrical sales complement DVD/Blu-ray demand, which is an important thing to consider in this rapidly evolving media marketplace.

The Effectiveness of Site Blocking as an Anti-Piracy Strategy: Evidence from the U.K.

Wednesday, June 3rd, 2015

Brett Danaher, Michael D. Smith, Rahul Telang

It is well established in the academic research that piracy harms sales for entertainment goods;[1] and there is emerging evidence that, by reducing the profitability of content creation, piracy may reduce the quality and quantity of the content that is created.[2]

Given these empirical results, as academic researchers, we have spent considerable effort trying to understand the effectiveness of various anti-piracy strategies that attempt to mitigate the impact of piracy on industry revenues by either making legal content more appealing or making illegal content less appealing (see for example here and here). Our latest research examines an anti-piracy strategy known as “site-blocking” adopted in many countries, including the United Kingdom where we conduct our analysis. In the U.K. courts respond to blocking requests, and where they find cause, order Internet Service Providers (ISPs) to block access to specific piracy-enabling sites.

This approach is notably different than shutting down entire sites that store pirated content: the sites and pirated content remain online worldwide, and within the affected country the blocked sites can still be accessed by technologically sophisticated users. Given these differences we decided to study the effectiveness of site-blocking strategies at changing consumer behavior, focusing on court-ordered blocks in the UK: The May 2012 block of one site, The Pirate Bay, and the October/November 2013 block of 19 major piracy sites.

Our results, which were first presented to an academic audience at the December 2014 Workshop on Information Systems and Economics, used consumer data from an Internet panel tracking company to examine the behavior of a set of UK Internet users before and after these sites were blocked. We considered users who had not visited the site(s) before the block as a control group (since they were largely unaffected by the block) and we asked how treated users – those who had used the site(s) before the block – changed their behavior after the block (relative to the control group).

Our analysis found that blocking The Pirate Bay had little impact on UK users’ consumption through legal channels. Instead blocked users switched to other piracy sites or circumvented the block by using Virtual Private Networks. However, unlike the May 2012 Pirate Bay block, our results showed that when 19 sites were blocked simultaneously, former users of these sites increased their usage of paid legal streaming sites by 12% on average, relative to the control group.[3]  The blocks caused the lightest users of the blocked sites (and thus the users who were least affected by the blocks, other than the control group) to increase their use of paid streaming sites by 3.5% while they caused the heaviest users of the blocked sites to increase paid streaming visits by 23.6%, strengthening the causal inference in our result.

As we discuss in our paper, the most likely explanation for this result — and one supported by other observations in the data — is that when only one site is blocked, most pirates have an easy time finding and switching to other piracy sites. But, blocking many sites can increase the cost of finding alternate sources of piracy enough that a significant number of former pirates will switch their behavior toward legal sources.

As with our other empirical findings, summarized above, this finding suggests that consumers behave like consumers: They make choices based on the costs and benefits of what is available, and will change their behavior based on sufficient changes in those costs and benefits.


[1]       See this paper or this paper for a review of the academic literature on how piracy impacts sales.

[2]       See, for example, this paper or its summary in this blog post

[3]       Importantly, our data did not allow us to determine whether this 12% increase reflected new users coming to these paid sites or simply increased usage of an already existing customer base.

Using Search Results to Fight Piracy

Monday, September 15th, 2014

With the growing consensus in the empirical literature that piracy harms sales, and emerging evidence that increased piracy can affect both the quantity and quality of content produced (here and here for example), governments and industry partners are exploring a variety of ways to reduce the harm caused by intellectual property theft. In addition to graduated response efforts and site shutdowns, Internet intermediaries such as Internet Service Providers, hosting companies, and web search engines are increasingly being asked play a role in limiting the availability of pirated content to consumers.

However, for this to be a viable strategy, it must first be the case that these sorts of efforts influence consumers’ decisions to consume legally. Surprisingly, there is very little empirical evidence one way or the other on this question.

In a recent paper, my colleagues Liron Sivan, Rahul Telang and I used a field experiment to address one aspect of this question: Does the prominence of pirate and legal sites in search results impact consumers’ choices for infringing versus legal content? Our results suggest that reducing the prominence of pirate links in search results can reduce copyright infringement.

To conduct our study, we first developed a custom search engine that allows us to experimentally manipulate what results are shown in response to user search queries. We then studied how changing what sites are listed in search results impacted the consumption behavior of a panel of users drawn from a general population, and a separate panel of only college aged participants.

