Telematics and Informatics 22 (2005) 57–70

www.elsevier.com/locate/tele

Movie piracy on peer-to-peer networks—the

case of KaZaAq
Marc Fetscherin *

Institute of Information Systems, Engehaldenstrasse 8, 3012 Bern, Switzerland

Received 23 June 2004; accepted 23 June 2004

Abstract

Content providers from the movie industry argue that peer-to-peer (P2P) networks such as
KaZaA, Morpheus, or Audiogalaxy are an enormous threat to their business. They blame
these networks for their recent decline in sales figures. However, this argument would only
apply if consumers can access high quality copies easily and quickly on these networks. This
paper presents a simple model outlining the consumerÕs tradeoff between downloading the
movie legally or acquiring it illegally through copying from such networks. The model shows
that there are mainly two factors affecting consumer demand for copies: the probability of get-
ting high quality copies and the risk associated with copying. The paper goes on to empirically

q
Legal notice: We do not encourage individuals to share copyrighted material on peer-to-peer (P2P)
networks neither do we support the illegal sharing of copyrighted material on such file-sharing systems. In
addition, we respect and support international copyright agreements and regulations (e.g., Berne
Convention, TRIPS) as well as international (e.g., EC Directives) and local laws (e.g., DMCA, the Swiss
URG). The goal of this study was to evaluate the quality and quantity of illegal movie files available on
P2P networks and to what extent this poses an economical threat for the movie industry. In that respect,
we had to download copyrighted material in order to reach our research goals. However, we emphasize
that we did not at any time either (re) distribute these files nor did we provide them for uploading during
the entire study. Finally, after having completed this study, all downloaded files have been deleted
permanently from our systems. In this study we do not show how to bypass protection technologies or to
do any copyright infringement, neither do we provide any circumvention technology, system, or solution,
nor how to ‘‘trade’’ with illegal copies. The purpose was purely academic.
*
Corresponding author. Tel.: +41 31 631 47 83; fax: +41 31 631 46 82.
E-mail address: fetscherin@iwi.unibe.ch.
URL: http//:www.ie.iwi.unibe.ch.

0736-5853/$ - see front matter
2004 Elsevier Ltd. All rights reserved.
doi:10.1016/j.tele.2004.06.005
58 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70

estimate the probability of getting such high quality copies. To date, our results show that
there is a very low probability of obtaining high quality movies. We further tested our model
by conducting simulation analyses to better understand current and future consumer behavior.
The first simulation shows that, with the current low probability of getting high quality copies,
the majority of consumers would prefer to download movies legally. The results of the second
simulation focusing on the future behavior of consumers showing that the most important fac-
tors are: the risk of being caught, the perceived value of the original, the availability (proba-
bility) of high quality copies and the price of the original. Our research findings not only offer
insight into the consumer behavior, but also to what extent the movie industry faces piracy.
These results may serve as a new impulse for copyright holders and policy makers, allowing
them to make appropriate decisions and take targeted actions to fight piracy.

2004 Elsevier Ltd. All rights reserved.

Keywords: Peer-to-Peer; Piracy; Digital Music; Downloading

1. Introduction

Piracy of digital content, especially Internet piracy, has increased significantly in

the last few years. Technology advances in hardware and software enable individuals
to virtually capture, store, copy, and modify any kind of digital content. By using
highly popular file sharing systems such as KaZaA, Morpheus, or Audiogalaxy, it
is possible for anyone to share any type of digital content such as games, software,
music files or movies on a mass scale. This illegal file-sharing of copyrighted content
poses an enormous threat to content providers who are the only ones authorized to
distribute and sell their products.
A number of papers have explored various economic mechanisms and effects in-
volved in piracy. From social and economic perspectives, piracy may increase or de-
crease social welfare (Holm, 2000). Those arguing piracy has a negative impact are
content providers, who claim that piracy costs them several billion USD a year
(SIIA, 2001; IFPI, 2002). For brevity, we will omit the term illegal or pirate and refer
simply to copy in this paper. Takeyama (1994) argues that expectations of a future
illegal market for copies may also create expectations of future price cuts on the orig-
inal. She illustrates that such expectations may cause immediate reductions in de-
mand and profit for the seller of the original. Hui and Png (2002) argue that the
demand for music CDs decreases with piracy, suggesting that ‘‘theft’’ outweighed
the ‘‘positive’’ effects of piracy. Piracy may also undermine the supply side of orig-
inals since content providers may be left unpaid (Holm, 2000).
On the other hand, there are those who argue that piracy has a positive impact by
stimulating the demand side. Holm (2000) and Alvisi et al. (2002) argue copying re-
duces monopoly prices and increases the quantity supplied. The main idea is that the
introduction of lower quality products may be a way through which the monopolist
manages to capture some consumers that would otherwise prefer to copy the prod-
uct. Orsorio (2002) shows that in developing markets, companies stand to make
more money if they view each new illegal user as one more mouthpiece for the soft-
 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70 59

