Music, Video Games, and the Supposed Problem of Piracy

I was thinking about writing about marketing and so I naturally wanted to look at what Seth Godin was saying. Well, Jay beat me to it and wrote about the future of the music business, which links to the PDF transcript of the music industry talk that Seth Godin did recently. You should go read it as it is a good talk, and it won’t take you very long, but I’ll summarize a few points:

Godin talked about how the music industry was perfect in the past. Technology, society, marketing: they all came together to create a perfect storm.

But things have changed. Music is digital now, and digital means that copying is easy and cheap. Music is no longer the primary form of entertainment for many people. Control no longer rests in the hands of a few major players, and people can go anywhere for music.

To continue to try to keep to the old business model is silly. People can get their music anywhere, they have varied tastes, and they aren’t happy with a few choices. They don’t want what they merely like. They want what they love. Sending out blast messages in the hopes that people take notice and buy your product isn’t going to cut it anymore. Adding DRM to make digital act like analog is the opposite of adding value. Suing your fans? Yeah, that’s exactly what you thought about when you were thinking about becoming a rock star. That’s how you know you made it. That’s sarcasm, by the way.

The market has changed, and if the industry wants to play, they have to play by new rules. At this point, Godin talked about everything he has ever talked about: permission marketing, turning the funnel over, giving people stories they want, etc.

Jay notes that the music industry is similar enough to the video game industry that such discussion is important. Times are changing for video games as well:

I believe that in a lot of ways, the PC gaming scene isn’t “dying” so much as it is “evolving.” Due to proprietary technology, the consoles have a little bit more grace period left in them before their business model goes the way of the dinosaur. The PC hasn’t had that luxury, and in many ways it has been blazing the painful trail. But the music biz has been even further in the front, and there are a lot of lessons we can learn from watching that particular industry getting its butt kicked a few times.

Piracy

And both industries have claimed that the ease of copying will be their respective ruin.

GameProducer.net has written recently about piracy in Brazil, something that was covered in The Escapist’s Console Clones article back in 2005. StampOutPiracy.com is a site that claims to have been formed to help crack down on the video game piracy out there. Gamasutra had an article on Reflexive’s piracy stats, and GameSetWatch posted a follow-up, which claimed that 92% of the people playing the full version were not paying customers. Ouch.

And of course, Cliffski’s been fuming about non-paying customers who have the audacity to make support requests!

For some reason, it seems as if the World Wide Web just blew up in discussing piracy and its effect on the video game industry. Was it a major talk or round table at GDC?

In any case, everyone is talking about it, and it seems that the use of the term “piracy” in the place of copyright infringement isn’t going to go away any time soon, but that’s just a pet peeve of mine that isn’t important to this post.

What about solutions? If people are making illegal copies of games rather than paying for them, what’s an industry to do? Well, this part is familiar to those of you paying attention to the music industry. The video game industry has tried to make reality change to how things used to be, and Reflexive’s DRM stats might indicate otherwise, but I believe that fighting against reality is folly.

Reality-based Business Models

The reality of the digital world is that it is a lot easier to copy things than it is to prevent them from being copied. If you insist on trying to keep to the old business models, you’ll fight a losing battle. Before networking infrastructure made mass distribution easy, you could sell physical copies of games and expect that illegal copies won’t go far. Trying to clamp down digital distribution through the use of DRM, CD keys, and requiring online access to play an offline game are just ways to give your customers excuses to not be your customers anymore. So far, people have accepted it, and a lot of them will claim that “if it wasn’t for the pirates” they wouldn’t have to deal with it. Fair enough, but if piracy is still such a problem in spite of these measures, then you are getting inconvenienced and frustrated by methods that don’t actually do anything but inconvenience and annoy paying customers like yourself. You’re paying for the privilege of being treated as a criminal, while the real criminals get to enjoy the game they didn’t pay for all the more.

And yet more and more infrastructure is being put in place to make your computer less and less useful so that the people who write the software can pretend that they’re preventing “the few bad apples” from spoiling things for everyone else.

Perhaps the idea of selling an individual game as you would a toaster is past its prime? This argument isn’t the same as saying “People don’t like to pay for things, so let them have it for free!” If you look at the link to Cliffski’s blog above, I think it is clear that a lot of people just don’t see making a copy of a game as wrong. Why isn’t it more obvious?

Well, copying files is what you DO in this brave new world called the World Wide Web. Giving someone your copy of a book and sending a copy of your audiobook aren’t seen as two separate actions governed by different aspects of copyright law. Similarly with lending someone a vinyl record or giving someone a cheap copy of a music CD. After all, you’re simply sharing with a friend! When Microsoft or Lars Ulrich come knocking on your door with either BSA or RIAA lawyers and accuse you of piracy, well all you’ve learned is that you need to make such sharing more private. It isn’t as if you are doing anything wrong! And copyright enforcement is now tougher because so many people see copyright as a confusing mass of laws that only large companies use to make money.

