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There are several claims that piracy of Intellectual Property (IP) can help sales more than it hurts them.

For example, Edmund McMillan of Team Meat states in an interview at IGN:

McMillen believes that the more people who steal his games, the more will eventually buy them. He sees piracy as nothing more than a huge sampling exercise. "If the game gets pirated heavily, if it's a good game that people really like, they're going to either buy it eventually or they're going to tell other people about it. Either way it's just going to come back to a sale."

Tim O'Reilly argues that piracy's benefits outweigh the lost sales:

Piracy is a kind of progressive taxation, which may shave a few percentage points off the sales of well-known artists (and I say "may" because even that point is not proven), in exchange for massive benefits to the far greater number for whom exposure may lead to increased revenues.

Brazilian bestselling author Paulo Coelho believes piracy only helped his sales

"We put up a link on the blog, like I was very surprised. (...) The link is on the main page of my blog. I have to play a little bit naive, that I don't know. But people go there, they download the book, and, believe it or not: The sales of the book increased a lot."

and

"At the end of the day people are going to buy it because it stimulates people to read and it simulates people to buy."

What studies or evidence is there to support or contradict the idea that piracy may ultimately be beneficial to profits rather than harmful?

  • If anyone has better examples of prominent people making this claim I would appreciate it. For example I know Shakira and Radiohead seemed to support it and especially Dan Bull, however I couldn't find anything I quotable. – Sonny Ordell Jan 25 '12 at 9:40
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    I'm sure some people buy things after finding a pirated version. But does that counter the number of people who don't buy something because they have pirated content (even other pirated content)? Say you get 100 extra sales from people finding you through pirated copies who like them enough to buy something, but lose 1000 copies to people who'd buy your work if they hadn't found pirated copies (maybe not even of your work, they just want something to occupy their time), that hurts you. – jwenting Jan 25 '12 at 10:10
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    How do we measure benefit? And benefit to whom? And how do we know what would have happened, if we wouldn't had piracy? – user unknown Jan 25 '12 at 10:47
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    This is too broad. What content? What market? What context? E.g. if your problem is you are virtually unknown, then piracy/word-of-mouth is immensely beneficial and you have little to lose. If you are Michael Jackson, word-of-mouth is irrelevant and you have lots to lose. Piracy can be useful to bootstrap your career, but it's certainly harmful if you are already mega famous. – Sklivvz Jan 25 '12 at 14:41
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    This may actually be a good question for EconomicsSE... – Chad Jan 25 '12 at 19:51
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The most recent review on this that I know of is File-Sharing and Copyright, a 2009 paper (pdf). The results are unclear:

Because the theoretical results are inconclusive, the effect of file sharing on industry profitability is largely an empirical question. We summarize the findings of some of the major studies in table 5. As the list shows, the results are decidedly mixed. There are two studies that document a positive effect of file-sharing on sales: Andersen and Franz (2008) for a representative sample of Canadian consumers and, more narrowly, Gopal et al. (2006) for the effect of sampling on CD sales.17 The majority of studies finds that file sharing reduces sales, with estimated displacement rates ranging 3.5% for movies (Rob and Waldfogel, 2007) to rates as high as 30% for music (Zentner, 2006).18 A typical estimate is a displacement rate of about 20%. One implication of these results is that developments other than file sharing must have had a profound impact on sales. For music, the popularity of new types of (internet-based) entertainment and the end of the transition from LPs to CDs are leading explanations for the overall decline in sales (Hong, 2004; Oberholzer-Gee and Strumpf, 2007). While many studies find some displacement, an important group of papers reports that file-sharing does not hurt sales at all (Tanaka, 2004; Bhattacharjee et al., 2007; Oberholzer-Gee and Strumpf, 2007; Smith and Telang, 2008). And even among the studies that show some displacement, there tend to be important subsamples that were not affected. For example, Rob and Waldfogel (2006) find an average displacement effect of 20% but report that file sharing had no impact on hit albums.

It also notes that many of the studies rely on questionable methodology. For instance, many rely on self-reporting (quite unreliable when surveying illegal activity), or use internet penetration as a proxy for piracy. It's worth noting that in the studies where researchers have actually collected data on file-sharing networks and measured file-sharing activity, the results have been "no effect":

We emphasize these issues because the results in table 5 seem to suggest that measurement choices have a systematic impact on results. While the majority of papers reports some sales displacement, the four studies using actual measures of file sharing (Tanaka, 2004; Bhattacharjee et al., 2007; Oberholzer-Gee and Strumpf, 2007; Smith and Telang, 2008) find that file sharing is unrelated to changes in sales.

