Financial Loss in the Movie Industry due to Piracy

There has been much in the news recently on the high cost of piracy to our nation.  It was stated that for the year 2011 the movie industry lost $25 billion to these crimes.  While it is obvious that something must be done to eradicate this crime, it is also important to know whether or not the claim is justified.  Where does the figure of $25 billion come from?  Apparently, from the Motion Picture Association of America (MPAA). 

As near as I can tell (since the MPAA does not state on their site how they arrived at this number), the MPAA takes the number of illegal downloads and multiplies that by the cost of seeing a movie to arrive at their number.  There are several problems with this calculation; in the first place, what is the price?  The average price of a movie ticket in the United States is $8.00.  Note that this is an average.  Here in Los Angeles, this would be a bargain price.  Our tickets generally cost from $10 to $12.  The top ten pirated movies in 2011 totalled 75 million downloads.  Assuming that there were another 75 million of all other movies downloaded (not in the top ten), we have 150 million downloads.  Add to this the number of illegally copied movies, for which we do not have a number.  Let's use a very large number and say it's the same as those downloaded.  We have a total of 300 million pirated movies.  Multiply this by the $8.00 per movie price and we have $2.4 billion in pirated movies. 

That's a far cry from $25 billion.

Perhaps we have to add in the cost of parking, popcorn and a drink.  Let's say each of these costs $5, for a total of $15 plus the cost of the ticket ($8) for a grand total of $23.  If we multiply this by the 300 million pirated movies, we have $6.9 billion.  Still not $25 billion.

The average cost of a DVD is $25.  If we take the 300 million pirated movies and multiply them by the $25 cost of a DVD, we have $7.5 billion.  Close but still not near $25 billion.  Maybe the MPAA felt that the proper amount was the cost of the movie with parking, popcorn and a drink and then the viewer purchased the DVD for a total of $48.  This gives us $14.4 billion total.  Still not the $25 billion that the MPAA claims.

Of course, this scenario does not take into account rental of DVDs (currently an average of about $3 per title).  Even if you assume that the consumer first watched the movie at the theater (after parking the car, and buying popcorn and a drink) then rented it and finally purchased it, the total per film would be $51.  Multiplied by the 300 million titles brings us to a total of $15.3 billion.

Just how does the MPAA get this $25 billion amount?  Without seeing their raw data, it's impossible to know.

A second (and more pressing) problem with their claim is that they state that the industry "lost" this amount.  This is completely untrue.  You cannot lose that which you do not have.  In order to lose this money they must first have earned this money and they did not.  Their calculation makes the assumption that IF the viewer had not viewed the pirated video, they would have purchased it outright.  This is not true.  Many people who watch pirated videos do so because they cannot afford to pay the $8 for a movie ticket or the $25 to own the DVD.  By dowloading it for free (or very low cost) they are able to afford it.  If this title were not available to them, they would probably simply turn on the television or play a video game.  There is nothing to prove that they would ever pay for this film.

As an example, the most downloaded video of 2011 was Fast Five.  This movie was downloaded 9 million times.  At the cost of a movie ticket, this would account for $72 million.  The film made $200 million at the box office and another $50 million in DVD sales.  To claim that the film "lost" $72 million is untrue.  The filme MADE $250 million.  Were those 9 million downloads never to happen, that does not add one penny to the total the film has already made.

Further, Fast Five was not the highest grossing movie of the year.  That title belongs to Harry Potter at $381 million.  But Harry Potter was only downloaded 6 million times making it the tenth most downloaded film of the year.  Apparently, the movies that do best in the theaters are not the movies that people pirate and therefore they are not the movies that people would pay to see.

If the movie industry wishes to make more money, they need to price their product so that more people can afford to buy it.  The $8 movie ticket is a little high, especially if you have a family but it's probably not an unfair price.  The $25 DVD price, however, is ridiculous.  Since the movie does not come out on DVD until after its run in the theaters, this price should be lower than the cost of a movie ticket.  If the cost of a DVD was $5 the studios would still make money.  Additionally, sales would increase resulting in more profits and there wouldn't be a need to pirate the film.

So why doesn't the industry lower their prices?  The studios would rather pay $10 million annually to belong to the MPAA and use that organization to try to change existing legislation.  And how can the MPAA do that?  Ask the head of the MPAA; Christopher Dodd, the former Senator from Connecticut who is paid $1.5 million annually.  This former senator is heading the same organization that claims that their industry loses $25 billion per year.

Are you beginning to see the problem here?