If it were a movie, it might be called "The Monster That Threatened to Eat Hollywood."
As options for watching movies—from online streaming to 3-D Blu-Ray discs—have expanded and become more sophisticated, so have attempts to pirate the content, leaving studios seeking new ways to discern the impact on their bottom lines.
For years, studios and their main trade association, the Motion Picture Association of America, cited figures from a partially published, industry-commissioned study that put the cost to U.S. film companies of bootleg DVDs, illegal downloads and the like at $6.1 billion a year.
That research was used for a later study that multiplied the impact to $20.5 billion—part of a bigger, $58 billion bite that all copyright pirates were making into the economy. The numbers were used by industry groups as recently as last year during the debate over the Stop Online Piracy Act, which stalled in Congress.
Now the industry has backed away from these estimates, while sharing more data with academic researchers. The earlier studies relied on surveys to find out what people said they would do without pirated options, but the researchers favor so-called natural experiments, which show what people really do after pirated films become available or unavailable.
The results don't say as much about the impact on the industry as a whole, but they provide stronger evidence that piracy hurts sales, and give a rough estimate of how big the effect is—not $6 billion or $20 billion per year, but more likely $2 billion or $3 billion in U.S. revenue.
"Academic studies typically focus on smaller segments," trading generality for accuracy, said Michael D. Smith, professor of information technology and marketing at Carnegie Mellon University. "It's hard to generalize from these studies to aggregate effects, but if you think about the size of these industries, it makes aggregate losses in the multiple billions of dollars seem perfectly plausible."
There is still little consensus, however, among academic researchers about the size of the problem. Some say there is no proof piracy costs sales, and others maintain the older numbers understate the extent of the problem today.
Nevertheless, Prof. Smith's work illustrates how the industry is cooperating more with the academic world to produce estimates. The MPAA provided $10,000 to Prof. Smith and a colleague to review academic literature on piracy, Prof. Smith said. Separately, two studios furnished sales data for a paper Prof. Smith and Wellesley College economist Brett Danaher published last month indicating last year's shutdown of illegitimate-download site Megaupload by the U.S. Justice Department boosted the studios' digital revenue by 6% to 10%. Prof. Smith said, the industry had no say on how the papers were written and his tenure means he isn't personally dependent on such grants.
The Megaupload case shows how natural experiments can arise, and how they are limited. The site's disappearance provides a dividing line for a before-and-after study, but that study can't comment on the effect of other digital-piracy sources or on the impact of DVD piracy, and it is silent on piracy in countries where sales data weren't available or Megaupload wasn't popular.
Dr. Danaher calls the 6%-to-10% estimate a lower bound on piracy's impact—which would mean $2 billion to $3 billion of U.S. revenue if the study's finding for digital revenue translated to box-office and DVD sales and rentals. But he says, "I think more economists should say this: I'm not sure."
The digitization of legal and illegal consumption of film means sales and piracy both are easier to track, with much of the activity creating a digital trail. Such data weren't readily available when the MPAA sought to measure piracy in 2004. It commissioned a study from the firm L.E.K. Consulting, which did more than 20,000 interviews by phone, online and in person in 22 countries. Its finding, based on what people said about how much pirated material they consumed and how much they would buy if it wasn't available, was that $6.1 billion was lost annually by the industry.
MPAA, as an L.E.K. client, controlled how much of the study to release. It shared the headline finding but not the questionnaire, survey methods or calculation used to find losses. Bill Frack, an L.E.K. vice president, spoke this past week only generally about the study, citing client confidentiality.
Despite lacking some details on the L.E.K. study, the Institute for Policy Innovation, a Texas-based think tank, used it in 2006 to estimate the impact on the economy of film piracy. "We certainly got into a problem with L.E.K. where there was certain information that was proprietary that they did not release to us," IPI President Tom Giovanetti said.
Since the IPI estimate precedes the rise of digital piracy, Mr. Giovanetti said he wants to refresh them. But MPAA spokesman Howard Gantman said the group isn't planning an updated study. It is instead acting as a "trusted data broker" for researchers and examining what spurs people to consume pirated movies or use legal options. "Measuring the specific global cost of illegal activities is a very difficult process," he said.