II. The Current Situation for Movie Studios

Imagine being a 60 year old CEO of a major Hollywood movie studio. Your studio has just bought the rights to a new trilogy, Pirates of the Movie Industry, which will undoubtedly produce three huge blockbuster hits. The story rights have already cost you $20 million alone.⁵ Next, the going rate to have a decent screenplay written is $10 million.⁶ Thankfully you are good friends with Jerry Bruckheimer and Steven Spielberg who offer to produce and direct your movie at the cheap price of $15 million and $10 million, respectively.⁷ Now, in order to get your star studded cast of Johnny Depp, Keira Knightly, and the rest of the bunch, runs you close to $30 million.⁸ After figuring in production costs, visual effects, music, editing, and post production costs, you are well over the $200 million mark.⁹ But being one of the biggest studios in Hollywood and expecting huge returns at the box office and from DVD sales, the budget seems standard and ready to be signed and put into action.

As you are about to sign the movie budget, you are interrupted by a familiar sound coming from the laptop of a young member of the accounting team. You decide to ask the accountant what could be so important that he is looking at his laptop during this important board meeting. The accountant enthusiastically replies that he just finished downloading the full version of the movie Wolverine: X-Men Origins, a movie that had not even been released in movie theaters yet,¹⁰ and he just could not wait to be one of the first people in the world to see it. You are good friends with the CEO of 20^th Century Fox, the studio that produced Wolverine, and demand to know how someone could illegally obtain a copy of such a huge blockbuster movie before its theatrical premiere, something that could cost 20^th Century Fox up to $20 million from losses at the box office alone.¹¹ The accountant quickly responds by telling you how easy it is by searching on ThePirateBay.org or any of the other hundreds of file sharing websites on the Internet. He continues to brag how he has a library of over 200 movies on his 1 terabyte (1000 gigabytes) hard drive¹² at home that is set up to watch on his huge 72-inch Plasma TV with surround sound. He also claims that he can transfer any movie onto his iPhone and watch it during his commute to work.

As you sit there thinking that the accountant must be mistakenly telling you about his music library, he mentions to you that he just remembered that he was supposed to tell you something but the Wolverine movie had distracted him. He tells you that you are way over budget because the revenues predicted from box office sales and DVD sales are too high because by the time the Pirates of the Movie Industry movie is released in 2011, piracy will have infiltrated the movie industry and have caused enormous drops in revenues for movies.¹³ Taking this news seriously, you decide to clear out the boardroom and have an in-depth discussion with your accountant.

This paper discusses why the movie industry is finally ripe to be infected by online piracy resulting in the same devastating effects piracy has had on the music industry, and what the movie industry must do in order to combat piracy and ensure its survival.