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Full text of "MPAA piracy report"

The Cost of Movie Piracy 





An analysis prepared by LEK 

for the Motion Picture 

Association 




Contents 



Overview 

Major Findings 

MPA Member Company* Losses 

Piracy Rates by Country 

Dollar Losses by Country 

Worldwide Motion Picture Industry Losses 

Pirate Profile 

Methodology 



*MPA Members: Buena Vista Pictures Distribution; Metro-Goldwyn-Mayer Studios Inc.; 
Paramount Pictures; Sony Pictures Entertainment Inc.; Twentieth Century Fox Film 
Corporation; Universal City Studios, LLP; and Warner Bros. Entertainment Inc. 




L.E.K. 



The Cost of Movie Piracy 



Overview 



Piracy is the biggest threat to the U.S. motion picture industry. 

In 2004, the MPA commissioned a study to provide an accurate and 
detailed assessment of the film industry's worldwide losses to piracy and 
the demographic profile of those engaging in piracy. 

The survey results are the most comprehensive picture of film piracy to 
date, capturing 

(a) losses due to both internet and hard goods piracy, 

(b) the cost of piracy to domestic and worldwide industries, and 

(c) the profile of the typical pirate in various markets. 




L.E.K. 



The Cost of Movie Piracy 



Major Findings 



The major U.S motion picture studios lost $6.1 billion in 2005 to piracy 
worldwide. 

80 percent of those losses resulted from piracy overseas, 20 percent from 
piracy in the U.S. 



62 
DV 



Dercent of the $6.1 billion loss result from piracy of hard goods such as 
Ds, 38 percent from internet piracy. 



Piracy rates* are highest in China (90 percent), Russia (79 percent) and 
Thailand (79 percent). 



The worldwide motion picture industry, including foreign and domestic 
producers, distributors, theaters, video stores and pay-per-view operators, 
ost $18.2 billion in 2005 as a result of piracy. 



The typical pirate is age 16-24 and male. 




L.E.K. 



The Cost of Movie Piracy 



' See page 6 for definition of piracy rates. 



Losses to MPA Member Companies 

The major U.S. motion picture studios lost $6.1 billion to piracy in 2005. $4.8 billion, or 80 percent, 
resulted from piracy in other countries and $1.3 billion, or 20 percent, resulted from losses in the U.S. 

$3.8 billion was lost to hard goods piracy, defined as obtaining movies by either purchasing or acquiring an 
illegally produced VHS/DVD/VCD through a commercial source, or making illegal copies for oneself or 
receiving from a personal source (friend or family) an illegal copy of a legitimate VHS/DVD/VCD. 

$2.3 billion was lost to internet piracy, defined as obtaining movies by either downloading them from the 
Internet without paying or acquiring hard copies of illegally downloaded movies from friends or family. 

MPA Member Company Revenue Loss by Source of Piracy* 




$447 



$3,769 




$864 



International 
US 



Internet Piracy 



Hard Goods Piracy 



*AII figures throughout shown in $U.S. Millions 




L.E.K. 



The Cost of Movie Piracy 



Where is the piracy rate highest? 

China, Russia and Hungary have the highest piracy rates*. By comparison, the piracy rate in 
the U.S. is 7 percent. 



Percent of Potential Market Lost to Piracy 



90% 




32% 29% 





25% 




China Russia Thailand Hungary Poland Mexico Taiwan Spain India Italy 



*Piracy rates are derived from MP A member company legitimate revenue plus estimated revenue lost to piracy in each market. They are a static 
snapshot of the percentage of the potential market that is lost due to piracy. The piracy rate is based on existing market data and does not 
incorporate growth if piracy did not exist. 



IVTI 



& 



L.E.K. 



The Cost of Movie Piracy 



Dollars lost in international markets 

The markets where the dollars lost are highest are Mexico, UK and France. These mature 
markets return greater income to the U.S. motion picture industry than still developing 
markets such as China and Russia. Restricted access to the China market in particular limits 
potential legitimate revenues as well. 



MPA Member Company Revenue Loss 



$483 




$161 $157 $149 






Mexico 



UK 



France Russia Spain 



China 



Japan 



Italy Germany Thailand 




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The Cost of Movie Piracy 



Piracy in China and Russia 

■ China and Russia have the highest piracy rates of all countries surveyed - 
93 percent and 81 percent, respectively. 

