Study: Megaupload Shutdown Caused a ‘Significant Increase In Digital Sales…’

Here’s where the war on piracy gets really complicated. Because for all the ‘just embrace it’ advice from the tech community, it seems that shutting down massive piracy hubs actually improves digital sales.  You need an attractive carrot…

…and a giant stick as well.  It was true for song downloads following the shutdown of Limewire, and now, there are statistics backing the Megaupload shutdown, as well.  “The shutdown of Megaupload caused a statistically significant increase in digital sales,” Carnegie Mellon professor of information technology and market Michael Smith recently told an audience last week at the Digital Book World Conference in New York.

According to details from MediaBistro, Smith analyzed and compared countries with varying degrees of Megaupload penetration (low, medium, high).  And after crunching the numbers he determined the following result:

Every 1% decrease in Megaupload usage


+2.6-4.1% increase in digital sales.

“It does suggest that when you look at competing with free, using anti-piracy measures to make piracy less attractive does work,” Smith said.  Perhaps the more important questions are how long the effect lasts, and whether it was worth the effort.  Limewire took years and millions of dollars to shut down (and let’s not even get into the costs of the Megaupload takedown).

And sometimes, shutting down one massive piracy hub merely creates a void for another to fill.  In the case of Megaupload, Kim Dotcom is now filling that void himself.

47 Responses

  1. Casey

    No doubt it caused an increase in sales, but there is no way every 1% decrease resulted in a 2.6-4.1% increase in sales. That would mean a significant sales increase in digital media, which sales on digital media do not reflect.

    • Versus

      Why not? The Megaupload shutdown can have ripple effects, like scaring users away from using other stealing, I mean “sharing”, services as well.
      As an anecdote, I heard several acquaintances admit that they stopped using torrent sites after hearing of the Megathievery shutdown. The logic didn’t make sense, but there you have it. So don’t discount it the causal connection out of hand. There may be a link. Of course, causation is notoriously difficult to prove in complex social processes.
      – V

  2. Central Scrutinizer

    I would like to see more details of their analysis.
    The data can probably be interpreted any way you want.
    Anyway, the new Mega may have some flaws that create more problems for Mr. Dotcom than he anticipated.

  3. C

    I call bullshit. You guys are fucking CONTROLLED by the music industry, of course you would spread around this kind of shit. People just switched over to other sites once megaupload was shut down.

    • I, Robot

      Cary Sherman is my master I must do as he says….
      Cary says you must be destroyed!!!

    • Visitor

      “I call bullshit.”
      Boohoo, they take away our free stuff — what if I have to pay like everybody else? 🙁

    • better

      controlled by the music industry…
      …or controlled by propaganda put out by the real moneymakers of piracy (google, cable providers, computer co’s, etc)
      man, it’s like watching blue-collar texans argue that the ultra-rich should be taxed less… because they’re so hypnotized by the megacorporations message conveyed via the teaparty (started by the billionaire Koch bros.)

  4. Visitor

    I heard ice cream sales and drowning deaths were up at the same time last year too….

    Oh and that we’ve been seeing digital revenue increases across the board with all media every year.
    Out of curiosity, how big is pirate bay compared to Mega?

    • Visitor

      “I heard ice cream sales and drowning deaths were up at the same time last year too….”
      Why don’t you ask the hundreds of thousands who lost jobs and homes because of the Piracy Industry if they laugh at your jokes?
      Here’s the cost of US and EU piracy:
      According to Unesco, 10 billion Euros and 185,000 jobs were lost in 2008 because of piracy in the EU.

      According to Institute for Policy Innovation, $58 billion and 373,000 jobs were lost in 2007 because of piracy in the US.
      Siwek, Stephen E.,The True Cost of Piracy to the U.S. Economy, report for the Institute for Policy Innovation, Oct. 2007.

      • Myles na Gopaleen

        He wasn’t making a joke. You might be able to accuse him of being facetious.
        Either way, the point of his comment and the unwritten implication of the article (dead mole) is: So what? There are plenty more pirate sites out there and more waiting to replace megaupload.
        Feel free to argue against that idea if you wish. Just don’t be so sanctimonious.

      • txa1265

        I think what he is saying is that correlation does not equal causation. In other words, if the MediaBistro report attributes ALL increase in digital sales to MegaUpload closure, then it misses the general increase in digital sales, the ongoing shift from physical to digital, and so on.
        And while I am very much anti-piracy, and teach my kids the same (and with both having an interest in music as potential future, I have instilled that buying music is a *good* thing) … those numbers are CRAP. NO ONE *knows* (a) how much piracy occurs (b) how many people would buy if they had no choice or (c) what the true financial impact is of piracy. We know there is impact, but saying it caused 58 billion in one year and caused hundreds of thousands of jobs lost in a year when the economy was tanking already … almost entirely speculation.

