[Mythos_Ruler]

http://blog.wolfire....-of-game-piracy

Another view of game piracy
By David on May 6th, 2010

We've been hearing a lot about game piracy recently, with big developers inflicting draconian online-only DRM systems on their users, and blaming their declining PC game sales entirely on piracy. I'm not questioning that piracy is common, since even honest, DRM-free, indie developers like 2DBoy[1] report a 90% piracy rate. I am, however, questioning what this means. How much revenue are developers actually losing to piracy?

The common industry assumption is that developers are losing 90% of their revenue. That is, pirates would have bought every single game that they downloaded. From personal experience, I know this is not possible -- most pirates that I've met have downloaded enough software to exceed their entire lifetime income, were they to have paid for it all. A more plausible (but still overly optimistic) guess is that if piracy was stopped the average pirate would behave like an average consumer.

This means that to calculate the worst-case scenario of how much money is lost to piracy, we just need to figure out what percentage of the target market consists of pirates. For example, if 50% of the market is pirates, that means that it's possible that you've lost 50% of your revenue to piracy. So how do we calculate what percentage of the market consists of pirates? Do we just go with 90%?

iPhone piracy

iPhone game developers have also found that around 80% of their users are running pirated copies of their game (using jailbroken phones) [2] This immediately struck me as odd -- I suspected that most iPhone users had never even heard of 'jailbreaking'. I did a bit more research and found that my intuition was correct -- only 5% of iPhones in the US are jailbroken. [3] World-wide, the jailbreak statistics are highest in poor countries -- but, unsurprisingly, iPhones are also much less common there. The highest estimate I've seen is that 10% of worldwide iPhones are jailbroken. Given that there are so few jailbroken phones, how can we explain that 80% of game copies are pirated?

The answer is simple -- the average pirate downloads a lot more games than the average customer buys. This means that even though games see that 80% of their copies are pirated, only 10% of their potential customers are pirates, which means they are losing at most 10% of their sales. If you'd like to see an example with math, read the following paragraph. If word problems make your eyes glaze over, then I advise you to skip it.

Let's consider the following scenario. Because game pirates can get apps for free, they download a couple new games every day -- or about 500 games in a year. On the other hand, normal gamers tend to play the same game for a longer time -- buying an average of 5 games per year. If this seems low to you, then consider that you are also reading a post on an indie game developer blog. You are probably more hardcore than the average gamer. Anyway, given these statistics, if the market consists of 10 million gamers, then there are 500 million pirated game copies, and 90 million purchased game copies, From the perspective of every individual game, 80% of its users are using pirated copies. However, only 10% of the market consists of pirates.

PC game piracy

Does this also apply to PC (Windows/Mac/Linux) gamers? Many PC game developers find that about 90% of their users are running pirated copies -- does this mean that piracy is killing PC games? Let's try our alternative explanation, and see if these statistics are possible even if only 20% of worldwide PC gamers are pirates. The average PC gamer worldwide only buys about three games a year, and plays them for a long time [4]. I buy many more than that, and you probably do too, but again, we are not average gamers! On the other hand, game pirates might download a new game every few days, for a total of about 125 games a year. Given these numbers, games would see 90% piracy rates even though only 20% of gamers are pirates.

Are these numbers accurate? The NPD recently conducted an anonymous survey showing that only 4% of PC gamers in the US admit to pirating games [5], a number that is comparable to XBox 360 piracy statistics [6] . However, since piracy is inversely proportionate to per-capita GDP, we can expect piracy rates to increase dramatically in places like Russia, China and India, driving up the world-wide average. Let's say to 20%.

This means that if all pirates would otherwise buy as many games as the average consumer, then game developers would be losing 20% of their revenue to piracy.

But would pirates really buy games?

Anecdotally and from studies by companies like the BSA, it's clear that pirates for the most part have very little income. They are unemployed students, or live in countries with very low per-capita GDP, where the price of a $60 game is more like $1000 (in terms of purchasing power parity and income percentage). When Reflexive games performed a series of experiments with anti-piracy measures, they found that they only made one extra sale for every 1000 pirated copies they blocked [7]. This implies that their 90% piracy statistic caused them to lose less than 1% of their sales.