ware and one less customer for the competition. Liebowitz (2002) presents two pos-
sible means by which peer-to-peer copying would not harm the revenues of copyright
holders—indirect appropriability and exposure effects.
Although there have been theoretical efforts to understand the economic conse-
quences of copying, it is difficult to find studies that empirically estimates the param-
eters judged to be important in markets exposed to piracy. This paper presents a
simple model of consumersÕ tradeoff between buying and copying. The paper goes
on to measure the quantity and quality of movie copies available on such networks
by taking the most known and used file-sharing system KaZaA as a proxy.
This paper is structured as follows. Section 2 presents a simple model which takes
into account the consumer purchasing behavior of digital content with the presence
of copies. The research method is described in Section 3 whereas Section 4 presents
estimates for the variables dicussed in earlier. Section 5 conjoins on one hand the
established model and on the other hand the empirical results by undertaking simu-
lation analyses. Two simulations are presented, one for the current consumer behav-
ior, the second for the future consumer behavior. Finally, this paper provides a
discussion and conclusion in Section 6.

2. The model

For simplicity, we will compare the cases where a consumer can either legally
download a movie or he can get a copy from peer-to-peer networks. Thus, individ-
uals have two possibilities to acquire digital content, buy it legally or copy it. The
following model outlines the tradeoff an individual faces. This model excludes the
possibility that an individual does not want the content.
Suppose digital content is produced and there are individuals who desire to con-
sume it. Assume that each individual wants either zero or one unit of the content and
that he makes independent decisions between the legal and illegal acquisition. LetÕs
denote the set of Individuals by I and the valuation, or the perceived value of the
content, for a given individual (i) as vi where a uniform distribution is assumed (Pod-
dar, 2002). LetÕs also denote the perceived value that the individual places on acquir-
ing the original, as opposed to a copy by voi (Holm, 2000; Cheng et al., 1997; Hui
and Png, 2002). When downloading content, he incurs acquisition costs which can
be broken down into three parts. First, the access costs to be paid to a telecommu-
nication company and/or the Internet Service Provider. Second, he incurs media
storage costs (e.g., hard disk) and third, pay a price for the original. It is assumed
that the access and storage costs are equal for both legal and illegal acquisitions,
and therefore are omitted in the model. Thus, the cost an individual has to
pay for the legal download is the price (Fetscherin, 2003) for the original denoted
by p.
Let us analyze each of these two possibilities in detail. If an individual value the
legal product with voi, he will receive a net benefit (Chen and Iwan, 1999) of:
voi
p ð1Þ
60 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70