So what are the options? You could fund public service announcements to warn people not to copy that floppy, and try to get them to first understand and then obey the convoluted mess that is copyright law, and make them afraid to be your customer.

Or you could start looking into different business models, models that accept the customer’s ability to make infinite copies as a fact of life. Making copies and sharing them with friends is what they want to do, so why not capitalize on it? And no, I’m not telling you that all games of the future must be MMOs or require a subscription to play. No, I’m not suggesting that all games get supported by ads. I don’t have to be the creative one that tells you what new business models you can implement, but I can say that both the music and video game industries could stand to reinvent themselves as Godin suggests.

You can look at people willingly copying your games as a problem that causes lost sales from your old business model, or you could look at it as an opportunity for your new business model.

IS PC Piracy Really the Problem? is a fascinating run through of all of the other reasons why PC games aren’t selling as well as people might like. Reasons like increased competition from other sources of entertainment, higher prices than may be justified, and hardware requirements that actually match what most people have.

New Attempts

A friend of mine informed me that Trent Reznor has been experimenting with a different business model. Actually, my friend informed me that Reznor had accounts on The Pirate Bay and similar notorious sites, and I was curious about the reasons why a musician would support the very thing that the music industry claims is ruining it.

Well, Reznor believes that the music industry is ruining itself, specifically by exploiting their customers. When asked why a Nine Inch Nails album was selling for an obscene amount of money in Australia, a suit informed him that his fans would be willing to pay any amount. “As a reward for being a ‘true fan’, you get ripped-off.” So he followed Radiohead’s lead and set out to distribute an album without the backing of a major label.

Reznor teamed up with his friend Saul Williams and released such an album: The Inevitable Rise and Liberation of NiggyTardust. You could download the music for free, but you had the option to pay $5 to receive a higher quality download. Fewer than 1 in 5 people paid, and Reznor was shocked. You can read about his view on the lack of success of this album in Trent Reznor: Why won’t people pay $5?

You can also read Saul Williams’ take on it in Unlike Trent Reznor, Saul Williams isn’t disheartened. Williams sees an 18% conversion rate as a good thing.

I think Trent’s disappointment probably stems from being in the music business for over 20 years and remembering a time that was very different, when sales reflected something different, when there was no such thing as downloads. Trent is from another school. Even acts that prospered in the ’90s, you look at people like the Fugees or Lauren Hill selling 18 million copies. That sort of thing is unheard of today. But Trent comes from that world. So I think his disappointed stems from being heavily invested in the past. For modern times, for modern numbers we’re looking great, especially for being just two months into a project.

Anyone else remember reading about “disheartening” sales figures from people who think that a 1% conversion rate for a video game was a sign of doom? People on the Indie Gamer forums were scrambling to tell the hapless newbie that 1% was a decent conversion rate. Seemingly low conversion rates are the norm when the business model is similar to mail order catalogs. Reznor seems to have accepted such expectations since Nine Inch Nails has released Ghosts: I-IV online, this time with a multi-tiered sales model. There is still free content available, but the more you pay, the more you get. There are only 9 free tracks this time around, and $5 gives you access to all of the tracks. There are a few other options as you go up in price, and there is even a $300 option for the Ulta-Deluxe Limited Edition Package!

Currently the website has this notice in red text:

We are experiencing an extremely high volume of traffic and orders right now…

The emphasis is mine. When I clicked to download the free tracks, I found that the download site was down.

While the site is down, you can still purchase the complete Ghosts I-IV here from Amazon’s MP3 store for only $5. The MP3s are high quality and DRM-free. You can also order the deluxe and limited edition packages from Artist in Residence.

If you’re familiar with BitTorrent, you can download Ghosts I, the first of the four volumes, for free, from our official upload at The Pirate Bay.

Emphasis also mine. Note how NIN is actually USING a website that has a lot of venom thrown at it from the music and software industries. Reznor isn’t crying foul and complaining about how unfair piracy is. He’s just making use of the channels people already use.

It’s heartening to see Reznor experimenting with different business models, even if the first attempt wasn’t as successful as he had hoped.

Video Games and You

I’d like to hear similar stories in the video game industry. I already anticipate that people will read this post (or maybe only part of it, as it is quite long) and get upset at the idea that piracy is ok. I’m not saying that copyright infringement is great. I’m just saying that if the reality of the marketplace is that it is easier to copy than it is to prevent copying, then why insist that those who copy are criminals? Why not change your business model and make them customers? Why not get mad about the people who won’t copy and spread your game to a larger audience? With so much competition out there, can you afford to succeed in preventing copies? Maybe in the short term, but in the long term, you’re actively slowing the spread of your game.

