When piracy helps

At the beginning of this year, police stormed the New Zealand villa of Megaupload CEO, Kim Schmitz.

The Finnish-German, who headed the world’s largest file hosting website, was arrested. And the US Department of Justice shut down the web portal, which allowed people to stream or download movies illegally.

Following the arrest, Schmitz was sued for millions in damages by the film industry.

But proving that sites like Megaupload are to blame for the losses in the film industry may be difficult.

Christian Peukert from Munich’s Ludwig-Maximilians University and Danish Jörg Claussen carried out a study on online piracy and movie sales by analyzing sales figures from 49 different countries in the past five years and the revenue generated by 1344 movies.

Their finding were surprising. Shutting down Megaupload didn’t lead to higher revenues as expected, but may have led to a decline in sales, the researchers said.

Their study showed that the decline in sales only applied to small budget films and not blockbusters.

Word of mouth

Small budget films may benefit from piracy because our decisions to watch a movie are, in part, influenced by other people’s recommendations, according to a press release on the study.

That would mean that fewer films on Megaupload, or other online sharing sites, would also lead to fewer recommendations

"Because of lower advertising budgets, small budget films are more dependent on word-of-mouth [advertising]," Peukert told German daily Süddeutsche Zeitung.

People who use file sharing are able to reach more people who could be willing to pay for content, according to the findings.

"The study has sparked debate in Germany. People who download movies illegally feel vindicated while the film industry disagrees.

The current figures in Germany clearly contradict the theory," said Christine Ehlers, spokeswoman for the Society for the Prosecution of Copyright Infringement (GVU).

GVU criticizes the study for focussing on sales and not visitor numbers.

During the first half of this year, films with less than 200 copies distributed to German cinemas attracted more visitors than in both previous years.

The copyright fight continues

Industry professionals have also been critical of the study. German film director Niki Stein, who advocates copyright protection, does not believe that an increase in downloads can lead to increase in sales for smaller productions.

He believes that the decline in the sales of "small films" is due to another reason.

"I suspect the study has forgotten that in general there has been a big revenue downturn in recent years, especially for small, intellectual art-house films," he told Deutsche Welle.

Stein does not think that webportals like Megaupload create opportunities for independent films.

But not everyone agrees with his view. The results of the Munich study give credence to the argument that illegal downloads benefit the marketing of music or movies.

In October, Columbia University in New York found that participants in music sharing sites in Germany and the United States spend significantly more on music than other users.

But Stein isn’t convinced. He suspects that big players in the Internet industry could be supporting these studies.

However, Peukert argues that his study is not supported by special interest groups.

"Our main concern is with a proper scientific analysis that will be able to contribute to the current debate," he said.

Despite the controversy surrounding these studies, they show that there is a need for research on piracy and its potential role, if any, in marketing both movies and music online.