In our experiments, we first randomly assigned users to one of three groups: a control group of users who are shown the same search results they would receive from a major search engine, and two treatment groups where pirate sites are artificially promoted and artificially demoted in the displayed search results. We then asked users to obtain a movie they are interested in watching, and to use our search engine instead of the search engine they would normally use. We observe what queries each set of users issued to search for their chosen movie, and surveyed them regarding what site they used to obtain the movie.

Our results suggest that changing the prominence of pirate and legal links has a strong impact on user choices: Relative to the control condition, users are more likely to consume legally (and less likely to infringe copyright) when legal content is more prominent in search results, and user are more likely to consume pirate content when pirate content is more prominent in search results.

By analyzing users’ initial search terms we find that these results hold even among users with an apparent predisposition to pirate: users whose initial search terms indicate an intention to consume pirated content are more likely to use legal channels when pirated content is harder to find in search results.

Our results suggest that reducing the prominence of pirate links in search results can reduce copyright infringement. We also note that there is both precedent and available data for this sort of response. In terms of precedent, search engines are already required to block a variety of information, including content from non-FDA approved pharmacies in the U.S. and content that violates an individual’s “right to be forgotten” in a variety of EU countries. Likewise, the websites listed in DMCA notices give search engines some of the raw data necessary to determine which sites are most likely to host infringing content.

Thus, while more research and analysis is needed to craft effective policy, we believe that our experimental results provide important initial evidence that users’ choices for legal versus infringing content can be influenced by what information they are shown, and thus that search engines can play a role in the ongoing fight against intellectual property theft.


Does Piracy Undermine Product Creation?

Friday, September 5th, 2014

(Below is a guest post by my colleague, Rahul Telang from Carnegie Mellon University)

That Piracy undermines demand for products in copyright industries is intuitive and well supported by data. Music, movies, books, software have seen demand degradation due to various forms of piracy. What is not so well supported by data is whether piracy undermines product creation. For example, does piracy reduce the number of movies made, or quality of movies made, or investments in movies? Common sense suggests that this must be true. After all, this is the core principle of copyright. Large scale copyright infringement should affect revenues which in turn should affect producers’ incentives to create.

Despite this compelling argument the data does not support this claim readily. The reasons are many. For one, while the change in demand due to infringement happens more quickly, the production adjustments take time. So unless the infringement is persistent for a period of time, the contraction in production is not readily visible. The technology that leads to widespread infringement (say P2P networks and broadband infra-structure that facilitates online piracy) might also be accompanied by a period where cost of production and distribution declines or new markets open up. The net effect of these two opposing factors is all we can see in the data. And, the net effect could very well be that the production actually has increased!!!. This is not an evidence that piracy does not matter. Finally, there may be distributional bottlenecks (say number of theatres) that may prevent growth in production but might lead to larger investments in movies or in some cases higher input costs (actors and directors become more expensive).

In short, to see the effects of piracy in data, we need a setting where other factors are largely unchanged. With my co-author Joel Waldfogel, we explore Indian movie industry around the diffusion of Cable television and VCR. This phenomenon took place during 1985-2000. The paper is here. The story of our paper from the abstract is essentially that:

The diffusion of the VCR and cable television in India between 1985 and 2000 created substantial opportunities for unpaid movie consumption. We first document, from narrative sources, conditions conducive to piracy as these technologies diffused. We then provide strong circumstantial evidence of piracy in diminished appropriability: movies’ revenues fell by a third to a half, conditional on their ratings by movie-goers and their ranks in their annual revenue distributions. Weaker effective demand undermined creative incentives. While the number of new movies released had grown steadily from 1960 to 1985, it fell markedly between 1985 and 2000, suggesting a supply elasticity in the range of 0.2-0.7.

Even the quality as measured by IMDb ratings declined substantially. Thus, our study provides affirmative evidence on a central tenet of copyright policy, that stronger effective copyright protection effects more creation. For empirical research, sometimes you have to look at the historical context to see the evidence of the effect of a policy. Doing a similar study in post 2000 era for any other country might be tricky because the other competing factors have altered. There will be a need to be more creative in defining and measuring product creation in this new context. And, I am sure we will see such efforts in near future. Needless to say, a lot more research is needed to settle this issue.  However, our paper does provide an evidence that in an appropriate setting, effects of copyright infringement on product creation can be measured.