Why are PC games really losing sales?

While many game developers blame piracy for their decreasing PC game sales, it is clear that this is not the problem -- relatively few gamers are pirates, and those that are would mostly not be able to afford games anyway.

However, it's easier for these developers to point their fingers at pirates than to face the real problem: that their games are not fun on PC. The games in question are usually designed for consoles, with the desktop port as an afterthought. This means they are not fun to play with a mouse and keyboard, and don't work well on PC hardware. Their field of view is designed to be viewed from a distant couch instead of a nearby monitor, and their gameplay is simplified to compensate for this tunnel vision.

Blizzard is one of the most successful game developers in the world, and it develops exclusively for desktop computers. Why do they succeed where everyone else fails? They create games that are designed from the beginning to work well with the mouse and keyboard, and with all kinds of desktop hardware. If developers spent more time improving their PC gaming experience, and less time complaining about piracy, we might see more successful PC games.

With the Humble Indie Bundle promotion we've seen that when we treat gamers as real people instead of criminals, they seem to respond in kind. Anyone can get all five DRM-free games for a single penny, and pirate them as much as they want -- we have no way to find out or stop it. However, in just the first two days, we have over 40,000 contributions with an average of $8 each! Would we have seen this much support if the games were console ports that only worked when connected to a secure online DRM server? We'll never know for sure, but somehow I doubt it.

[Kimball]

I wholeheartedly agree with the author. Well said, too.

In regards to PC gaming affected by piracy, consider that the 1% loss in sales is vastly outweighed by the insurmountable marketing benefits provided by simply getting the product in the hands of a potential future customer. If your product was worth pirating, careful measures to prevent piracy in subsequent titles may produce a noticeable increase in sales, now having created fans that would have otherwise never experienced your original title had they not resorted to piracy. I won't pretend to pull numbers out of my @#$%, but I can say that reluctant permission on behalf of the developers for pirates to illegally distribute their game can be beneficial if there are plans for sequels. Conversely, consider that it would take a criminally insane person to tell their boss that they should subtly promote the efforts of the gamers who are convicted of stripping them of their profits for the eventual possibility of increased sales for succeeding releases. Though I am quite skeptical of the suggestion that this tool will ever be used by any development organization, I think the potential should at least be recognized and accounted for when considering the prospect of implementing tools and limitations that only serve to decrease the number of customers, pirates or legitimate paying customers. Realize that these pirates are enthusiasts of your work regardless of their contribution to your wallet, or lack thereof.

DRM just serves to demonstrate the industry's ignorance of the true benefits of piracy. Controlling your customer base with restrictive and frequent authentication only limits the potential for publicity and enjoyment. Are games not developed for the enjoyment of the player? If they truly serve as a mere source of income for the developers, game development may not have been the best career choice. If games are advancing to an age where profit is further intrinsic than the opinion of the gamer, commercial game development may have finally sold out, as the rock industry has in the last two decades. Indie games, specifically those released in open source environments, may be the last sincere branch of the industry. There are few benefits of development of a game which yields no monetary gain aside from the opinions and contributions of the fans. Games like 0 A.D. are genuinely developed for the players, intricately constructed in the free time of those who continually express their passion for games.

[emperor77]

I have to agree that PC ports of console games are pretty poor, i've never been much into console gaming since the dumbed down and simplified nature of console games in general. One of the best examples i know is Operation Flashpoint 2: Dragon Rising: i don't even want to call it operation flashpoint because at best it's only a shadow of the original game, last i checked they didn't even have proper mod support or dedicated servers, fine example of how console games can ruin potentially awesome PC games in my opinion.

[Mythos_Ruler]

I don't really think the industry is "ignorant" of anything in the article. I also don't believe that the industry really believes that piracy is robbing them of 90% of their sales (that's just ridiculous). What I do believe is that they use the specter of piracy as a scapegoat to their shareholders, and as a justification for switching to easier-to-develop console games with dumbed-down gameplay and standardized graphics requirements. DRM and other measures also allow for better content control to milk their PC customers for more cash through "downloadable content", which is a euphemism for unlockable content that is already on the disk. Look at Empire:Total War for an example of this.