The alternative to the model above is for the individual to copy the digital content.
We assume that individuals would only substitute the original version with a copy, if,
and only if, he can easily and quickly find a high quality copy without any risk. Thus,
there are two main factors in our model that affect the demand for copies, the avail-
ability and the risk associated when copying.
The availability can be estimated by the fraction of high quality copies available
on such networks compared to the total number of copies available. In other words,
what is the probability of getting a high quality copy? In our model, this is denoted
with the parameter a 2 [1, 0] where 1 indicates availability is 100% for example. It
depends on various factors such as the network topology (centralized versus decen-
tralize), the size of the network in terms of number of users and files available, and
specifically the sharing behavior of users on that network. These factors influence
also the efficiency and effectiveness of the network in terms of search duration and
downloading performance. For example, if the network has a centralized index ser-
ver and there are millions of users connected also willing to share files, the searching
and downloading process will be much faster than on decentralized networks with
fewer peers. This is especially true when the client software enables multi-sourcing,
which means that the same file can be downloaded from different peers simultane-
ously. We agree with Holm (2000) who argued that long search and downloading
times could, in the long term, have a negative impact on the success and usability
of such systems as being the source of copies.
We assume that each individual incurs copying costs when making a copy of the
content. These costs are comprised in our model of three components: time to copy,
effort to copy, and the risk of being caught. Time and effort to copy depend on the
strength of copy protection technologies such as Digital Rights Management Sys-
tems (DRMS) in which the risk of being caught depends on the degree of law
enforcement. For simplicity, it is assumed that copy protection technologies do
not restrict individuals in their usage of the legal download digital content and that
the copy does not include any protection technology, otherwise there would not be
such copy. Therefore, these two components are not taken further into account in
our model. The second variable presented in the model is, therefore, the risk associ-
ated when copying. Thus, when individuals are copying files from file-sharing sys-
tems they risk being prosecuted for copyright violation. This is especially an
important factor considering that several thousand people have already been accused
and prosecuted for copyright infringement (Borland, 2004). In the case where an
individual provides copies or is copying, there is a certain probability u 1 that he will
be caught (Hui and Png, 2002; Chiang, 2003; Chellappa and Shivendu, 2002) and f a
legal penalty assessed when the theft is detected (Chen and Iwan, 1999). Where f rep-
resents the monetary amount being paid for either paying a fine or the ransom for a
jail sentence. Let x represent the expected risk, in terms of probability of being
caught and fine to be paid (thus x = uf ). Note that x is dependent not only on Digital

1
According to a study conducted by Becker and Clement (2004) heavy user fear to a higher degree that
they are doing something illegal compared to others.
 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70 61

Rights Management Systems which enables to detect piracy, but also on the legal
framework the consumer is situated in. In our model, the net benefit an individual
(i) places on the copy is presented as follows:
voi a
x ð2Þ
Thus, consumers buy the legitimate product under the following two conditions.
First, buying must provide more net benefits than copying (1) > (2) and second, buy-
ing must provide more net benefits than not using the content at all, thus, voi
p > 0.
voi
p P voi a
x ð3Þ

p 6 voi ð1
aÞ þ x ð4Þ
A consumer will copy the movie under the following two conditions. First, copying
must provide more net benefits than buying (2) > (1). Second, copying must provide
more net benefits than not using the content at all, voi a
x > 0. The necessary con-
dition for consumers to engage in copying is:
p P voi ð1
aÞ þ x ð5Þ
 
p
x
aP1
ð6Þ
voi
The main focus of this paper is to estimate the availability of high quality copies on
peer-to-peer networks, expressed by the parameter a in our model, by using the mo-
vie industry as an example. The following sections present the research methods used
and the underlying results in relation to the above mentioned factors.

3. Research methods

Three phases were necessary to collect the appropriate data. Phase one involved
the selection of blockbuster movies, phase two entailed the search and the third
phase the evaluation of the movies.

3.1. Phase one—the selection

Although there are no official sales figures for the rental and sale of movies (e.g.,
cinema entries, VHS/DVD sales) available from content providers, we base our selec-
tion of the chosen movies on information provided by Exhibitor Relations Co, 2
which is one of the oldest and most widely quoted film industry statistical research
firm. Our study is based on four blockbuster movies. The key reason we have se-
lected blockbuster movies is the legal demand for these movies is very high; therefore
we also expect the amount of copies to be very high. The four selected movies were
Lord of the Rings: The Two Towers, Analyze That, Minority Report and XXX (Tri-

2
http://www.exhibitorelations.com/.
62 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70

ple X). We conducted search requests several times a week at approximately the
same time on the selected peer-to-peer network for the above mentioned movies.
The main hardware used for the search was an Intel Pentium 4 CPU personal com-
puter with 1.7 GHz processor, 256 MB RAM. Our maximum downloading speed
was 100 MBytes. We worked with the operating system Windows 2000 Professional
and the Norton anti-virus software for Windows 2000. We used the file-sharing pro-
gram KaZaA, specifically KaZaA Lite ++ instead of KaZaA Media Desktop. Both
use the Fasttrack network, a hybrid network, but KaZaA Lite ++ provides addi-
tional features which provide more powerful search requests. Our approach of select-
ing, searching, and downloading movies should be identical to the approach of an
‘‘average’’ Internet user. Only in that respect viable conclusions can be made.

