Monday, June 30, 2008

PC Gaming Piracy = $13.66 Billion dollars?

I recently read an interview IGN had with Cevat Yerli, CEO of Crytek, the creators of Crysis (Link). Interestingly enough within a few minutes into the interview, the topic of piracy appeared. The stats given by Cevat Yerli was for every 1 PC Game sold, 15-20 copies of the same game is pirated. This is an ugly statistic. To put it in a bit more perspective, if there was absolutely no piracy, how much money would the PC Gaming market have been worth in 2007?

According to NPD, the Retail PC Gaming market in 2007 for the US was worth approximately $910.7 Million, a little under a billion (Link). If we assume Cevat Yerli is correct about the 1:15 ratio of sales:priated games, then approximately $13.66 BILLION ($910.7 Million * 15) worth of PC games were pirated in the US alone. That is a pretty remarkable figure. Of course, this is the way the RIAA and MPAA performs their music and movie pirating analysis and eveyone knows HOW ACCURATE are even remotely accurate those reports are.

In actuality, this number is very inflated and I would be very surprised if the $13.66 BILLION can actually be translated to even $1 Billion worth of sales. Here are a number of reasons why.

1. The price of a pirated game is $0-5, while the price of a new PC Game on retail shelves is $50, and an older catalog PC Game usually runs on average $20. The $13.66 Billion figure relating to piracy loss was calculated with the assumption all users who pirated the game would have purchased the game if a pirated copy was not available. I would disagree, the basic law of supply and demand does not support this assumption. As price goes up for a good, demand falls. Therefore, if there was no “pirated” aka free copy available, then most “Pirates” would not have purchased the game.

2. Another key assumption is all PC games that have been pirates are new games or games freely avaliable on the retail market. I would disagree, most older PC Games are just not sold anymore within standard retail channels. If the game was not incredibly popular, only online locations such as ebay or craigslist would have a copy. Yes, purchasing from ebay and craigslists are options, but even then its minimal and filled with obstacles. Can the good be trusted? Would I received the product in working order? Has the CD-Key been shared with the world, thereby preventing me from enjoying the game? These are common questions users ask. Most of the time, the pirated version is the easiest one to obtain and to test without having to worry about putting money at risk. If an older game is pirated because a legitimate copy is difficult to locate, can these copies be considered as pirated games? I would say no, since the company does not make the product avaliable anymore, it cannot be counted as a another +1 for PC Piracy.

3. When a PC Game is installed, some general information about the computer it is installed is communicated back to the “Mothership” aka home server. Everytime a the Game is run, it communicates with the Mothership for verification. If verification fails, the game fails to load. In the event a game is resold, traded or given away as a gift and installed on a new machine, the information communicated back to the Mothership changes. In some cases, the game can still be played. In other cases, protection kicks in and disables the copy. Even though the method of obtaining the game was completely legitimated, the game was prevented from being loading because the specifications of the machine did not match the specifications on file. These instances can attribute to any scenario where a change in hardware occured, such as the game installed on a new machine or the machine received an upgrade (i.e. new graphics card).

I am fairly certain the majority of such issues are resolved quickly and most customers are able to freely play their game after contacting customer service. But what I do have an issue with is how often do these issues arise and if they arise are the counted as user pirating a game? If it is being counted as a game that has been pirated, are the stats fixed after the issue has been resolved? What I am questioning is the validity of the data and what is being measured as PC Piracy. For publishers and other video game companies, stats regarding PC Gaming piracy will be overstated to help further cause in battling piracy.

4. The pirated game is a superior product. This is one of the saddest and probably the most true point. A pirated game is free and can be installed on any machine without any restrictions. It can be backed up multiple times and stored for future use. In addition, it respects the fact your computer is a personal device and as such does not send out “information” to the Mothership (most pirated games sends the information back to computer it is installed on to “activate” themselves). A fully legimated copy of the game can only be installed on 2-5 computers, cannot be backed up and stored for future uses, and does not respect the privacy of your own personal machine. For all of those restrictions, a consumer must pay $50 for a new game. One laid side by side, the logical conclusion would be to obtain the pirated product.

The number of reasons PC Piracy is NOT a $13.66 Billion problem is not just limited to the above. With all of the above factors taken into consideration, I would attribute the total lose of sales to the industry to about $500 Million - $1 Billion. Even if this is not accurate it is much more accurate then the $13.66 Billion dollars that was implied.

I agree PC Piracy is a problem, but I do not agree fighting it is the answer. Rather, a new value proposition has to be introduced for consumers that pirates cannot imitate without incurring heavy cost, but this will be a post for another day. All in all, the PC Gaming retail landscape is fighting a losing battle with piracy, but any loss reported would most likely be heavily exaggerated. In reality, from my own point of view, piracy of PC Games has actually been the most helpful thing that has happened to the industry. It has taught the industry survival skills and prepared it for future problems in ways nothing else could have. It has communicated the needs and desires of customers clearly to companies who are willing to listen. But most of all it has shown them that the future is not with the retail landscape of GameStop, Best Buy, Circuit City, Walmart and the big publishers. via zkwang

Jason Kiwaluk

Mower & Shoveller,

Ecommerce | Adtech | Innovation | Strategy

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