2014 TPI Aspen Forum has Ended, but the Videos Live On…

Friday, August 22nd, 2014

Did you miss the Aspen Forum this year?  Or, do you just want to watch some of the panels again?  Videos of the panels and keynotes from the 2014 event are now up on the TPI website.

Some highlights from Monday night and Tuesday:

Comcast’s David Cohen was the Monday night dinner speaker.  In front of a packed room, Cohen spoke about the benefits of the Comcast/TWC deal, vertical and horizontal integration in the industry in general, and even revealed what keeps him up at night (hint: it’s not the communications industry).  His speech can be viewed here.

First up on Monday morning was a panel on copyright moderated by Mike Smith, TPI Senior Adjunct Fellow and Professor at Carnegie Mellon.  “Copyright Protection: Government vs. Voluntary Arrangements” featured Robert Brauneis from GW Law School, the Center for Copyright Information’s Jill Lesser, Jeff Lowenstein from the Office of Congressman Schiff, Shira Perlmutter from USPTO and NYU’s Chris Sprigman. Panelists discussed the copyright alert system, the state of the creative market in general, and the perennial question of what can be done to reduce piracy.  Video of the spirited panel can be viewed here.

Next up was the panel, “Internet Governance in Transition:  What’s the Destination?” moderated by Amb. David Gross.  The pretty impressive group of speakers discussed issues surrounding the transition of ICANN away from the loose oversight provided by the U.S. Dept. of Commerce.  Participants were ICANN Chair Steve Crocker, Reinhard Wieck from Deutsche Telekom, Shane Tews from AEI, Amb. Daniel Sepulveda, the U.S. Coordinator for International Communications and Information Policy, and NYU’s Lawrence White.  Video is here.

Finally, the Forum concluded with a panel on “Data and Trade,” moderated by TPI’s Scott Wallsten.  The panelists discussed how cybersecurity, local privacy laws, and national security issues are barriers to digital trade.  Speakers were USITC Chairman Meredith Broadbent, Anupam Chander from University of CA, Davis, PPI’s Michael Mandel, Joshua Meltzer from Brookings, and Facebook’s Matthew Perault.  Video of the discussion is here.

We hope all attendees and participants at the TPI Aspen Forum found it interesting, educational, and enjoyable.  We hope to see you next year!

Internet Hysteria – Are We Losing Our Edge?

Thursday, December 15th, 2011

Scott Wallsten and Amy Smorodin

From Anthony Wiener’s wiener to the FCC’s brave stand on Americans’ shameful inability to turn down the damn volume by themselves, 2011 has been a big year for tech and communications policy. But how has one of the Washington tech crowd’s most important products—Internet hype—fared this year?  In this post, we seek to answer this crucial question.

The Internet Hysteria Index

The Internet is without doubt the most powerful inspiration for hyperbole in the history of mankind. Some extol the Internet’s greatness, like Howard Dean, who called the Internet “the most important tool for re-democratizing the world since Gutenberg invented the printing press.”[1] Others fret about the future, like Canada’s Office of Privacy Commissioner, who claimed, “Nothing in society poses as grave a threat to privacy as the Internet Service Provider.”[2]

Sometimes the hyperbole is justified. For example, thanks to Twitter, attendees at this past summer’s TPI Aspen Summit were privy to a steady stream of misinformation even before the DC-area earthquake stopped.[3]

In the same spirit, we present the Internet Hysteria Index (IHI). The IHI, which the DOJ and FCC should take care not to confuse with the HHI, is the most rigorous and flexible tool ever conceived for gauging the Internet’s “worry zeitgeist”. It’s rigorous[4] because it uses numbers and flexible[5] because you can interpret it in so many different ways that it won’t threaten your preconceived ideas no matter what you believe.

The IHI has two components. The first tracks fears of an unrecognizable, but certainly Terminator-esque, future Internet. We count the number of times the exact phrases “the end of the internet as we know it” and “break the internet” appear in Nexis news searches each year since 2000.

Figure 1: The End of the Internet as we Know It!

Figure 1 shows that 2011 produced a bumper crop of “break the internet” stories, mostly related to the Stop Online Piracy Act and the Protect IP Act. The spike in 2006 reflects a wave of Net Neutrality stories after AT&T’s then-CEO proclaimed that “what they [content providers] would like to do is use my pipes free, and I ain’t going to let them do that because we have spent this capital and we have to have a return on it.”