3.2. Phase two—the search

In order to search for one of the four movies mentioned above, various steps were
undertaken. First, we entered the movie title into the ‘‘Search for’’ field and selected
the ‘‘video’’-option. This allows us to focus our search on video files which are labe-
led with the requested movie title. An example of the search mask and the search re-
sults is provided in Fig. 1. Second, in the ‘‘more search options’’ menu we specified
searching for files with at least 100 Mbytes. We picked a minimum of 100 Mbytes, as
smaller files were either not likely to be a complete movie or parts of a movie with
reduced audio/video quality to attract users. By pressing the ‘‘search now’’ button,

Fig. 1. Screenshot search results.

 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70 63

the search process was executed. For each search request various information was
collected.

3.3. Phase three—the evaluation

After the selection and search phase, we commenced the evaluation phase. Three
additional steps were required to evaluate the quantity and quality of movies shared
on peer-to-peer networks. First we filtered out all obvious fakes. Under the term
‘‘obvious’’ we understand that even the ‘‘average’’ Internet user would not consider
these files for downloading. Therefore we did not either. The selection criteria in-
cluded instances where the filename and title name did not match (excluding typos).
Examples included trailers of a movie that carried the same filename but the word
‘‘trailer’’ was added to the title or vice-versa. Often, a movie was split into two or
more parts (i.e., split files) for easier downloading for individuals without permanent
connections to the Internet and/or smaller bandwidths. For our analysis, we were
forced to download all parts (i.e., split files) in order to make a judgment about
the quantity and quality of full copy version shared on peer-to-peer networks. We
define a version as an entire movie, consisting of either one or several split files.
Since we faced download and storage limitations, we could not download each
newly available file for all four blockbuster movies per search request. However, if
we were not able to download the file or a substantial part of it within 48 hours
of connecting to the network, we aborted the downloading process and classified
the file as ‘‘download not possible’’.
Then the downloaded files were identified and registered with their filename, file
size, resolution, length, and file format. Thirdly we checked the playability, the integ-
rity (e.g., is it the movie it is supposed to be), and the quality of the copy. In regards
to playability, we checked whether the copy was playable by conventional media
players (e.g., Windows MediaPlayer version 7, RealPlayer 8) and if not, what tech-
nical problems we encountered. We defined two categories in this case: either the
CODEC was broken or the file was blank (e.g., a dummy file without readable con-
tent). We then checked the integrity of the copy. In other words, we checked whether
it was the movie it was supposed to be according to the title of the file. If it was play-
able and was the ‘‘correct’’ movie, we finally evaluated the quality. We classified cop-
ies into high and low quality categories. The criteria used to allocate the copy into
these categories were the quality of audio and video (bit stream). If there was no
audio or the audio was very poor, the movie was classified as a ‘‘poor’’ quality mo-
vie. In addition, if the video outcome was a screener (e.g., film was gathered with a
digital camera in the movie theaters), it was also classified as a ‘‘poor’’ quality movie.
In all other cases, the movie was classified as a ‘‘high’’ quality movie.

4. Empirical results

Empirical data was collected from December 2002 to April 2003. We were able to
conduct 120 search requests for the four selected movies.
64 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70

4.1. Quantity of copies

This section presents the empirical results related to the factors affecting the avail-
ability of copies on peer-to-peer networks, specifically the size of the network in
terms of number of users being online and the number of copies available as well
as the sharing behavior of users. In that respect, we tested the hypothesis that on Ka-
ZaA, there are millions of users online making billions of files available. To test this
hypothesis, we needed to undertake an intraday analysis of the corresponding net-
work. On March 2003, we connected to the network KaZaA 35 times in one day
and analyzed the number of users online, the number of files accessible, and the cor-
responding data volume. Our analysis shows that there are between 3 and 4.5 million
users constantly connected to KaZaA capable of accessing between 650 and 900 mil-
lion files, depending on the time of day.
We did the appropriate hypothesis testing, where our hypothesis H0 was l P 2
millions; H1,l < 2 millions. The parameter l represents the average number of users
online on KaZaA at a specific time. The t-score corresponding to the significance le-
vel 0.05 is 1.645; for the data analyzed we obtained a t-value of 18.673. Thus we ac-
cept the hypothesis.
For the second hypothesis, we tested: H0,l P 2 billions; H1,l < 2 billions. The
parameter l represents the average number of files accessible on KaZaA at a specific
moment. The t-score corresponding to the significance level 0.05 is 1.645; for the data
analyzed we obtained a t-value of
86.682. Thus we reject this hypothesis.
In order to measure the sharing behavior of users, we expressed the null hypoth-
esis as: H0, r 6 0.5; H1, r > 0.5. The parameter r represents the correlation between
the number of users online and the number of files accessible. The t-score corre-
sponding to the significance level 0.05 is 1.645. We arrive at a correlation coefficient
r = 0.995 between the number of users online (USERS_ON) and the number of files
accessible (FILES_ON) as shown in Fig. 2. This value is statistically significant with

