158: Piracy and the Underground Economy

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Piracy and the Underground Economy

"I want to introduce you to an entirely different perspective: Piracy supports an underground economy and the livelihoods of thousands of people in Asia, especially in countries where most people live below the poverty line. This underground exists primarily because its participants cannot afford the exorbitant prices charged by game publishers. It's a point of view that isn't often raised in American or 'industrialized' media, but it's easy to miss when you aren't surrounded by piracy on a daily basis."

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Very good article, some very good points, well made. Although I doubt the industry will ever change it's stance on the subject of piracy.

Thanks. I don't think the industry ever will either, but I just wanted to let people know that there was another side to the story.

That was a good argument but one thing confused me. If the game companies start selling low budget versions of their games for 5 bucks, doesn't that raise the question of still hurting the pirates with families? I think it's a great idea to make video games realistically priced (they aren't even realistic in America), but what do the game companies need the pirates for? Why not just directly compete with the pirates by using people who are already with the company?

More importantly, what do the pirates need the companies for in that model? The game company is going to want a cut of that 200 pesos that the vendors, aside from their newfound peace of mind, aren't going to feel obligated to pay.

L.B. Jeffries:
That was a good argument but one thing confused me. If the game companies start selling low budget versions of their games for 5 bucks, doesn't that raise the question of still hurting the pirates with families? I think it's a great idea to make video games realistically priced (they aren't even realistic in America), but what do the game companies need the pirates for? Why not just directly compete with the pirates by using people who are already with the company?

More importantly, what do the pirates need the companies for in that model? The game company is going to want a cut of that 200 pesos that the vendors, aside from their newfound peace of mind, aren't going to feel obligated to pay.

Very good points. Now that you mention it, that's is a section of the article that could have been more in depth.

My idea was that since the pirates already have established distribution networks, it would be much simpler to work with them than to uproot them. Yes, the game companies would take a cut of the profit from the erstwhile pirates, but it would also give them legitimacy and allow them to breathe easy.

Every time election season rolls along or when the US government puts pressure on the Philippines, there is a big show about smashing pirate stalls, collecting their wares, and crushing them with steamrollers. Being legit means they'd never have to worry about that kind of thing happening.

This is a good article, but I'm not convinced this is really the kind of piracy the games companies care deeply about.

There are people in the Western world who have more than enough money to buy games, but instead choose to obtain them for free. This isn't to say that they would buy them if pirated copies weren't available, but they definitely could afford to. It is primarily these people that the games publishers are looking at with dollar signs in their eyes.

That's a good point Dom, but it's also true that "anti piracy" dogs in Malaysia are being celebrated for their efforts in shutting down piracy. So you have to think that they do care about piracy in this region some.

i liked the article. i doubt sony would have an easy time setting up a distribution deal with every random shmuck who sells copied PS2 games, though. if anything, i think the anti-piracy pressure comes less from the games industry and more from the governments themselves, because they want to shake the counterfeiting reputation. hence the election season business.

whenever i visit my uncle's house (quezon city) i find that he's more boned up on american movies than i am, thanks to readily available bootlegs, and him and my aunt both work at solid white-collar jobs in makati so it's not like they can't shell out more than 200 pesos for a game.

apparently he's got a modded wii, too.

I spent a semester studying abroad in Nanjing, China. Since things were much cheaper there, I decided that it would be great to pick up some new DS games for my flight home, so I asked one of my Chinese friends to show me where I could buy video games. He takes me to a street with a bunch of game stores and leads me to his favorite--I ask the man at the counter what DS games they carry. He looks at me quizzically and admits, "Uh, we don't actually sell those here... but we can sell you a flash cart and download ROMs onto it for you!"

This was a legitimate gaming store over there, like a Gamestop over here. This was this man's livelihood, and not just a shady out-of-the-way pirate nest, but a store publicly displaying his 'merchandise.' Not just DS piracy, but Playstation and Xbox and others as well (the consoles he sold seemed to be legitimate though).

I agree with this article 100% - Piracy is simply a fact of life in these areas, and just trying to force it won't solve anything.

I like this article for being an extremely good compliment to this article, especially since I read them not 5 minutes apart.