For some fields, there may be complement effects. For instance, for music performers, a possible loss of sales may be offset by increased concert attendance:

As Table 6 shows, concerts and merchandising have become an important source of income for major artists (Connolly and Krueger, 2006). Concerts and new recordings are complements. A recording becomes more enjoyable if one can reminisce about the time at the concert, and knowing the songs in advance might make the concert more enjoyable. In the presence of complementary goods, file sharing will have two opposing effects (for a formal model, see Mortimer and Sorenson, 2005). As the effective price of music falls close to zero, a larger number of consumers will be familiar with an album, driving up the demand for concerts. At the same time, artists have weaker incentives to tour because concerts are a less effective way to increase revenues from a new recording if a large fraction of the audience shares files. Which of these effects is more important? Figure 6 shows that concert prices rose much more quickly than the CPI, and the difference appears to have widened since the advent of file sharing (Krueger, 2005). More detailed evidence on the link between file sharing and concerts comes from Mortimer and Sorenson (2005). Studying 2,135 artists over a ten-year period, they also conclude that the demand for concerts increased due to file sharing. One way to see this is to ask how many CDs an artist needs to sell to produce $20 of concert revenue. This number fell from 8.47 in the pre-Napster era to 6.36 in the 1999 to 2002 period. Not surprisingly, artists responded to these incentives by touring more frequently. Overall, the shift in relative prices and activities led to a sharp increase in income for the typical artist included in the authors’ dataset.

This tidbit from the paper might also be of interest, though it does not answer the question directly:

Overall production figures for the creative industries appear to be consistent with this view that file sharing has not discouraged artists and publishers. While album sales have generally fallen since 2000, the number of albums being created has exploded. In 2000, 35,516 albums were released. Seven years later, 79,695 albums (including 25,159 digital albums) were published (Nielsen SoundScan, 2008). Even if file sharing were the reason that sales have fallen, the new technology does not appear to have exacted a toll on the quantity of music produced.25 Obviously, it would be nice to adjust output for differences in quality, but we are not aware of any research that has tackled this question.

Similar trends can be seen in other creative industries. For example, the worldwide number of feature films produced each year has increased from 3,807 in 2003 to 4,989 in 2007 (Screen Digest, 2004 and 2008). Countries where film piracy is rampant have typically increased production. This is true in South Korea (80 to 124), India (877 to 1164), and China (140 to 402). During this period, U.S. feature film production has increased from 459 feature films in 2003 to 590 in 2007 (MPAA, 2007).

  • That's a really interesting report you found. Especially the part about Napster maybe reducing CD sales but being responsible for more concert tickets sold. – Sonny Ordell Jan 31 '12 at 14:33
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Correlation is a fact, widely known and denied only by IP industry. For example:

Those who download illegal copies of music over P2P networks are the biggest consumers of legal music options, according to a new study by the BI Norwegian School of Management. Researchers examined the music downloading habits of more than 1,900 Internet users over the age of 15, and found that illegal music connoisseurs are significantly more likely to purchase music than the average, non-P2P-loving user.

(source: ArsTechnica "Study: pirates biggest music buyers. Labels: yeah, right")

In Poland scientific report about digital culture has been recently prepared . ("Obiegi Kultury" ["Culture circulation"], currently Polish only, English highlights coming in February 2012). Some highlights of the report:

  • Report authors don't make clear distinction between "honest buyers" and "pirates" as they have found that distinction is not clear cut. The don't talk about legal status either, as that's also not clear cut. They rather talk about "official" and "unofficial" circulation. Unofficial circulation, besides downloads, also includes physical actions, such as lending/exchanging books/DVDs/CDs with friends. Report finds that official circulation in case of purchasing books/movies/music has reach of 13%, while unofficial one has 39% (33% downloads, 6% physical).
  • Report is based on poll of 1300 representative group of internet users (and generally available statistics for overall averages). Of these polled 72% do downloads, 92% if you include directly sharing with friends, and 98% if you also include physical sharing. (Interesting find, that even physical sharing is also mostly done by internet users).
  • On average only 29.8% of people go to see movie in cinema at least once a year, yet among these polled that percentage is 82% and there is high correlation between downloading more movies and going to cinema more often.
  • Only 5% of people who don't use internet have bought a book last year, versus 68% among these polled.
  • Only 1% of people who don't use internet have bought a music CD last year, versus 29% in just last 3 months among polled.
  • Only 2% of people who don't use internet have bought or rented a DVD/Blu-ray movie last year, versus 25% in just last 3 months among polled.