Snood was a cheap-looking Puzzle Bobble/Bust a Move clone that took the college world by storm. Do you believe that better copy protection would have allowed it to proliferate throughout college dorms and become the 9th most played video game in 2001?

But what can you do to spread your game if you insist on locking it down? And if you insist on locking it down, can you complain about the lack of sales and the increase in the amount of piracy?

[tags]marketing, business, music, video games [/tags]

6 comments to Music, Video Games, and the Supposed Problem of Piracy

  • I get upset at people thinking / saying that “piracy is okay.” Our economy and cultural advancement are dependent upon the ability of people to profit from their ideas and sharing of their creativity or the communication of their thoughts. Do you REALLY want all your favorite artists, writers, actors, musicians, and game developers to quit what they are doing and go flip burgers instead to actually earn a living? Do you want to live in that world?

    But I posted Seth’s article not because I think we all need to roll over and accept piracy – I think it’s an economic imperative that we fight it and protect the rights of creators of potentially digitally-distributed media. I posted it because he – and you – are absolutely correct in stating that these industries are stupid in trying to impose outdated restrictions of a soon-to-be-bygone technological era on a new world. It’s like trying to enforce a bunch of 1860’s horse-and-buggy laws on modern-era automobiles.

    I think half of our problem with piracy stems from the public’s rejection of these ludicrous restrictions, and they mentally and emotionally throw the baby out with the bathwater, associating copyright restrictions with DRM restrictions.

    But we’re facing some other issues, too. Like the fact that so many people refer to Radiohead’s new album as the “free” album. This has happened with software in the past, too. I have read accounts of software that didn’t use feature-crippling as a registration incentive being referred to as “free” software even in trade magazines that should know better.

    I worry that as time goes on, future conversion rates will keep going down for guys like Radiohead and Nine Inch Nails. People tend to associate the value of an item with its packaging and cost of reproduction.

    I don’t know the solution. Seth Godin doesn’t claim to know the solution either. But I agree with the conclusion that trying to hold back the hands of time and cling to an era where technology favored the big studios / publishers is NOT a viable solution.

  • Dix

    Does anyone know the solution? There are a lot of writers out there jumping up and down claiming that there must be a business model that will benefit from, not suffer from, the tendency of people to “share” copyrighted content (aka piracy). Yet, aside from the nods to MMO and ad-supported games included here, I have yet to see anyone suggest what that business model might be.

  • “Fair enough, but if piracy is still such a problem in spite of these measures, then you are getting inconvenienced and frustrated by methods that don’t actually do anything but inconvenience and annoy paying customers like yourself. You’re paying for the privilege of being treated as a criminal, while the real criminals get to enjoy the game they didn’t pay for all the more.”

    I used to say the same thing. But then I read the Reflexive article (which you say you read, too): When they put basic copyright protection into effect, their sales increased by 70%.

    Did they eliminate entirely? No. Does that mean that all forms of DRM should be used? No. (I won’t purchase a copy of Bioshock because of the DRM they use. Nor will I knowingly purchase any other form of media which eliminates my rights of fair use as a consumer; prevents me from playing a single-player game offline; or interferes with the operation of my computer.)

    But does that mean that all forms of copyright protection are ineffective? Apparenly not. If someone told me I could increase my paycheck by 70% and all I had to do was X, I would be hard pressed to describe X has being “ineffective”.

    So simply saying, “DRM doesn’t work.” isn’t very productive. Does it actually prevent a cracked version of the game from appearing? No. Does it meaningfully increase sales? Yes.

    “Or you could start looking into different business models, models that accept the customer’s ability to make infinite copies as a fact of life. Making copies and sharing them with friends is what they want to do, so why not capitalize on it? And no, I’m not telling you that all games of the future must be MMOs or require a subscription to play. No, I’m not suggesting that all games get supported by ads. I don’t have to be the creative one that tells you what new business models you can implement, but I can say that both the music and video game industries could stand to reinvent themselves as Godin suggests.”

    Saying that you don’t have a solution but that someone should hurry up and make one doesn’t seem like a very useful revelation. 🙂

    Ransom-based systems (where you ask everyone to pay whatever amount they feel like and then you only release the product when you’ve received $X) is a solution that can work in many mediums. Donation-based systems like Reznor’s can also work (although not if you create an environment where people feel entitled to free content). You mention ad-based and subscription-based services. You can also sell physical merchandise related to your IP (like t-shirts or collectibles).

    All of these have some merit, but there are many situations where they just won’t apply. (Selling collectibles to support something like Harry Potter and the Philosopher’s Stone is hypothetically possible. It seems significantly less likely if you’re talking about, say, The Other Boleyn Girl.)

