File Sharing and Film Revenues: Estimates of Sales Displacement at the Box Office

This study examines the impact of peer-to-peer (P2P) file sharing on the Australian theatrical film industry. Using a large data set of torrent downloads observed on three popular P2P networks, we find evidence of a sales displacement effect on box office revenues. However, although statistically significant, the economic significance of this displacement appears relatively small. To establish causality, we make use of the state-day-level panel data structure permitting the use of film fixed effects to help mitigate the endogeneity between film revenues and downloads. To further assist identification, we propose a downloading cost function that considers other states' downloading activities as a proxy for the number of peers in the download swarm; the US DVD release date as a supply shock to P2P networks; and the substantial structural progression within the Australian internet service provision industry that occurred over the sample period. We observe that the release gap between the US and Australian markets is a key contributor to piracy early in a film's theatrical life. This finding provides a partial explanation for the industry's move towards coordinated worldwide releases.