Pirate Station

Has piracy simply become an excuse for failure among publishers?

Published as part of our sister-site GamesIndustry.biz' widely-read weekly newsletter, the GamesIndustry.biz Editorial is a weekly dissection of one of the issues weighing on the minds of the people at the top of the games business. It appears on Eurogamer after it goes out to GI.biz newsletter subscribers.

In the wake of last week's front-page headlines about certain games companies' adoption of controversial, aggressive anti-piracy tactics in the UK, it's no surprise that piracy is back on the agenda of almost every conversation I've had with industry professionals this week.

There's one big problem with this discussion, however, and it's this - nobody actually knows how much impact piracy is having on videogames. Those who support the kind of action undertaken by Atari, Codemasters and their partners tend to hold the view that piracy is at crisis point, citing enormous figures for lost revenue and "stolen" software.

Those advocating a solution led by business innovation and revenue stream changes, meanwhile, believe that piracy - while still a genuine problem - simply isn't knocking as much off companies' bottom lines as they like to claim.

The distinction is important. If piracy really is slashing hundreds of millions of dollars out of revenue figures, then it represents a problem which threatens the existence of companies and the livelihoods of workers. In that instance, even if the legal recourse isn't the most productive or successful approach in the medium to long term, it's an understandable knee-jerk reaction from businesses under threat.

On the other hand, however, there's the possibility that piracy's numbers don't actually add up - that the number of retail sales, and the dollar value in revenue, being lost by the industry isn't on the scale that many people fear. In an industry where software sales were worth USD 9.5 billion last year in the USA alone (so probably north of USD 25 billion, worldwide), even a few tens of millions lost to piracy should be enough to stimulate conversations about new revenue models and business changes, but not enough to trigger widespread panic and high-profile legal actions against consumers and families.

So what's the figure? Someone must know, surely? Actually - no. In fact, nobody has any idea at all, and therein lies the basic problem with this entire debate.

Whenever the industry cites figures for damage from piracy, it follows the lead of music and movie executives by simply adding up download figures (easily enough obtained from BitTorrent sites, and more dubiously calculated by applying various metrics to the number of sharers on peer-to-peer services) and multiplying them by RRP figures. Unsurprisingly, this creates absolutely massive figures, which look great in print and support the idea that the creative industries are bleeding to death thanks to piracy.

The problem with these figures is obvious, however, and it can be summed up succintly as follows - they're absolute nonsense. A complete crock. All they tell you is how much money you'd have made if everyone who downloaded a game had gone out at bought it at RRP instead. That's not a remotely useful figure - what you want, instead, is an estimate of how many people who would have bought the game anyway downloaded it instead, multiplied by the average price they would have paid.

That's a totally different figure. Some publishers have reported significant uplifts in sales from games which weren't posted to pirate services in their first week at retail, but these uplifts tend to be expressed as percentage boosts, not as the orders of magnitude which the ludicrous lost-revenue figures given to the media would imply. Occasional stabs at academic research into piracy (of which a lot more is desperately needed) have suggested some incredibly low ratios for downloaded games to potential purchases - even going so far as to imply that for every thousand games downloaded, only one customer would have bought a retail copy had the game not been available online.

That's probably an extreme figure, but it points to an essential truth. A majority of people who download a game from BitTorrent would not have gone out and bought it at retail. People are naturally curious about new media - games, films, music - but it's one thing to be curious enough to download something for free, and something else entirely to be curious enough to go to a shop and pay money for it. As frustrating as it is to have these people playing your products without paying for them, from a revenue perspective it's a neutral activity - you wouldn't have made a penny from them either way.

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