Marketers are confident that word of mouth helps stimulate demand. This perhaps isn’t too shocking. It seems reasonable that recommendations can encourage people to purchase. One area where this is likely to be the case is in movies. Reviewers pick over movies and give their thoughts. Normal people often are happy to share their views too. This later source of information is used by a variety of sites and seems pretty helpful. A lot of people posting about a movie could help generate buzz and it wouldn’t be shocking if that translated into higher sales.
An interesting area where such a ‘marketing’ effect meets public policy is in movie piracy. The challenge is that certain people watch movies without paying for them. There are at least a couple of potential effects. The direct effect is pretty obvious, watching movies without paying may mean that people who could have paid didn’t, lowering the box office. There is a second, indirect effect that is more subtle. Those not paying can still generate buzz. Theoretically, the buzz generated could create extra sales.
Shijie Lu, Xin Wang and I have produced a paper quantifying the effect of the word of mouth driven by piracy. My colleagues came up with a couple of great ways at getting at this. (As generally people don’t write — “I just watched a pirated movie”.) We looked at Russian piracy as a proxy for US piracy. “…we show a positive correlation between postrelease piracy and WOM volume, and we extend the field by finding that the presence of postrelease piracy is associated with an approximately 3.0% increase in box office revenue”. (Lu, Wang, and Bendle, 2019). Put simply, although by the nature of the topic the evidence isn’t perfect, this suggests that there may be a clear path; increased piracy leads to increased word of mouth which leads to increased box office from postrelease piracy. Note prerelease piracy is still much more negative. In essence the positive word of mouth driven by piracy exists but isn’t big enough to mitigate all the damage from piracy. Piracy before official release still has a very large, and negative, impact on the box office.
We also looked at what happened when The Pirate Bay (the major piracy website) was shut down for a few weeks. “…The Pirate Bay shutdown leads to fewer movie reviews and lower box office revenues…” (Lu, Wang, and Bendle 2019).
The message is an interesting one. Firstly word of mouth matters but, more surprisingly, piracy can generate a noticeable improvement in box office (when the piracy comes later in the release cycle). We may want to be smarter in our anti-piracy measures to focus more on the most damaging types of piracy.
Read: Shijie Lu, Xin (Shane) Wang, and Neil Bendle (2019), Does Piracy Create Online Word of Mouth? An Empirical Analysis in the Movie Industry, Management Science