    Many of them actually end up warping the content itself. Ad-based schemes are the obvious example, but you could also look at something like Questionable Content. At least some proportion of Jeph Jacques’ revenue comes from selling the clever t-shirts worn by his characters. This is obviously a relatively innocuous example, but clearly the need for his characters to wear the clever t-shirts in order to generate a demand for clever t-shirts impacts the actual content of the strip.

    Less innocuously, many Disney animators talked about the interference they would have from the marketing department to make sure that their newest feature would include heavily test-marketed, “kid-friendly” animals that could be made into plushies; sold as action figures; and the like.

    But putting aside concerns like that, there’s a bigger issue: The investment required to write a novel or record an album is infintesimal. So I can build an audience of 3,000 people; ransom a book; get an average of $10 from each of them, and clear $30,000 for the book (roughly in line with what a midlist author gets for an advance).

    Now, try to do that with a Hollywood movie or a cutting edge computer game. Conjure up an audience of 10,000,000 to pay for a movie that, even if the $100,000,000 ransom is met, won’t be seen for 2 years.

    Of course the obvious answer is: “Well, then those types of big budget movies just won’t survive.” But that isn’t a very good answer. Saying, “People who like Spider-Man or Star Wars or The Matrix or Serenity just won’t be able to see movies like that in the new economy.” simply reveals that the new economy is fundamentally inferior to the old one… so why shouldn’t we try to hold on to the old economy?

    So, I guess that’s my answer: Show me the “new economy” that gives us a $40,000,000 budget for the new Final Fantasy game and then we can talk. Until then, we need to keep working to make the existing infrastructure for supporting an economy based on creativity from collapsing.

  • Saying that you don’t have a solution but that someone should hurry up and make one doesn’t seem like a very useful revelation. 🙂

    No, it isn’t, but it’s still true. In fact, there won’t be “a” business model to replace pressed CDs (containing music, games, movies, or whatever) that get treated like physical property. There will be several, and all will intermingle in the market place. Some work in some places, some work for some people, some work for some types of media. It will be a heterogeneous environment, not one that you can easily quantify and declare “this is how It Is Done”. Welcome to capitalism. It’s a new concept, never before tried in this country. 🙂

    – MMO is one option.
    – Subscription is another.
    – “Pay want you want” is another.
    – “Ransom-ware” is another.
    – Episodic Shareware is another, and one with a long and established history. Think Warcraft, Warcraft 2, the original Doom and Quake, etc. (That’s exactly what Trent Reznor’s “$5 for the fancier version” is.)
    – Work for hire is another.
    – Loss-leader is another.
    – I’m sure there are dozens of others.

    Americans are extremely good at figuring out ways of making money. It’s what we’re good at. We can come up with all sorts of novel and innovative ways of making a buck, but not if it is illegal to do so. Current attempts to “fight piracy” are all designed to stifle innovation in the business world. That is the purpose they serve; rather than figure out how to make money as the market changes, make it illegal for the market to change. Not only does it not work, it harms the market in the process.

    How do I know this will happen? Look at “Free Software” / Open Source. People have been crying for 20 years that it will be the death of the software industry. Giving things away is evil. It ruins markets. It doesn’t have value. It’s just a bunch of amateurs. You’ve all heard the story.

    How much does IBM make off of Open Source?

    How much code does Sun give away (hint: OpenOffice.org, Java, OpenSolaris)?

    How much money did MySQL AB make before Sun bought them?

    Remember TrollTech? You know, the company that gave away Qt as Free Software and then funded the KDE project which uses it? They make no bones about the fact that KDE using Qt (and not paying TT a time for it) made the company. They would never have been successful without giving away their product.

    I hold a BS and MS in computer science, and my day job involves getting paid very well to write code and give it away. I’m a Free Software consultant.

    I just got back from an international conference in Boston of 850 other people who give away their code for free and get paid well enough to go to international conferences. Oh yes, and the conference sold out and we had a long waiting list of people who wanted to attend as well.

    Giving software away for free is a multi-billion dollar industry, growing every year. If given the chance, most other industries will develop various ways to make money by not trying to extort their customers, too. There is no One True Business Model for anything; Let the market figure it out. That’s what it’s good for.

    I don’t have to give you a business model for a $40,000,000 Final Fantasy game. All I have to do is point you at the dozen $40,000,000 business models for software that already exist and say “So why can’t you figure something out if you’re so smart?” People are, people will, and those companies that can’t will go out of business.

    Welcome to actual capitalism. Please have exact change.

  • […] I wrote about piracy, there have been a few new articles brought to my attention, and I’m sure there will be […]

  • […] to explain why it was introducing copy protection now after years of avoiding it. Similar to Reflexive’s claims of a 92% rate of piracy, LGP estimate that more people downloaded illegal copies of the games than paid for them. The […]

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