I like the idea of reducing the price point for games by removing unnecessary packaging materials, but in the end I doubt that would work. Big-name retailers, at least in America, would never stock a product without professional-looking packaging, and publishers would never consider attempting it - both would be too paranoid about the potential loss of sales. All commercial industries here live and die on appearances, and they go to great lengths to make the customer think their product is superior to their competitors.

Honestly, I don't see the game prices ever becoming reasonable. It started out as a luxury hobby, back when only the wealthiest people could afford a computer, and games have always been at the fore-front of technology. The big publishers are too focused on making sure that any games they release use the absolute best (read 'most expensive') tools and technologies, meaning that the biggest games will always have that luxury price. I'd really like to see more companies making lower budget titles, with lower prices, that still get just as much publicity and attention as the huge AAA titles - basically take a step back and produce something that would have been a AAA title a few years ago, and targeting the people who buy old used games because they can't afford the latest and best.

You have some excellent points Ryan. Great article.

Studios paint pirates as evil people who want the world for free. They love to harp on the fact that they are losing money, but that very argument always implies that the people getting games for free would have paid for them otherwise. This is rarely the case. $60 is a lot of money for entertainment, and with some of the crap that's being developed, you really have to question how much entertainment you're getting for $60.

I pirate games all of the time. I have a couple of consoles, a powerful PC, and a small collection of legitimate games. I was quite willing to pay for (most of) them, because I honestly wanted and enjoyed them. I also have a pile of pirated games. Most of these I just wanted to try out and few, if any, did I play more than a day or two. I refuse to buy a $60 game just to find out that I don't like it. Sure, sometimes you can rent them and see if you like them, but that's not often a choice with PCs, digital distribution, and subscriptions. Even demos and trials don't work because companies will make the demo good enough to get you to buy, only for the full thing to be sub-par.

As always, the companies miss the big picture: lost sales can't always be made. Your example of a $60 game to a family with a $3400 annual income is perfect proof. It doesn't matter how good that game is, $60 is just not affordable. It's impractical. It's ludicrous, even. Even to an "average American family" $60 is a considerable amount of money. As a university student, and now as a new graduate with several tens of thousands of dollars of debt, $60 is an amount I can only pay for a lasting gaming experience, and only a few times a year. Driving piracy into the ground isn't going to convince me to forgoe student loan payments so that I can buy a new game, it's just going to prevent me from playing the game.

The people the studios really need to hit are the ones who can and would pay for the game, but pirate anyway because it's easy enough and saves them $60. There's no clear way to do that right now, especially because it only takes a crack from a single person to make a piratable by an entire population. This is the demographic the studios spend hundreds of thousands of dollars trying to thwart, and considering the numbers, it seems unlikely that that investement rarely pays off.

Let's do the numbers

Let's say there's 50 businesses of 4 people that have each person go out and steal $1000 tv's each night and sell them for $100. In one month, all the groups can earn $600,000. They use this money to buy food for their families, so I guess it's OK to steal.

Wrong! It's still stealing no matter who they are or what they steal. It's funny to hear people who support piracy. They'd be the first to get mad if their tv was stolen by one of the goups mentioned above.

If you sell games at $5 a piece in the developing world (sans packaging), and then sold them at $60 in the rest of the world, then the game would be worth $5. If people found out that they could buy games cheaply in another country and then import them, they would. And in fact they do now. The only reason a game is worth so much is because that's what people are willing to pay for it. Making your game worthless is not a winning strategy.

NCGrimbo:
They'd be the first to get mad if their tv was stolen by one of the goups mentioned above.

Would you care if, at the end of it, you still got to keep your TV but the people with the starving families got to go sell a copy of your TV?

You're comparing apples to oranges here, mate, which just goes to show that you really don't know much about the deeper subtleties of the issue. Either that, or you're deliberately using spurious arguments.

As Gabe Newell mentioned some time ago, the problem is less one of pirates "stealing" sales but of potential customers going unserved. Eliminating piracy entirely would only result in a token increase in sales for publishers, mainly because the vast majority of people who buy pirated couldn't buy "legit" in the first place. It's the same practically everywhere piracy is rampant.

Therefore, bringing equivalency to the market suddenly expands it exponentially. People who'd otherwise buy pirated would well chose to buy legit, mainly because they suddenly can afford the better option.

