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.

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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.

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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.

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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

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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.

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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%

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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

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The Cost of Movie Piracy