900000000
files_on = 197665604.30 + 148.77 * users_on
R-Square = 0.99

800000000
FILES_ON

700000000

600000000
3200000 3600000 4000000 4400000
USERS_ON

Fig. 2. Relationship between number of users and files found.

 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70 65

a = 0.05. Thus we reject the null hypothesis and conclude that users seem to actively
participate in file sharing. By conducting a linear regression analysis, we observed
that with the exogenous variable USERS_ON we arrive to explain 99% of the var-
iance of the endogenous variable files accessible (FILES_ON). We therefore con-
clude that the more people are online, the more files are accessible. However, it
should be noted that not every file means a new movie is available on the network.
Our analysis has shown that there are on average 75 files found per search request,
corresponding on average to 24 different versions of the same movie available at a
specific time on the file-sharing system. Thus, when new peers enter the network,
they either provide a new copy, an additional copy of an ‘‘existing’’ version already
on the file-sharing system. If it were a new copy, this would increase the probability
of getting a movie. On the contrary, if the peer provides an existing version, this
additional copy may not increase the probability of getting a movie but might pos-
itively influence the search and downloading process if multisourcing is possible.

4.2. Quality of copies

Three steps were required to calculate the probability of getting high quality mo-
vie copies. The first step of the evaluation process was to filter out the obvious fakes.
Of the 75 files found per search on average, i.e., 24 movie versions, about 4 versions
on average were obvious fakes. In other words, almost 20% of all copies found per
search request are ‘‘obvious’’ fakes. The remaining files have been re-considered for
further evaluation. We tried to download as many as possible and arrived to down-
load 70 versions or sub-versions (i.e., split files) of the four movies. Although we se-
lected them for downloading, this does not mean that the files could be downloaded
at all. Bandwidth constraints, network routing, or other technical constraints from
the downloading as well as from the uploading party can complicate, hamper or even
disrupt the downloading process. Our analysis shows that in 40% of all cases, a
download was not possible. After selecting and downloading the corresponding files,
we analyzed whether the downloaded file was playable at all. In 17% of all cases, they
were not playable. In 33% of these cases, it was a CODEC problem, while in 67% of
the cases, the downloaded file was blank. In the second step, we checked the integrity
of the downloaded file and ensured that the movie in question was the one it was sup-
posed to be. Surprisingly, in 16% of all cases, the downloaded file was another movie.
A possible explanation for this could be the intended introduction of fake versions
(in this case not ‘‘obvious’’ fakes) in order to frustrate users downloading movies.
Companies like Overpeer, Vidius, or Netpd are providing such services to Holly-
wood studios. In the third step, we evaluated the quality of the remaining movies.
We classified them into high and low quality movies. In 7% of all cases, the movies
were of high quality, whereas in 20% of all cases, the movies were of poor quality.
Table 1 summarizes these results.
We then analyzed the high quality movies from which additional conclusions can
be drawn. The average file size of high quality movie was 610 Mbytes, which, in most
cases, were split files. In other words, since high quality movies are often bigger in
size, they are split into two or more parts in order to be shared more easily on such
66 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70

Table 1
Evaluation of downloads
Selected movies to download (N = 70) 100%
Download not possible 40%
File does not play 17%
(Playability)
Not correct movie (Integrity) 16%
Copies 27%

Poor quality movies 20%

High quality movies 7%

networks. Thus, in order to get a full copy, one needs to download between 1.2 and
1.8 Gbytes of data. While analyzing poor quality movies, the average file size is
around 450 Mbytes, which is significantly lower than that of high quality movies.
Finally, we tested the hypothesis: H0, p P 50%; H1, p < 50%. The parameter p
represents the probability of getting a high quality movie on KaZaA (measured in
the number of high quality movies). The t-score corresponding to the significance le-
vel 0.05 is 1.645; for the data analyzed we obtain a t-value of
1142.204. We there-
fore reject this hypothesis and conclude that there is not a high probability of getting
high quality movies on peer-to-peer networks like KaZaA.

