Convergent Play: Alternatives in Entertainment Software Philosophies – Introduction and the Reality of Piracy

Quite unlike the print industry, the gaming industry is doing just fine. So fine, in 2008, the industry at-large was hyped up to be “recession-proof.” Whether or not that’s true is up to debate – any actual analysis would show that the video game industry saw its own fits of turbulence over the last couple of years. Development studio health is on a company-by-company basis – and, frankly, the biggest winners were not the likes of Ubisoft or Electronic Arts, or any of the major corporate outfits, but a little browser-based group called Zynga.

And amidst the various console dramas and heated arguments about whether the Nintendo Wii ultimately proved to be a success or not, the issue of piracy lurks in the backdrop, ominous and omnipresent. It is the most controversial issue facing game developers today, threatening especially indie and mid-range studios with intractable insolvency, and bigger studios with smaller and smaller profits with every release. It is the root cause of a burgeoning, if utterly unreliable, digital rights management software industry – and the frontline battle for open-source, security and privacy advocates on either side of their issues.

But like all dramatic theatre, not everything is as it seems.

Convergent Play will discuss the means in which these problems – if they are problems, can be successfully reconciled by current and future game developers. In this first article, an overview on the underlying philosophies of the piracy problem, and how it actually says more about the industry than the pirates.

The measure by which piracy is a problem, as considered by the MPAA, RIAA and other rights-management groups, is a direct measure of the quantity of copies pirated by individuals times the cost of that particular product. Often, the net result of such a measurement is counted by the hundreds of thousands or even millions of dollars, sometimes into the mind-numbing range of billions. Total losses can sum up to tens or hundreds of billions of dollars – on the individual company level.

There is a rather odd incongruence to such a valuation metric, though: despite numbers that dwarf the GDP of entire continents, and pirates purportedly outnumbering legitimate customers, these companies are reporting bigger and bigger profits every year, often claiming historical gains. Why is this? Under a normal course of events, they should all be deeply in the red, right?

Well, there’s a slight problem right from the start. Namely, piracy of software is not a negative-value activity.

To understand the reasoning for this, you first need to understand the difference between a scarce-resource economy and the economies of abundance. I’ll make it as quick and painless as possible:

In a scarce-resource economy, all interactions over a commodity are zero-sum exchanges. For the commodity, a client/customer offers something considered of equivalent value to the dealer, with the value determined by the cost in acquisition, manufacturing or refinement of the product from its raw substance. Thus, in theft, a client acquires the commodity without an exchange, so the dealer loses substance in the “exchange.” A victim exists.

Unfortunately, a scarce resource economy is ill-fitting when discussing software, namely because the commodity in question – the game – is not actually given to the client upon purchase. A copy, instead, is given, identical in pretty much every way that can possibly matter. In fact, upon an act of piracy, the “victimized” dealer still has the unscratched, untouched original. A theoretically infinite number of pirates can steal and steal again, and the dealer will have lost nothing from the transaction. Software, instead, is an abundant medium, with legal transactions being a net-positive exchange, where the developer gains monetarily while still possessing the original commodity.

That is not to say, however, that piracy is not a problem. Rather, it is the fundamental business model of software and video game retail espoused by development studios large and small that allows it to be a problem.

Game software development studios sell games as if they were a scarce commodity. A game is copied onto a CD, packed into a box with a manual and assorted bells and whistles, a distributor is hired, and the game finds its way onto a local retailer’s shelves. All of this is an expensive undertaking – especially once you factor in the extensive development process, and thus why a packet of 1s and 0s can cost fifty to eighty bucks apiece. If they were truly limited in run, with the copy mechanism being nearly as costly as the acquisition of a legal version, this would be fine. They would be able to recuperate their losses from a few thousand sales, with a large enough audience base to ensure that.

This is, in fact, what pretty much all game companies fundamentally expect to happen, regardless of their circumstances.

For the reasons listed above, however, such expectations are delusional at best. Even if they were to restrict themselves to online downloads, the simple and overwhelming power of fundamental market forces would bury a small developer in red, either soon or eventually. For the most part, it will boil down to a matter of a free copy of a game versus a paid copy of a game – with no actual difference in the game itself. The pirated version, therefore, wins.

