This paper is a clinical examination of a surviving brick-and-mortar market for pirate DVDs during its final years of intermittent operation in Hong Kong. We examine the flow of customers, the logistics of market exchange, and the frequency of market disruption due to law enforcement. A sample of pirate DVDs was collected and examined to assess quality and the source of the original copy. During our field work, we also observe intervals of complete cessation of-to our knowledge-the last full-fledged hard goods market for pirate movies, computer software, and games operating in Hong Kong. The confluence of street-level enforcement (which raises piracy costs) and increased online availability (which lowers demand for hard goods piracy) may soon cause the physical hard goods markets for pirate films to disappear entirely as cyberspace becomes the primary domain for sharing digital content.
Motion-picture piracy is a growing concern for the motion-picture industry. The Motion Picture Association of America estimates that worldwide industry revenue losses due to piracy may exceed US$3 billion annually (MPAA, 2005). Losses due to piracy are particularly difficult for the film industry to absorb, because this industry has a low average rate of return with an extremely high volatility (De Vany and Walls, 1999, 2004). Most motion pictures are not profitable in their theatrical exhibition and, "it is the few big winners that pay for the many losers" (Vogel, 1998, p. 86). In this risky business where the few successful films account for the bulk of industry profitability, leakages due to piracy are magnified due to the sequential nature of distribution; major motion pictures are first released to cinemas and then to the DVD market. Movies that are successful at the box office are able to leverage their success into the legitimate DVD market; however, piracy is siphoning off an increasingly valuable part of the overall revenue stream accruing to major motion pictures.
A number of authors have made recent investigations into various aspects of movie piracy, though none directly examines the hard goods market. Walls (2006) examines empirical determinants of movie piracy using a cross-country data set and finds that piracy is increasing in the level of social coordination and the cost of enforcing property rights, unrelated to income, and decreasing in internet usage; these findings are consistent with the growing evidence that non-economic factors may be important determinants of the level of piracy (Limayem, Khalifa, and Chin, 1999; Crawford, 2000). Harvey and Walls (2003ab) use a laboratory market experiment to analyze the demand for pirate goods and investigate differences in the propensity to purchase pirate goods across market settings. Kwok (2004) documents and quantifies movie file-sharing activities on BitTorrent, and De Vany and Walls (2007) develop an empirical methodology that quantifies the impact of online the file-sharing activities on box-office revenue.
This paper presents a street-level examination of the operation of a brick-and-mortar market for pirate DVDs. We are fortunate to have observed what was - to our knowledge - the last full-fledged brick-and-mortar pirate supplier operating in Hong Kong during its final years of operation. The surviving pirate seller, though operating illegally, adapted superbly to prevailing market conditions and provided a level of service that is unimaginably high. We will discuss factors that contributed to the longevity of the pirate operator in addition to a variety of factors that contributed to this market's ultimate demise.
2. Operation of the Brick-and-Mortar Market
While the pirate software markets housed in the infamous Golden Arcade and Sim City shopping arcades are a vestige of the past, nearly anyone would quickly find the locations of sellers of pirated movies, software, and video games in any major city. Until recently in Hong Kong maps were handed out on the street: Just steps outside the underground mass transit railway station in the Shum Shui Po district a teenager handed out cards with the location of a seller of pirated DVD movies, computer software, and video games. …