Yeah I have to say, trying to eliminate piracy isn't going to work. There is a delicate balance you see. There are $60 games for the majority who will buy them at such a price, there are torrenters/pirate's customers, and there are pirates(who obtain the work). The original games are there so that the legitimate workers make money. The Torrenters are there to spread product advertising("Hey what is that game you are playing?"). And the lovely Pirates are there to provide the poor with entertainment, and also as mentioned in the article act as a special underground economy for poor countries.

NCGrimbo:
Let's do the numbers

Let's say there's 50 businesses of 4 people that have each person go out and steal $1000 tv's each night and sell them for $100. In one month, all the groups can earn $600,000. They use this money to buy food for their families, so I guess it's OK to steal.

Wrong! It's still stealing no matter who they are or what they steal. It's funny to hear people who support piracy. They'd be the first to get mad if their tv was stolen by one of the goups mentioned above.

Except that I am not taking your TV, I am making a copy of it and selling it for 100. (Selling copies)
Or even better, I am getting an infinite amount free TVs that ar a copy of your TV, and modifying them so that others can use them and giving them away as such. (Cracking a downloadable game)

The fact that there are people making a living off of a criminal enterprise does not legitimize said enterprise. The fact that people want something that they can not afford does not entitle them to said something. The fact that you can justify all sorts of illegal behaviours does not make those behaviours suddenly legal.

deathyepl:

NCGrimbo:
They'd be the first to get mad if their tv was stolen by one of the goups mentioned above.

Would you care if, at the end of it, you still got to keep your TV but the people with the starving families got to go sell a copy of your TV?

You're comparing apples to oranges here, mate, which just goes to show that you really don't know much about the deeper subtleties of the issue. Either that, or you're deliberately using spurious arguments.

Morality does not equal legality; believing that something is ok does not make it ok in the eyes of the law. There really aren't "deeper subtleties".

The question of right or wrong really becomes a trivial value judgement when we start looking at game piracy in developing nations. The simple fact is that pirated games are available and will continue to be available.

So, unlike the recording industry, game companies need to accept this reality and instead focus on scalable entertainment solutions. They also need to consider subsidizing certain developing markets with the knowledge that once these consumers reach economic parity with the developed world, they will be converted into full blown consumers.

I think to a degree we see Blizzard doing this with WOW in China, where the game's pricing model takes into consideration both the reduced spending power of the player and the public nature of internet and computer access. The other thing to mention is that the legal infrastructure to deal with pirates simply isn't there in many developing nations, nor can those governments afford to make it a major concern.

Those are good points in the article. It amazes me that, for an industry that supplies so little of an actual manufactured product, the prices remain so rigid from market to market and in fact even show a negative correlation to the income in the less developed markets where the competition isn't as good. Even car prices of the same model get better adjusted to local realities than games.

Games, music, films and all other goods that depend on relatively cheap manufacture of identical copies should, save for relatively minor fixed costs, really only be determined by what the public percieves them to be worth and then just how much the publisher can push the price above that value so that the profits are maximized without hurting sales too much. This point should vary from market to market, so a one price fits all approach is really surprising.

No one is saying it's legal. But what we're saying is that it doesn't make a difference. In these poor southeast asian countries, people cannot afford legitimate games, end of story. So what difference does it make if you stamp out piracy. You won't see your sales or profit jump much if at all. They would likely see more of a profit if they followed the idea here.

But then again, how do you keep those cheap games out of the hands of those who can afford them. Simply because people in a country make less money than in the U.S. doesn't change the exchange rate. 200 pesos = $5 there = $5 here. It is a delicate balancing act, and there are many subtleties to the problem. At least there are if developers/publishers want to see a profit.

Personally speaking, I won't cut costs on a game with cheap packaging. If I go into a gamestop and see that they have a used copy of a game that I want, but don't have the original case, I won't buy it. I happily pay a few bucks more for the "advertising." To me, it just looks better sitting on my shelf if I'm looking at cover art rather than some generic image. So you can count on me to not import these cheap copies. However, I can't speak for everyone else.

Its a slippery slope, my friends.

