The counterintuitive truth about piracy and profits

The most pirated films of all times were also blockbusters

One of my favourite writers is Terence Corcoran, who as editor of the Financial Post is an old colleague of mine. I enjoy reading his columns because whenever he ventures into technology and telecom issues, the result is usually a car wreck. And who doesn’t enjoy watching a car wreck?

Such is the case with a recent column on copyright, which he promoted on Twitter as being penned by the “anti-Geist.” One of Corcoran’s favourite whipping boys is, of course, Michael Geist, the University of Ottawa law professor and Canada Research Chair in Internet and E-Commerce Law who is one of the country’s most-cited experts on copyright law. If you follow both gentlemen, you probably know they, well, don’t like each other, to put it mildly.

In his column, Corcoran accuses Geist of using the recently failed U.S. Stop Online Piracy Act to fuel fears about C-11, Canada’s upcoming copyright reform legislation. “Smelling SOPA blood” in the air, he writes, Geist has spent the past few days re-hashing all the various groups that are opposed to certain parts of C-11, as well suggesting that entertainment companies are trying to add SOPA-like elements to the bill.

I’m not about to stick my nose into a feud between individuals, especially one that seems to be increasingly personal on at least one end, so I won’t. The part I enjoyed in this latest column, however, was Corcoran’s explanation of how file-sharing works and how it apparently deprives Hollywood of much-needed revenue.

He explains how The Grey, Liam Neeson’s latest movie in which the actor battles wolves, is turning out to be a surprise hit in theatres–but also on file-sharing directories such as Canada’s own isoHunt. In parroting industry talking points that “millions of dollars will be lost to the makers and distributors of the movie” because of the file sharing, Corcoran completely misses his own point: success on file-sharing sites usually correlates with commercial success, meaning that one does not happen to the detriment of the other.

There’s quite a bit of evidence to back this up. The Hollywood Reporter in December compiled a list of the most pirated films of all time and the results are completely unsurprising. Leading the list were AvatarThe Dark Knight and Transformers, all of which were mega-hits in theatres. All of the other films also “did quite well at the box office,” the magazine reported, although it noted that theatrical release was only part of the story. “Some studio executives believe that online piracy does its most damage on ancillary income like DVDs and TV sales,” the story said.

Those same films also did very well on DVD. Avatar, for its part, was “the fastest-selling home video release in history, with sales totaling $130 million” when it was released in 2010, according to the Christian Science MonitorThe Dark Knight broke DVD sales records when it was released, as did TransformersThe Hangoverand so on and so on.

Those correlations seem to disprove the conventional wisdom that a freely downloaded movie equals a lost sale. Many pundits have in fact speculated the opposite holds true–that a freely downloaded movie (or song, or e-book, etc.) raises its profile, with the downloader perhaps recommending it to friends, who then go and purchase it. A growing number of creators, including my truly favourite writer Neil Gaiman–who I like for completely different reasons than Corcoran–are coming around to this view.

An increasing amount of literature is also emerging to support this counter-wisdom. Mike Masnick over on TechDirt recently released a report titled “The Sky is Rising” that shows the entertainment industries–video games, music, movies and books – are actually growing, despite the supposed heavy toll file sharing is having and despite one of the worst financial crises in modern times.

Observers who regurgitate industry spin will simply dismiss such reports because they are funded by open-internet advocacy groups, or “populist wolves,” but the results aren’t hard to independently verify. Entertainment One, the distributor of The Grey in Canada, reported full-year profit for 2011 of 42.5 million pounds on revenue of 469.7 million pounds, up from 18.6 million pounds on 264 million pounds in 2008. That’s a 128 per cent increase in profit and a 77 per cent jump in revenue. Hits like The Grey are likely to continue fueling that heady growth into 2013, despite or perhaps thanks to file sharing.

Screeeeeech, bang! Hear that? That’s the sound of a car wreck.