This post has been edited by Mythos_Ruler: 07 May 2010 - 03:51 PM

[ZeZar]

Besides a very very well-written article. How do the gaming companies come up with their "90 % piracy" numbers?
And yeah, I've taken statistics, and it's pretty impossible to create a serious number without technology that is illegal?

[Ykkrosh]

The 90% quoted at the start of that article came from World of Goo, where they counted the number of IP addresses of users who chose to connect to the online high score server, vs the number of sales. I expect some commercial games have similar systems, and they can also count how many hundreds of thousands of downloads are reported by torrent sites etc. They're all pretty rough numbers, but it doesn't really matter if it's 95% or 75%.

What I find quite worrying is people like this - it sounds like he can't even conceive of the notion of paying for games ("I saw the words 'banned' and I was gutted, completely gutted. ... I love it, I love playing Xbox live. ... Now I don't know what to do"). Everyone seems perfectly happy with the idea of paying for hardware (and paying for modchips), because that's natural and how it's always been and you get a complex physical object to justify it, but there's so many free games on the web nowadays that people expect software to be free - it seems weird to pay large amounts of real money for something that costs nothing to reproduce and distribute, when there's already loads of stuff in the same medium that you don't to have pay for.

There's a similar problem with e-books - people are used to paying for a book and associate the price with the physical object, even though the cost of the physical object is maybe 20% of the price (the rest is for marketing, proofreaders, editors, authors, etc). But people are used to getting millions of words of text for free over the web, and an e-book costs nothing to reproduce and distribute so why be expected to pay more than a couple of dollars for it?

With a physical object you can hide the up-front production costs in the unit's price, and nobody will notice that they're paying ten times the manufacturing costs of the object they're getting - they'll believe it's worth what they pay, and competition will ensure the prices stay low but sustainable. But software and digital distribution make it clear that the manufacturing costs are zero and so it breaks the illusion - now you're paying for something much more abstract (an unknown tiny share of the unspecified production costs) and it's hard to relate that to the concrete activity of handing over money.

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DRM and other measures also allow for better content control to milk their PC customers for more cash through "downloadable content", which is a euphemism for unlockable content that is already on the disk.

That sounds dangerously close to what I'm claiming to be concerned about . It shouldn't matter whether the content is downloaded or already on the disc, or whether it was produced during or after the rest of the game, because what you're really paying for is the developer time needed to produce that particular chunk of content - but it feels very wrong to pay for simply unlocking disc content. Players have to judge the value of the entertainment they'll get from that content, but they're no good at doing that - they'll be milked by extortionately high prices or they'll demand unreasonably low prices (then turn to piracy) because it's too abstract and they can't reconcile the value and the costs.

(I don't have any suggested solutions to the hypothesised problems, of course )

[Mythos_Ruler]

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(I don't have any suggested solutions to the hypothesised problems, of course tongue.gif)

Good post Philip.

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That sounds dangerously close to what I'm claiming to be concerned about

I don't think content control and "downloadable" content is inherently evil. But I do think it muddies the waters for gamers who have to shell out additional money for content they think they have already bought when they purchased the disk. It would make me feel better if they advertised their unlockable content up-front, but they don't. "Surprise!" our game has "downloadable content" that is already on your disk, so pay us a little bit more money to unlock it. It just feels like a sucker punch.

This post has been edited by Mythos_Ruler: 10 May 2010 - 05:34 PM

[Ephestion]

When Age of Mythology came out i commented about how the gaming community will revert back to arcade slot machines. You pay to play. And soon enough games like WOW and a whole host of others did exactly that. You no longer buy a game you buy gaming time on a server. And we all saw what happened to the Age of Kings and Age of Empires servers...dead.

I think Piracy from a gamers perspective is not altogether bad because it boosts the number of people online. But from a commercial point of view things are needed to prevent it from effecting profits. Instead of trying to sell a product, WOW and other games sell a service. This way they control who their customer is and how much of that service they use. Paying for a service seems to be the way that companies have dealt with piracy.