P.S. I think its funny to find that developers will complain about piracy but refuse to do anything about it. They just complain to a government which, like tendo82 said, has just about as much means as its population when it comes to stopping piracy.

I posted on this very subject on the Sean Sands 'Sink the Pirates' article that Flionk has helpfully linked in his post. I buy my games legitimately, but feel that you've hit the nail on the head when you speak of the media companies having no concept of what a realistic price is on a 'per market' basis.

Unfortunately because piracy is rife, a realistic price means starting out at an almost identical price point to the pirated copies, and raising prices gradually once the pirates have turned their attention to more lucrative targets.

That doesn't solve the problem in established markets (UK/US etc.) although I believe affordability and availability are still the key issues. What may work is a few STEAM like games portals set up with a monthly subscription that gives you access to content (like satellite/cable TV)

Then the parent can decide what games are in the correct age range for their children and pay for that level of content.

That kills both the unaffordability issue and the 'I want it now but my parents won't take me to the game shop, so I'll download it' issue. Assuming you can get the parents to buy in of course...

I do have other points, but I'm already repeating my post on the other article.

What game devs like CryTek who are whining about piracy need to realize, is that even in America, piracy is not hurting them. The majority of people who pirate these games would never buy them in the first place (if they even had the money). And it's not like they're actually stealing a game that could be sold. It's simply a copy that could be copied an infinite number of times. And the fact of the matter is, many people will pirate a game, test it, and then go out and buy the real thing. I tell you, once I'm able to get a job, I will definitely buy copies of all the games I've pirated. It doesn't hurt them as much as they'd like you to believe.

That's a very nice spin on the subject of piracy but when you boil it down it's still piracy. It's illegal and what they are doing is wrong regardless of why they are doing it.

And Diggit_6 just because they're not stealing an actual copy doesn't mean that they're not losing sales. Someone who has a pirated copy isn't going to spend money on an actual copy. I think you're kidding yourself if you think that after playing all your pirated copies you're going to go spend hundreds of dollars(or whatever your currency is) on replacing them with legit copies.

Perhaps gamers in developing nations should spend some time getting an education and bettering themselves instead of playing video games. All the time wasted playing video games you could have probably learned something useful in the meantime and picked themselves up out of poverty.

What I do not understand in this whole piracy debate is: if people in these areas of the world can not afford the games they are pirating, how can they afford the game consoles/computers they are buying to play the games on at only $300 a month in income? An Xbox 360 alone would be worth well over a month of income at that level, and a PC could equal several months of income depending on the specs.

Odius:

Perhaps gamers in developing nations should spend some time getting an education and bettering themselves instead of playing video games. All the time wasted playing video games you could have probably learned something useful in the meantime and picked themselves up out of poverty.

Way to miss the point AND make yourself look like an ass. The idea is that publishers won't suddenly regain the supposed losses they suffer by closing down pirates, because most of the folks who buy pirated in poorer countries would not have bought AT ALL. The markets they claim have been stolen by pirates were never open to them in the first place, because without the pirates the sales would never have happened anyway.

An Xbox 360 alone would be worth well over a month of income at that level, and a PC could equal several months of income depending on the specs.

Hardware is a one-time purchase, even for a PC with the right timing. A birthday gift, a single splurge, etc. We're not talking about shantytowns with HDTVs here, people understand their priorities when it comes to survival.

Theft is theft. Have you ever done crunch for months at a time on a multi-million dollar console title? Do you even know how much they cost these days?

All my effort as a game developer put into a game.

The you say people are entitled to steal it.

Bullsh*t.

If you can't afford it you can't buy it. They are not *entitled* to *my* work.

unangbangkay:
Way to miss the point AND make yourself look like an ass. The idea is that publishers won't suddenly regain the supposed losses they suffer by closing down pirates, because most of the folks who buy pirated in poorer countries would not have bought AT ALL. The markets they claim have been stolen by pirates were never open to them in the first place, because without the pirates the sales would never have happened anyway.

I get what the author is saying. But if you can't afford the real thing then the real thing shouldn't be devalued so you can afford it. You can't afford it then too bad. And once again I'm sure you could find better things to do with your time than play pirated video games if you're that poor. Video games are a luxury, if you can't afford them then too bad. You don't see me trying to get Audi to devalue their product because I can't afford it.