5. Simulations

Using the model presented in Section 2 of this paper and the empirical results ob-
tained in the previous section we conduct two types of simulations. First, we wanted
to test current consumer behavior by taking the estimated a as a constant and var-
ying all other variables one by one. Second, we performed a simulation analysis by
simultaneously varying two, three, and finally all four variables (u and f taken to-
gether) in order to better understand future consumer behavior and the impact of
the variables a on the consumer behavior. For both analyses, we vary the variables
as shown in Table 2, where each variable varies by a predefined interval.
For the variable perceived value of the original (VOI), we varied it from 0 (no
willingness to pay) to 6 USD with a 10 step interval. As a proxy for the maximum

Table 2
Descriptive statistics
Minimum Maximum Mean Std. Deviation
VOI 0 6 2.70 1.72
P 3 6 4.50 .94
A 0 100 49.84 31.67
U 0 100 17.69 36.01
F 0 1,00,000 26,567 41,348
DECISION 0 1 .58 .491
 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70 67

price, we used the average movie ticket price in the US. For the price of a legal down-
load (P), we used the average price of USD 3 3, which represents the minimal price
charged by legal movie providers such as Movielink or CinemaNow 4. We varied the
price from USD 3 up to USD 6, again in 10 step intervals, in order to make it con-
sistent with the perceived value of the original (VOI). To test the availability of high
quality copies on peer-to-peer networks (A), we used the estimated 7% for the first
simulation analysis and varied it from 0% to 100% in ten intervals in the second sim-
ulation. For the ‘‘probability of being caught’’ (U), it ranged from a zero probability
up to one hundred. For the first simulation we run it with values from 0 to 100 with
10 step interval. For the second simulation we also used a 10 step interval. Finally,
for the expected fine, although consumers paid fines in the range of USD 2000–3000
(Borland, 2004), we wanted to make it more consistent with current and future laws
and therefore our range was from zero to 10, 100, 1000, 10,000 and 1,00,000 USD.
The first analysis consists of 88 simulations [11(VOI) + 11 (P) + 11(U) · 6(F) =
88]. Our results show that in 80 cases, the consumer chose to legally download the
files and in only 8 cases he would prefer the copy. However, this analysis does not
show the effect of the availability on consumer behavior. Thus, we had to conduct
a simulation analysis in which multiple variables were changed, especially a.
In the second analysis, we vary simultaneously two, three or four variables in or-
der to get richer and more diverse data. We conducted combined simulations, such
as VOI and P together [11 · 11 = 121 simulations], and VOI, P and A
[121 · 11 = 1331], and a simulation taking all four into account which resulted in
[1331 · (6 · 4 5) = 31944]. Since our dependent variable is the decision whether to
buy or copy it, the most suitable statistical method is the logistic regression. This
is useful for situations in which one wants to be able to predict the presence or ab-
sence of an outcome, based on values of a set of predictor variables (independent).
This is especially true when the dependent variable, in our case the decision to buy or
copy, is dichotomous (nominal). As in OLS regression, a prediction equation for
logistic regression specifies the expected logit as a linear additive function of one
or more independent variables as shown in Eq. (7).
 
pi
Li ¼ ln ¼ zi ¼ a þ b1 X 1 þ b2 X 2 þ    þ bk X k ð7Þ
1
pi

Table 3 summarizes the independent variables of the logit regression including their
coefficients, the Wald statistic and their corresponding significance level. The
‘‘Exp(B)’’ column is SPSSÕs label for the odds ratio, which can be computed by rais-
ing e to the power of the logit coefficient.
Because the effect of the XÕs is nonlinear, the interpretation of parameters is more
difficult than in OLS regression (linear regression). Thus, the effects are nonlinear be-