But I feel this depression in the economy has affected everyone and gaming companies are doing everything they can to milk people for money. 10 years ago people had allot more spare cash for games than they do now days, the economy has just forced all these changes to happen.

[ZeZar]

Another thing I find interesting, how come they don't try different things for profitting?
Like selling ingame\cover advertisment, new distribution categories and so on and so forth?

This post has been edited by ZeZar: 26 May 2010 - 12:30 PM

[Ephestion]

Like a coca cola logo on spartan shields?

[ZeZar]

Haha, no, more like the ads thats in CS and Half Life these days. Ingame advertisement.
Surprise me a lot that they arent more creative.

[Mythos_Ruler]

Right, I could see real sponsors being used in a race car game, for instance, and real advertisements on billboards and stuff downtown in a GTA-type game.

[Ykkrosh]

Half the fun of GTA is the unrelenting puns in the naming of shops and radio stations and locations and pretty much everything else - it would be terribly dull if they started using real brands instead . And it wouldn't be good if developers stopped making historical or fantasy or science-fiction games because they don't provide enough opportunities to insert modern-day adverts. But it seems developers are often happy to trade creative freedom for money so things like product placement are already become more common, even if people complain about it occasionally.

[ZeZar]

Yeah, I'm not saying I want them to.
Just saying... I find it odd that they don't. Because I think they would make more money. Which is their objective no.1.
Also, It COULD make games cheaper, or at best, free.

[Kimball]

I agree with Philip - GTA would be dull without all of the brand mockery. Racing games like Need For Speed and Midnight Club (also a Rockstar game) have used such ingame advertisement to increase their profits. I was genuinely surprised when I first drove through Midnight Club's Los Angeles to find Best Buys, fast food joints, popular local eateries, and even real LA radio stations on the billboards. It's only a matter of time before this becomes more widespread. Just so long as we preserve the industry's dignity and keep it out of the history games.

[darkmatt]

Hello im new to the forums, just noticed this game and all the nice work uve been doing, keep it up guys !

Sorry to divert the discussion but I think we're forgetting an important thing i.e. the emergence(already here actually ) of Online Games.

Games like WOW, Knight Online, ATITD and some small games are doing pretty well, as they are free to download and try out with the option of paying up for further online play.

Increasingly(from what im observing) games are focusing on the online multiplayer aspect and maybe this will kill gaming piracy(as we know it lol)?

Some games require you to give your CC and Other details for registering to make you liable for your actions, being pretty sophisticated and this is a positive development for both developers and budget gamers.

So maybe games in the near future will be free for single play and pay for multiplayer. Just a thought.....

[Draaglom]

I would say, ethically speaking, piracy (of the electronic rather than the fast boats and AK-47s variety) is fairly neutral. It cannot actively harm the owner of the copyright, and indeed benefits the copyright holder at times with the publicity (not to mention the obvious benefits to the pirate).

However, allowing piracy to become more accepted might well also lead to a "devaluation" of the pirated media in question in the minds of society (a universal "why pay when I'm pretty much allowed to get it for free") - and unless there is something to counterbalance this idea you end up with the free rider problem, and that really would be bad for everyone involved.

[Kimball]

Now there's one person I didn't expect to see around.

Anyway, scarcity is the driving force behind the value of any good, tangible or virtual. Irrespective of the problems you described as a result of devaluation, it still benefits both parties on the accounts you listed initially regardless of value - it provides free publicity to the piratee and a free service/product for the pirater.

Ultimately, subscription-based gaming is slowly killing the world of piracy (at least for gaming). Though I'd prefer to live in a world where I don't have a monthly bill for video games, it seems to be the inevitable result of widespread piracy. It's really the only way that a publisher can stop piracy.

[kinetik]

No matter how you look at it piracy is no different from stealing. The fact that so many people download games, music and movies is simply that it's so darn easy to do without running any risk of being caught.

If anything you'd expect people to have some sort of moral objections to it but since the industry is not much different from any other common criminal nobody really cares.