Odius:

I get what the author is saying. But if you can't afford the real thing then the real thing shouldn't be devalued so you can afford it. You can't afford it then too bad. And once again I'm sure you could find better things to do with your time than play pirated video games if you're that poor. Video games are a luxury, if you can't afford them then too bad. You don't see me trying to get Audi to devalue their product because I can't afford it.

Fair enough. But keep in mind that games are (for now at least) still products meant to be sold, and if publishers want to sell to a market they believe is closed because of piracy, segmenting it according to economic and social realities is definitely a better way to open it up than including a version of SecuROM that sends a man to shoot you if it detects that DAEMON Tools is installed on your PC.

I don't condone stealing, and I won't say that anyone is entitled to anything, but.... The preceding post stating,

Odius:

Someone who has a pirated copy isn't going to spend money on an actual copy. I think you're kidding yourself if you think that after playing all your pirated copies you're going to go spend hundreds of dollars(or whatever your currency is) on replacing them with legit copies.

is just absurd. Every game I have that I have bought legally, I have tried out the pirated copy first. I am currently studying software engineering, so I'm sure this will "supposedly" affect me in the future. Yeah, right. The plain truth of the mater is, I'm NOT going to spend $60 for a game without knowing how the gameplay is through more than a single "demo". To the developers out there... get over yourselves. If I like your product I'll pay for it, but don't expect me to take your word for it about what a great piece of software it is. Period.

EDIT: Another thing..... All this anti-piracy crap and drm out there only hurts the legitimate users. Software is software. Any program that can be written can be cracked. The pirates are the ones that get to play the games without any hassle while the legitimate customers have to deal various absurdities called "copy-protection" and "drm". Instead of complaining about how much you loose to pirates, think about how much money you waste on a wasted effort.

Kronykus:
is just absurd. Every game I have that I have bought legally, I have tried out the pirated copy first. I am currently studying software engineering, so I'm sure this will "supposedly" affect me in the future. Yeah, right. The plain truth of the mater is, I'm NOT going to spend $60 for a game without knowing how the gameplay is through more than a single "demo". To the developers out there... get over yourselves. If I like your product I'll pay for it, but don't expect me to take your word for it about what a great piece of software it is. Period.

The difference is you have an actual job and are buying said items for pure demo purposes. The person I was responding to said in the future when he gets a job he's going to go back and buy legal copies. He's buying the pirated version to play all the way through and enjoying the product without purchasing the game. Saying that when you get a job you'll right all the wrongs you've done is sweet and what not but I don't see somebody spending their future paychecks replacing items they've already used.

EDIT: I agree completely that DRM and Copyright protection is a complete waste of time. It's just going to bug the crap out of me and make me less likely to buy your products in the future while piracy mcpirate is out their enjoying the game without the hassle.

Reducing a product's price to help it sell in a poorer market isn't necessarily "devaluing" same. A movie ticket in the Philippines is about Php150. That's just under $4 dollars. When The Dark Knight comes out in Manila's theaters, is it suddenly worth only a quarter of what it's worth in the US, where movie tickets reach $12 or more? Is it a worse product for being sold for less in a different market?

If people want to make money by stealing back (or rather, finally entering) the spaces pirates currently occupy, the word we want is EQUITY, rather than equality.

I'm not privy to the cost-benefit analysis, but selling low in a low market whereas the same product goes for high in a high market is usually made up in volume. Once publishers and distributors strike that balance, everyone wins.

I obviously don't speak for the entire industry or all studios, but I kind of wonder who you guys are talking to when you make such generalizations as "studios say...", "studios paint pirates as...". The subject of game piracy is something that's been taken seriously in the development community for over a decade, but in a radically different way from how it's approached in other industries.

It's the same banner to which software developers, record labels and movie studios have been flocking for the past decade or so. They insist they're merely defending the rights of the developers and artists to get paid, and that continuing to support piracy is not only illegal, it also robs the very people whose products we enjoy.

Actually, it's pretty different. There are some parts of the industry and the ESA that are supporting a systemic and somewhat totalitarian approach to piracy (let's invade their computers, jail time for pirates, etc), but by and large the approach to piracy in the games industry has been from the inside out. An example of this is the approach the team on Spyro took to Year of the Dragon:

http://www.gamasutra.com/features/20011017/dodd_01.htm

(Wadark, you might want to read that.)