Conclusion is that exactly same people that by some are called "pirates", are the people who also are the best consumers of the cultural products (books, music, movies etc), and far more engaged in cultural activities than average.

The correlation is not causality, but the authors of the report suggest it's a case of a positive feedback loop (more downloading leads to greater interest in culture, greater interest in culture leads to more downloads and purchases).

  • That's an interesting answer, thanks. Regarding game piracy however several of the bigger studios consider it a problem, notably Rocksteady and Ubisoft. Could you cite a more reliable source for that point? – Sonny Ordell Jan 25 '12 at 12:23
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    "People who don't care for watching mainstream movies don't pirate them, study shows." The correlation shown doesn't address the "what if" scenario of the people not pirating. Newell's success is an anecdote, and doesn't even show if piracy is really an issue in Russia. Carroll's anecdote also doesn't try to consider other factors that might affect sales. Even then his last line completely undermines your claim. Piracy cost them revenue. This isn't a robust answer. Can it be saved? – Oddthinking Jan 25 '12 at 13:22
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    @Oddthinking: I don't see how your quote relates to my answer. And yes, studies do address "what if" scenario. Studies show, that eg. watching movies (even these downloaded in breach of contract) creates habit of watching movies (from variety of sources, including buying DVD and going to cinema). – vartec Jan 25 '12 at 16:13
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    @vartec: No, the studies do not show that watching movies creates a habit of watching movies. It shows correlation, not causation. And the correlation isn't that exciting. Hence, my comment. – Oddthinking Jan 25 '12 at 22:19
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    @Oddthinking: bit off a chicken-egg problem, but idea is that a person more engaged in culture, consumes more cultural products, including these from paid, legal sources. One thing though, the study talks about "official" vs "unofficial" circulation, where the first one is sales/rents, while other one is not only "piracy", but also lending books/DVDs to friends etc. – vartec Jan 26 '12 at 10:23
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Check out this contradictory "answer" by Dana Holt, showing that piracy does have a negative effect. So my answer is not really an answer at all, but just pointing out that context matters. Personally, we are not going to copy protect our video games in our indie game studio, as we believe it will interfere with legitimate purchasers. However, if there was a way to tell if a copy of our game was illegitimate and have the option to show a message, as Dana's post speak of, we would love to do this.

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    It's an anecdote so it's really not appropriate here... for example some companies could be impacted negatively while others positively. That could be a positive overall impact. Dana's profile is available here stackoverflow.com/users/67386/dana-holt – Sklivvz Jan 26 '12 at 17:58
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    But it is actual proof of the contrary view, so I think it's worth having here. Where should it exist? Also, is there a way to format a link to a person without using the full URL, as in some sort of formatting tag? – Xonatron Jan 26 '12 at 18:28
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    It's not really, it's just (no offense) some random person claiming something on the internet. At best, he's providing a single data point. Secondly, even if he is right, it doesn't disprove that piracy can be useful. There is no claim that piracy is always useful. Finally, he's posting an argumentum ad verecundiam ("trust me, i am an expert"), but he's not publishing his data or his methodology. As such we can't evaluate the facts behind his claims, which is the purpose of this site. :-) – Sklivvz Jan 26 '12 at 20:03
  • @Sklivvz, I completely agree. As I said I will not be copy protecting my own software. But I think it's worth looking into and considering that in some contexts things are different. A single data point is better than none (pure opinions) which is all too often used! Speaking of general products such as music is surely going to be different than for specialized software. We shouldn't conclude piracy is beneficial for everything just because it works on music, for instance. – Xonatron Jan 26 '12 at 20:30
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    @Matthew I didn't downvote you, but it could have something with your single data point being anecdotal. Even the crux of Dana's argument (that when piracy was prevented sales increased) is questionable in my opinion. – Sonny Ordell Jan 27 '12 at 14:57

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