Contract Selection and Piracy Surveillance for Video Platforms in the Age of Social Media

Pirated video clips, a new form of piracy, have spread rapidly in recent years with the vigorous development of short‐video social media platforms such as TikTok and Douyin . This has led to a huge loss of revenue for the film and TV drama industry where the negative economic impact trickles down from legitimate video platforms to content creators. As video platforms fight back against copyright infringement, they need to decide how much effort to invest in detecting and taking down pirated video clips that emerge on social media platforms. In addition, they need to decide whether a lump sum or unit price contract should be used to secure the playing rights for a video from the content creator. A content creator has no incentive to engage in piracy surveillance together with the video platform after signing a lump sum contract but has an incentive to do so after signing a unit price contract because he/she would receive royalties each time someone watches the copyrighted video. Using an analytical model framework, we find that the video platform should use a unit price contract when production of the video is less costly for the same quality (e.g., music‐based, horror, and romance movies) but a lump sum contract when production is costly (e.g., Sci‐fi, animation, and fantasy genres). We show that in equilibrium, the total surveillance effort between the video platform and the content creator is smaller and the video platform charges customers less to watch the copyrighted video under the lump sum contract compared to the unit price contract. As a result, the lump sum contract not only achieves higher consumer surplus compared to the unit price contract but also leads to a higher percentage of customers legally accessing the video program. Finally, the content creator's revenue is the same under both contracts, but the content creator may prefer the lump sum contract because it attracts more (legal or illegal) viewers and the increased visibility could be beneficial in the long run.