        • Visitor

          “We know there is impact, but saying it caused 58 billion in one year and caused hundreds of thousands of jobs lost in a year when the economy was tanking already … almost entirely speculation.”
          The difference between you and me is that I provide facts and documentation, while you provide guesswork and weasel words.

          • GGG

            Do you really think every album downloaded illegally would have been bought if torrents didn’t exist?

          • Visitor

            “Probably less”
            Again, I provide documented facts — you provide guesswork and speculation.

          • Visitor

            By documented facts you mean educated guesswork.
            There are so many varibles that are not accounted for, also combined with the fact the “Reasearch” will be biased.

          • GGG

            Still didn’t answer my question. Do you honestly think if some pirate downloads 10 albums, they would have bought all of those if pirate sites didn’t exist? Because if you do you are crazy.
            You cannot do anything more than estimate how people will purchase music in a constantly changing landscape. Those 6 year olds “facts” you presented are speculation, as well. Thinking otherwise is just ridiculous.

          • Visitor

            … also please note that UNESCO estimates a loss of 240 billion Euros and 1.2 million jobs in 2015 because of piracy.
            The figures are based on the loss of 10 billion Euros and 185,000 jobs that EU suffered in 2008 because of piracy.

          • Casey

            And that is why they are not credible. 240 billion Euros? Do you have any idea how much that really is?

            And their job loss numbers… where are the layoffs?

          • Visitor

            Let’s see, who’s more credible:
            UNESCO or… Casey, the anonymous VPN user and manufacturer?
            Your choice.

          • Visitor

            data from UNESCO in that report.
            You might want to read it. It’s a lil more up to date than your reports there…

          • Visitor

            A report by techdirt? lol, these guys are even nuttier than torrentfreak…

  5. Hugh t

    I have to agree with those calling bs. Mega upload was popular but it just a matter of using another service after they shut down.

  6. Realist

    Absolutely wrong. What’s stopping people who used megaupload to going to one of the hundreds of thousands of other sites holding illegally owned content?

    Digital sales are increasing because people are increasingly using more and more devices, and copyright holders are starting to offer more reasonably priced material and making it easier to obtain, although DRM will continue to give pirates reason for illegally downloading material.
    At the time of Limewires shutdown, iTunes started getting a serious look from people who owned iPods. At the time of MegaUploads shutdown, people started using tablets more often, which for the most part require DRM that can trace more purchases.

    Coincidental sales increases are hardly regarded as a “study”.

    Did you know that as Ice Cream sales increase, so does violent crime?

  7. Jaded Industry Dude

    During top-level album campaigns at a record label I once worked at (artists who do about 60k units a year), I saw a dramatic increase in sales when I would A) upload a fake ‘leak’ of the album in advance of the real leak and B) have all my interns spend 100% of their time sending DMCA take down notices to the real leaks while making sure the fake leaks stayed online.

    This resulted in, I estimate, a 5% increase in digital sales overall during the first week of the albums release (I did this process three times with three different top level albums, and had the same results)

    My motto was that the more difficult you make it for someone to get a product for free, the more likely they are to say “FUCK IT, FINE, BUYING ON iTUNES”

    And it worked. I can’t prove this to any of you. I don’t have statistics to back it up. But I have over a decade of experience in this dumb industry and mostly in the digital sales world, so even though I don’t have a pie chart, I can tell you my first hand experience with what this article is talking about seems very spot on.

    • Casey

      I believe it. In fact I have seen people react that way. If they want it bad enough, they will get it. Even if they have to pay for it.

    • Visitor

      “My motto was that the more difficult you make it for someone to get a product for free, the more likely they are to say “FUCK IT, FINE, BUYING ON iTUNES””
      Yes, this is the truth:
      Less streaming? More iTunes sales!
      More take-down notices? More iTunes sales!
      More fake uploads? More iTunes sales!
      I even saw a Torrentfreak poster saying that if he couldn’t find a pirated or streamed version of a song, he’d buy it.

      • Casey

        Eliminating streaming would make more sales, but not every song streamed would become a sale. In fact very few would. Only the favorites.

  8. Visitor

    I guess we can stop worrying about piracy and start working on making music. Right? Right?