While experiments like the Wolfire-hosted “Humble Indie Bundle,” of which had successfully netted an impressive $1 million over the period of a week, split almost evenly between two charities and five developers, certainly suggests that it is possible to make a living off the current model of distribution, note a number of extenuating circumstances in this Radiohead-like experiment:

  1. The power of altruism is strong in this one – the Penny Arcade originated Child’s Play charity and the Electronic Frontier Foundation are both high-profile non-profits that are well-respected by the targeted demographic. Classical economics doesn’t really compensate for such things as charity, but its effects are certainly well-documented. And given the pay-what-you-will platform, clients are probably willing to cough up a few bucks more than they would have otherwise to help these worthy – and they are truly worthy – causes.
  2. Like Radiohead, these aren’t just any no-name indie-developed game. We’re talking Aquaria here, for one, and World of Goo, both of which have made serious ripples throughout the gaming community, even if the originating companies aren’t massive corporate giants.

Also note that the average contribution was roughly $9 for five games, and roughly $1.30 per developer/charity per contribution. In a vacuum, this could be seen as a pretty poor deal. In reality, naturally, anything at all is welcomed – these games have been out for quite a while now, and their market penetration is fairly matured at this point, not to mention that the sheer number of contributions means that each developer netted an extremely healthy few hundreds of thousands of dollars long after their games’ initial releases.

But, frankly, that just makes the Humble Bundle the exception that proves my point: such a model is highly dependent upon the extenuating circumstances surrounding it, and is unlikely to be implementable for a lesser-known studio or project. While wildly successful for the five developers involved, it is a success followed by many, many asterixes and footnotes.

Of course, the pessimism of my analysis also comes with a footnote: namely, it is rooted on how such a model would work out against small or mid-sized obscure developers, and only them. Corporate entities still manage to generate tens of millions in profits despite often having legal copies of their games make up a scant 10-25% of all copies of the game that exists. They get away with sheer aggregate of audience, so that even if only 10% of the post-release audience coughs up money, they’ve still managed to cover production and distribution costs and then some.

That does, however, beg a really large question: are we really going to leave the future of gaming in the hands of Electronic Arts and Ubisoft? Oh, I’m sure they would love it if we did – but do we, as gamers, want endless rehashes and sequels, fine-tuned to the lowest common denominator, or do we gamers want games? Perhaps we might even want to prove Roger Ebert wrong once and for all, and have games of cultural significance?

New and innovative ideas in gaming are not market-friendly. It takes a fair amount of desperate arrogance to assume that you know better than your audience as to what they want – not another Halo, not another Starcraft, but, say, a mermaid learning about her past and identity (through the wanton murder of elder gods and abominations, but I digress). But the future of gaming, and its viability as a communicative medium, is built upon that absurd arrogance. In order for the future of the video game industry to be considered truly viable, its underlying structure must be such that is scalable to both large (corporate) extents, but also functional at the level of small and mid-sized developers.

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~ by Gonzo Mehum on May 11, 2010.

4 Responses to “Convergent Play: Alternatives in Entertainment Software Philosophies – Introduction and the Reality of Piracy”

  1. Your blog keeps getting better and better! Your older articles are not as good as newer ones you have a lot more creativity and originality now keep it up!

  2. While software manufacturers certainly feel the crunch, our channel partners and most importantly, our customers suffer as well. Electronic Gaming

  3. I’d like to see what you think about the model that a lot of “Korean MMOs” and other games are taking – the game is free, but high-powered accessories are only available after a phenomenal grind… or you could just spend some money to buy them (often temporarily). If the game is good enough, wouldn’t a developer studio be able to turn profit on devloping new content the community of players wants and will pay for?

  4. What Silver Adept said. I’ve spent $100+ on Atlantica Online, despite the game being free to play.

    I very very rarely buy video games, so the fact that some localization of a Korean MMO has gotten me to spend the equivalent of two games worth (and counting) in a period of a few months says something.

    I can’t pirate that high level mount, the ability to teleport, or any of the other game features that I spend money on. I could buy them with in-game money of course – but that takes a lot of time and effort.

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