■ The study indicates that the U.S. motion picture dollar losses in those 
markets are smaller than losses in Mexico and the UK. Why? 

• The U.S. motion picture industry's access to China is severely limited. China 
limits the number of foreign films allowed in theaters each year to 20, and 
imposes a number of restrictions on the distribution of home video products. By 
contrast, pirates operate unfettered and outside the law. 

• Mexico and the UK are free markets resulting in higher revenue for the U.S. 
motion picture industry. 




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The Cost of Movie Piracy 



Piracy's cost beyond the U.S. film industry 

Piracy cost the worldwide motion picture industry an estimated $18.2 billion in 2005. This 
includes producers, distributors, theaters, video stores and pay-per-view providers in the U.S. 
and around the world. 



Worldwide Motion Picture Industry Losses 



$7,114 




Internet Piracy 



$11,071 




$1,806 



Hard Goods Piracy 





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The Cost of Movie Piracy 



Dollar Losses - MPA and International 

Piracy is not just detrimental to major U.S. studios. Local and non-MPAA member 
companies* in other countries (including producers, distributors, theaters, video stores and 
pay-per-view providers) suffer from piracy as well. Losses to other film industries were 
highest due to piracy in China, France and Japan. 

Combined worldwide industry losses due to piracy are highest in China, France and Mexico. 



$2,689 



Motion Picture Consumer Spending Loss 



$2,124 



$1,547 



$943 



$565 ■ $604 



$1 ' 114 $1,007 

$161 4h -._ 
$220 



$954 



$787 



$901 
$278 



$622 



$742 
$367 



Non-MPA Member Company 
MPA Member Company 



$670 

$192 



$491 $465 $442 

$137 $194 $126 



$375 ■ $478 ■ $353 ■ $271 ■ $316 



China France Mexico UK 



Russia Japan Spain Germany Thailand Italy 



* Non-MPA member companies include local filmmakers in a given country. For example, the $2. 1 billion loss estimate in China for non-MPAA 
member companies includes losses to Chinese filmmakers in China as well as losses to French filmmakers in China. 




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The Cost of Movie Piracy 



Pirate Profile 



The typical worldwide pirate is 16-24 years old, male and lives in an urban area. 



Age Groups 



Gender 



40-49 
18% 




Rural 
32% 



Geography 



Female 

44% 





Urban 
68% 



IVTI 



& 



L.E.K. 



The Cost of Movie Piracy 



Downloader Pirate Profile 

The 16-24 age group is particularly high in the category of internet piracy, representing 58 
percent of illegal downloaders across the 22 directly researched countries*. It is even higher 
in the US, where the same age range represents 71 percent of downloaders. 



Age Groups of Active 
Downloaders - Worldwide 



Age Groups of Active 
Downloaders - U.S. 



40-49 
30-39 9% 

18% 






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The Cost of Movie Piracy 



See page 13 for explanation of directly 
researched countries. 

W 



Methodology 



LEK is an international strategy consulting firm. 

The study was conducted over 18 months. LEK surveyed 20,600 movie 
consumers in 22 countries using focus groups and telephone, internet and 
in-person interviews. 

Those surveyed were movie watchers. Those who have dropped out of the 
market for movies were not included in the study. 

Data from the 22 directly research countries was extrapolated to 42 
additional countries using a regression model developed in conjunction with 
UCLA and based on country-specific characteristics to complete the 
worldwide piracy picture. 

The study's piracy loss calculation is based on the number of legitimate 
movies - movie tickets, legitimate DVDs - consumers would have purchased 
if pirated versions were not available. 




LEK. 



The Cost of Movie Piracy 



Methodology - 22 Directly Surveyed Countries 



Australia 

Brazil 

Canada 

China 

France 

Germany 

Hong Kong 

Hungary 

India 

Italy 

Japan 



Korea 

Mexico 

Netherlands 

Poland 

Russia 

Spain 

Sweden 

Taiwan 

Thailand 

UK 

United States 




L.E.K. 



The Cost of Movie Piracy