They devoted specific and significant resources to fighting piracy through design and function, and they did it very effectively for the time. They also did it with a realistic expectation not of stopping piracy but of DELAYING it long enough for the game to actually be purchased by those who would have purchased it, so their efforts might be the best thing we have so far in determining the actual effect of piracy on a game.

Piracy supports an underground economy and the livelihoods of thousands of people in Asia, especially in countries where most people live below the poverty line.

You could say the same for the opium trade. Just because something provides a living doesn't mean that it's good for society.

This underground exists primarily because its participants cannot afford the exorbitant prices charged by game publishers.

Actually, it exists because they can, because no one in Asia will stop them.

Don't get me wrong, I find the RIAA's approach to piracy obscene, shortsighted, and in some cases downright evil -- but there are other things that you're going to have to accept if you want to promote piracy as an ethical and valid force in the market.

How many console games do you see coming out of China and India? The answer is about 'none', or close to -- developers over there work for outsourcing companies that sell their services to the US. Or they work on MMOs. This is why MMOs became so prevalent in Asia -- the rampant piracy made it such that traditional game studios simply could not survive. I've spoken with hopeful game developers from India who say that it is impossible there and elsewhere in the Middle East to start a game company because of the pirates. So this is one of the costs of a society that does nothing to stem or fight piracy.

We would like to think that the western game market is too well established and too strong to be similarly subverted, that the difference in demographics means that people will keep paying for games. But the truth is we just don't know. The last DS game I finished was pirated THE DAY AFTER it was released; when I googled its name the first three responses were ROM distribution sites. DS piracy has exploded in the last few years. I try to take a broad view on issues of piracy, but let me tell you that until you've experienced it you have NO IDEA what it's like to put years of your life into a project and within days of its release see people stealing it. There are balancing factors -- the viral distribution of the game potentially influencing future sales -- but those, like the losses, are complete unknowns to us at this time.

No one thinks that every copy pirated would be a copy purchased; that's absurd. But it is equally absurd to say that piracy does not result in copies NOT being purchased. It certainly does. We just don't know how many, or how large the impact is. Or, at least, I don't, and I'm not sure how that data could be gathered.

Similarly, no one with a brain asserts that piracy can ever be completely stopped. The same attitude is actually taken with retail towards shoplifting; retail shippers account for a certain percentage of loss directly from stealing as part of their business plans. But just because piracy can't be stopped completely doesn't mean it isn't a problem, doesn't mean it's not being considered by developers, and doesn't mean we shouldn't be doing anything about it. It's fine to look at this from the ideological perspective of people who want a lot of free games, but you also have to consider the consequences.

That's a good point about the potential consequences of developing in that kind of gaming landscape, one largely different from the one in richer nations. At the same time, it's the fact that the overall impact is so difficult to pin down leaves the possibility of many bad assumptions being made about what the best way to proceed is.

In the end, if there's any difference to be made it'll likely be made in the pages of a cost-benefit analysis, a business plan, and on a licensing board, assuming "traditional" game design doesn't die out.

I think what can be drawn from the article isn't that piracy shouldn't be stopped because it's an underground economy, but that the fight can best be joined by publishers, distributors and developers if it is joined on the same level the pirates operate at.

The thing is it is not the packaging the manuals or the CD's that are the reason games cost what they cost. Games cost what they cost because the people publishing them know they can get the most money if they set the dollar amount at X. From the economist point of view it they set the price at X- $1 more people will buy it, but not enough to make up the missing dollar from all the sales. Like wise if they set the price at X+1 the sales lost would not make up for the extra dollar made per sale. Now if there were a cheap/legit "Philippians Version" for $5.00 that math gets shot to hell as some copies make their way back into our rich American hands who would rather pay $5.00 instead of $60.00.

A better solution would be to sell older games that we no longer buy at the discounted rate, but we already do that. Also since this is a nitch market some developers could try and work in this space making $5.00 games purely for the Philippine market, obviously with lower production values as they would be making less profit.

One last thing, I am a bit higher than a junior programmer and I wish I made $60,000 a year.

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