  9. AnAmusedGeek

    I’ll admit I didn’t read the report the story was based on. Could someone explain how they determined the sales increase due to the mega shutdown vs. overall digital sales increases we’ve seen each year? Seems like it would be a hard correlation vs. causation problem?

    • Helpful

      Sure –

      It looked like they didn’t just look at sales increases. They looked at sales increases in a bunch of countries, and found that sales increased by more in countries where Megaupload had been used more widely (before the shutdown) and less in countries where it had been used less widely. There was some other stuff but that seemed to be the main way they estimated how much of the sales increases were actually attributable to the shutdown (and they admit that any of the rest must be driven by other factors).

  10. jw

    I object to your wording here, Paul. And to the wording in the article you’re referencing.
    It doesn’t seem like is a statistic about decreasing or increasing anything. What it seems like it should say is something like “For each percentage of megaupload usage (by country) less than the average, digital sales were 2.6-4.1% higher than the average before MegaUpload was shut down.”
    This is not at all a statistic about how sales performed since MegaUpload’s departure. If that were the case, countries with higher MegaUpload penetration would seemingly have had a bigger sales increase, in order to support the theory that shutting down piracy sites increases sales.
    To take the statistic at face value, when MegaUpload was taken offline, usage would’ve dropped 100% & we should’ve seen digital sales spikes of 260-410%, which we didn’t. Instead, we saw digital sales increase something like 15% last year… even if we attributed every bit of that to MegaUpload’s departure, we’re looking at a .15% increase per 1% decrease in MegaUpload usage.
    I just don’t feel like the data is being presented in a meaningful way by this article or the one you’re referecing. There’s a clear bias here. Or else I’m just fundamentally misunderstanding something.

  11. buddaman

    Release your music on cassette, problem solved…..mp3’s are lame.

  12. Austin

    In my humble opinion… I posted this on another site…. but it applies here… :
    In my humble opinion . Overvipe You do not know what you are talking about. Microsoft has its software ripped off, musicians and film makers have their music and movies ripped off by thieves like Kim dot Com… who by the way has a huge house filled with over 10 million dollars worth of art work alone… Kim steals other peoples hard work to make money for himself…. The artist IS outta of money… so is the film company. There are several tech ways to track the thieves to their home address. There are several ways to track and stop pirates here and abroad. No one has the right to steal from another. Rico Act them and drone them. Those are copyrighted works. At least Record companies give an advance to a band/artist so they can pay rent, upgrade their instruments, buy food, buy studio time. Thieves like Kim dot com just steal or promote software(with pop up ads) that help steal other peoples property. It’s easy to make money when you are stealing from other people. Me, I listen to that 30 second song snippet on iTunes, and if I like it I buy it, usually 99 cents to a buck fifty, and help to support the artist. This is the correct and moral and LEGAL thing to do. I do NOT share the file. Hell I worked for my money and do not mind blasting the music around my pool for my guests to listen to it… but I DO NOT make copies to distribute. I think we SHOULD give these cyber crooks to @Richard for him to deal with. Rationalizations about piracy and stealing are total Bull Sheeeet. Besides using peer to peer gives a way for a hacker to get into your system. Like I said, say all you want about record companies, but at least they give cash advances to minor and major acts… it’s in everyone’s interests that this happens. Piracy especially hurts the independent artist who cannot afford to tour. They have families. I have two friends that are with CD Baby and they tell me they find their songs on sites they have no agreement with. It kills their income… it DOES hurt families. Someone is downloading/sharing their music on these pirate sites like Megaupload.Stealing and piracy are just plain wrong. For every 1 major act making money… there at least a hundred bands scrapping by trying to make a living. I perform a monthly inspection on my children’s computers, and they know that if I find peer to peer shareware they will lose their computer and get grounded. They earn an allowance and buy their CD’s at Wally Mart and Target and also purchase songs on iTunes. If you really support musicians and film makers and book authors and people that create wonderful computer programs and apps, support them by purchasing their works at legitimate sites OR CD’s DVD’s BLU RAYS at Wally Mart and Target. Listen Overvipe..I’m sorry you didn’t make a good deal with the record should have had a better attorney. At least you got some money. Kim dot com doesn’t care about you or any other musician/film maker. He ain’t gonna give you an $$$ advance. Fight back. Good music or bad music, the artist should get paid if you download it. Don’t be so friggin elitist with your “counterpoint, music theory”, whatever.. Jail pirates and thieves. France started kicking people off the internet that were found doing the illegal download. Guess what, sales are up after the busts. Fight back.