As our research illustrates, the “End of the Internet” hyperbole shows a healthy, generally upward trend, reflecting the effectiveness of our collective fretting and hand-wringing. Our data do not allow us to identify[6] whether the trend is due to clever Washington PR, lazy hacks retreading old lines, real concerns, or collusion among interest groups simply ensuring they can all stay in business by responding to each other.

The second component of our index measures the incidence of hand-wringing regarding the state of broadband in the U.S. In particular, this measure counts the number of times phrases suggesting lagging U.S. broadband performance show up in Nexis since 2000.[7] Figure 2 shows the results of our analysis.

Figure 2: The Grass is So Much Greener on the Other Side of the Pond: U.S. Broadband Sucks

The big spike in 2010 is related to release of the National Broadband Plan. The prior high, in 2007, saw stories focusing on the OECD rankings, broadband mapping, and the beginnings of broadband plan discussions.

Unfortunately, 2011 was not a good year for misinterpreting shoddily-gathered statistics. Figure 2 shows a dramatic drop-off in bemoaning the dire state of U.S. broadband, possibly after everyone just got really, really tired of talking about the National Broadband Plan. We’re extremely concerned that as a result, the U.S. may have fallen dramatically in the OECD worry rankings. In fact, in a warning shot across our bow, on December 14 the BBC reported that “the UK remains in danger of falling behind when it comes to next-generation mobile services” and superfast broadband.[8] We’re hopeful American fretting will pick up once analysts actually read the FCC’s USF order that was promulgated under the cover of 23 days between approval and publication. On the other hand, there is a risk that the sheer volume of the Order—the equivalent of more than 4 million tweets—might dissuade people from talking about it ever again.

For generations, Americans have taken a back seat to nobody on the important issue of Internet hyperbole. Let’s hope the inside-the-beltway crowd pulls itself together and breathes some life back into the speech economy. Happy New Year.



[3] Picture from Funny Potato,

[4] It’s not.

[5] In other words, “probably pretty meaningless.”

[6] Actually, they do, but we don’t want to do the work.

[7] Specifically, the search is ((“U.S. falling behind “OR “U.S. lagging”) AND broadband) OR ((“United States falling behind” OR “United States lagging”) AND broadband).


Farewell to Limewire?

Thursday, May 20th, 2010

Last week, a federal court found Limewire guilty of intentionally inducing widespread copyright infringement.   Some reports claim the Limewire suit was a futile exercise if the goal is to stop the rampant copyright infringement that occurs on p2p networks. However, Limewire Group has found itself at the center of many dramas over the past few years and the possible shuttering of the company has been a long time coming.

 The history of Limewire is not pretty, involving inadvertent filesharing, identity theft, Congressional hearings, and even leaked national security secrets.    Filesharing first came to Congress’ attention in 2003 when two high-profile hearings were held on the subject.  Distributors of peer-to-peer filesharing software responded to the criticism heaped upon them by launching a trade association, P2P United, of which Limewire was a founding member.   The organization drafted a code of conduct, in part addressing inadvertent sharing, to which members promised to comply. 

In 2007, the USPTO issued a report calling out Limewire for continuing to include features in its program to induce users to inadvertently share files on their computers.  One could assume that this perpetuation of inadvertent sharing could be in order to make more popular –and probably copyrighted – media available to other users, thus making Limewire more appealing to users.  This report led to yet another Congressional hearing, reactions of shock from the head of Limewire, and promises to do more to correct the problematic features identified.  Again, Limewire proved itself to be untrustworthy, failed to fix the problematic features and, as a result, again was the source of more highly publicized instances of inadvertent sharing.  The outcome?  Another Congressional hearing in 2009 and the introduction of a bill to ban p2p software on government computers.

My list above is surely not exhaustive but it should give the reader a taste of how those at LimeWire Group have a solid track record of thumbing their nose at those who have the power to make life quite difficult for the company.  And, while this certainly isn’t the end for online filesharing, it could mark the end of one very bad actor in the p2p sphere.  Maybe the recent court ruling will give those who distribute p2p software pause regarding how their operations are run.

(For a more thorough analysis of Limewire and how it actively perpetuated inadvertent filesharing, see “Inadvertent File-Sharing Re-Invented: The Dangerous Design of LimeWire 5,” authored by my former coworker, and co-author of the above mentioned USPTO report, Tom Sydnor.  Tom’s testimony at one of the Congressional hearings is also worth a read.)