3
In fact, they are offered most at a price of USD 2.99.
4
We limit our study on providers of blockbuster movies.
5
Cases where u or f equals 0 is excluded, as this has already been taken into account in the previous
simulations.
68 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70

Table 3
Variables of Logit Regression
B S.E. Wald df Sig. Exp(B)
a
Step 1 VOI .22 .011 412.735 1 .000 1.2
P
.29 .020 213.245 1 .000 .74
A
.01 .001 405.474 1 .000 .98
U 2.88 .047 3784 1 .000 17.90
F .00 .000 4070 1 .000 (1.00)b
Constant
.69 .100 48.405 1 .000 .49
a
Variable(s) entered on step 1: VOI, P, A, U, F.
b
As (B) = 0, F will not further take into account in this analysis.

tween the independent and dependent variables, but linear in their logs. There are
two ways to interpret the results shown in Table 3. First, we test the individual
parameters of the logit coefficients or the underlying odds ratio (Exp(B)), and sec-
ond, we look at the sign and effect of the independent variable on to the dependent
variable.
All coefficients are significant in the model, with the following having the highest
impact on consumer behavior, in order of importance: the probability being caught
(U), the perceived value of the original (VOI), the availability of high quality copies
on peer-to-peer networks (A) and the price of the original (P). Therefore, we arrive at
the following Eq. (8):
 
pi
Li ¼ ln ¼ zi ¼
0:69 þ 0:22 VOI
0:29 P
0:01 A þ 2:88 U ð8Þ
1
pi
Taking the sign of each logit coefficient, we can conclude that an increase in VOI and
especially U will result in an increase (to some extent) in the willingness to buy the
movie. However, an increase in P and A will reduce (to some extent) the willingness
to pay for a download and consumers tend to copy the movie.
We then tested the goodness of fit of the proposed model, in which we referred to
two tests, the
2 log likelihood value and the Nagelkerke R Square. The
2 log like-
lihood was significant and the Nagelkerke R Square was clearly above 0.5, both of
which indicate an overall good fit of the model. In addition, we tested the classifica-
tion performance. We used a confusion matrix or classification table, which provides
information about actual and predicted decisions resulting from a logit regression.
We arrived at a hit rate of 86.6%, which is a good results and again an indicator
of the good fit of the model.

6. Discussion and conclusion

The movie industry argues that they suffer from Internet piracy, especially from
piracy on peer-to-peer networks. In that respect, this paper has presented a simplified
model, taking into account various variables, examining consumer behavior whether
to buy or copy a movie. It has presented two variables which affect the demand for
 M. Fetscherin / Telematics and Informatics 22 (2005) 57–70 69

copies: first, the availability of copies in terms of quantity (accessibility) and quality,
secondly, the risk associated when copying with the probability of being caught and
the underlying penalty. This paper then empirically tested the first variable, the avail-
ability of high quality copies on peer-to-peer networks, as it seemed to be the main
argument for the slump of sales by the movie industry. Our results have shown that
there is a very low probability of getting high quality movie copies. We further tested
our model by conducting two-simulation analyses to better understand current and
future consumer behavior. Our first simulation about the current consumer behavior
shows that the majority of consumers prefer to download movies legally. We there-
fore conclude that file-sharing systems are having a minor effect on the movie indus-
try. By conducting the second simulation about the future consumer behavior, we
show that the most important factor affecting consumer behaviour is the risk of
being caught, followed by the price, the perceived value of the original, the availabil-
ity of high quality copies.
Our results have shown that policy makers are better of focusing on the legal
framework permitting the prosecution of pirates while content providers should fo-
cus on marketing in order to increase the perceived value of the legal download. Like
any research, our study has certain limitations despite the statistical tests. First, the
simplified model presented in this paper can be extended by other variables which
might also affect to a certain extend consumer behavior. These variables might be
economic (income), demographic (age, gender), risk (virus), or cultural factors (edu-
cation). Second, the purpose of this paper was to assess the quantity and quality of
movie copies on peer-to-peer networks by taking the most known and spread file-
sharing system KaZAa. Further studies should be conducted with other movies
and file-sharing systems in order to fully understand the scope and scale of movie
piracy on such networks.

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