Easy money - counting the cost of pirated films

Piracy cannibalises the†main money makers for†studios - the rental and†sale of DVDs and home†videos. Hard copy piracy†costs an estimated†$3-3.5bn per year;†digital theft may cost†$3-4bn per year.

DVDs and videos are where film companies†now generate their principal revenues:†46% of global revenue comes from†video/DVD rental and sales. Because film†production costs are amortised in the†theatrical window and video/DVD†production costs are minimal, every†incremental unit has a high contribution for†the business. Piracy cuts into this and has a†direct impact on the bottom line.

It is estimated that hard copy piracy costs†the film industry around $3-3.5bn per year.†This cost represents what the film industry†would have gained in revenues had these†films been purchased legitimately rather†than through pirates.

Though there are few estimates for the†costs to the film industry of soft copy piracy,†we believe the impact could equal the cost†of hard copy piracy, possibly running to†$3-4bn per year. This represents the cost to†the industry of films being downloaded for†free had they been bought legitimately.†Although precise estimates of these illegal†activities are difficult, some sources believe†this estimate is conservative. However, it†must be noted that many users who†download pirated material from the internet†do so because it is free and may not†necessarily buy the films otherwise.

Marketing, overhead and distribution costs†typically account for 60% of total DVD†costs. Hard copy piracy costs for these†activities are negligible.

"There is a strong irony that traditional hard†copy pirates are unlikely to see much†money from digital theft," says Ed Shedd,†partner in Deloitte's UK Media Consulting†team.

Though the internet provides a convenient†distribution mechanism for black†marketeers, it will be very difficult for pirates†to...