How bad is piracy hurting the entertainment industrie's economy? Are they going bankrupt or have a good outlook?

Question

By entertainment I mean book publishing, music uploads like on iTunes or even movies whether DVD, Blue Ray, Netflix, Hulu whatever. So much is moving online, that's the future. Piracy cannot be stopped, Sean Parker of Napster a site that was hit hard and sued for piracy lawsuits of releasing music for free, he even said, "The war on piracy is a failure." If a war is something to be won, piracy will win, but how much is what I and others are worried about.

Along with the big suits and artists/writer/actors/singers whatever, there are movie theater employees, Apple store employees, programmers for online entertainment companies, etc...the economy for this industry is huge and can be hurt a lot since as online media is growing so is online theft, hacking, and piracy. While it is good to go into a field of medicine, engineering, business (which this is), entertainment is a cultural classic and the people in it mostly work hard and moved up to get where they were in turn making jobs for everyone.

Star Wars made like a billion last month, but that's now and that a big movie. Kick@ss 2 stars said another sequel can't be made because the last two were pirated too much. Scary. Is the industry's outlook more collapse than still being profitable in the future?

Answer 1

Economic evidence on the effects of piracy is mixed. Most of the evidence focuses on the music industry, where piracy has been especially prevalent and where data is often more readily available.

Some papers find evidence that piracy has little or no effect of industry profits (here is one prominent example).

Other studies (example) find that piracy displaces sales and reduces profits. The estimates there imply that each song pirated costs the industry about 30 US cents.

Most surveys of the literature seem to conclude that the overall effect is negative.

Some messages that emerge from the literature:

• piracy especially harms large, well-established content creators, but may benefit small/independent creators who otherwise find it harder to reach an audience;
• for music: the industry has somewhat pivoted away from recorded music sales in favour or live performances as a source of revenue;
• the revenue cost of piracy is offset by the benefit consumers get from consuming free music. Putting aside the competing interests of firms and creators, the main social problem associated with piracy is its potential to reduce the number of creative works produced in the first place (by reducing the rewards to creating new works).
• evidence on the incentives to create new works is also mixed (see, e.g., here);
• thanks to political lobbying, creators probably enjoy 'too much' copyright protection (see here and here). Piracy may be helping to offset this somewhat;
• there are other things going on in the industry that may may more important than piracy. In particular, (i) search technologies give rise to 'long-tail' effects where a small number of works (e.g. Harry Potter) become incredibly successful but the majority not (a reference is here), and (ii) platforms such as Spotify, iTunes and Netflix are emerging as very powerful actors who are able to appropriate much of the industry revenue.

In summary, piracy probably does seem to be hurting the entertainment industry to some extent, but not critically so.

Answer 2

It must hurt differently different agents in the industry, as they will have different business models according to different products (films, versus music, versus books, versus video-games), different demand elasticities, different individual levels of business robusticity, and so on.

I think that ultimately their outlook will be better the best they can compete with piracy, profiting somehow from cheaper or "free" distribution, or with some added value in the bought of the original product, something that's not as easily pirated itself (like, buy/sign-up and you're also on a show/movie-ticket lottery, and have access to exclusive online content -- akin to the "Patreon" model of gifts to financial backers).

"Cheap" also includes "convenient", as looking for pirate options that seem safe and with a good enough quality also costs time (Steve Jobs famously likened it with a minimum wage job on the side to support this consumption), even though that's possibly not that much accounted for by the "consumer".

Not that fighting piracy in legal grounds wouldn't also help, but I suspect it wouldn't be the most cost-effective choice to rely on exclusively (and can have a popular backlash if the punishment seems absurd and unjust), even though it may be a necessity for "big fishes" of piracy. Less taxation towards the more competitive solutions would also probably be a considerable benefit.

It's kind of ironic that the collapse of the entertainment industry would also be in a way the collapse of the piracy industry, so I guess such collapses/downturns could be cyclical.

I've read in wikipedia that the main revenue from movies was actually DVD sales, even in recent years. I imagine that the most likely route to counteract this "leak" will be the spread of Netflix/Hulu-type models, but perhaps more verticall integrated, meaning, the movie companies themselves would have their own "netflixes", or own larger shares of Netflix variants.

Answer 3

It seems to be still profitable for the future to come this is explained in The Economics of the Audiovisual Industry: Financing TV, Film and Web (its also a free ebook on Kobo). This is because there are a number of venues which audiovisual products can be enjoyed.

Meaning, its a completely different experience when watching a movie in a movie theatre than on a laptop, this is referred to as Product Differentiation. Although the industry is hurt by illegal downloads and piracy, it has not made the whole industry profitless as there is still demand for the "movie theatre experience". As long as that is there, profit can still be made from making movies.