THE KILLING GAME - April 2002
Continuing PC Zone’s epic investigation into the truth about game piracy, with our front-line correspondent Stuart Campbell.
Back when your reporter was just a wee nipper, many years ago and certainly well outwith the criminal statute of limitations thanks very much, he had a nice little tickle going for all the Sinclair Spectrum games that were beyond the reach of his pocket money. With his mate, who for the purposes of this anecdote we’ll call Jimmy McSmith*, your reporter would stroll down to the local game store (John Menzies, in this particular instance), and ask them to load up a game for demonstration purposes. While the assistant handed over the tape for us to load (watching carefully the while to make sure we didn’t pocket it and scarper), it was a simple task to unobtrusively connect an extra tape lead to the recorder’s MIC socket. Due to the nature of old mono tape decks, the signal which was coming in through the recorder’s EAR socket would also be transmitted out, slightly more quietly, through the MIC socket, from where it would travel through our surreptitiously-connected lead, up Simon’s sleeve and into the extra tape recorder that he had strapped to the inside of his jacket. Five minutes later, bingo, one lovely new Spectrum game.
Now, clearly the purpose of relating this tale is not to enable PCZ readers to admire our misguided youthful ingenuity. We were bad young people and we now realise the error of our ways, m’lud. The point is, you can’t stop piracy. If something costs more than people think it’s worth, they will always find a way round any methods of protection. Indeed, the more you protect something, the more you tempt hackers who have very little interest in pirating games, but every interest in testing their skills against the latest encryption. The only way to combat piracy is to win the hearts and minds of your target audience, and the industry’s attempts to do that so far have ranged from the offensive to the plain feeble. (See “THE PERSUADERS” for some examples.)
But the real question is, does the industry truly want to combat piracy at all? As we’ve just seen, its efforts so far have been so cack-handed, contradictory and counterproductive (in terms of generating and feeding the us-and-them “outlaw” mentality that causes ordinary people to turn a blind eye to the most flagrant instances of piracy happening on their own doorsteps) that it’s hard to believe it could be accidental. Even more convincing are the views expressed by the industry in private, when it doesn’t think the general public is listening (see “JOLLY JACK TARS”). By a significant majority in every surveyed instance, the games industry privately not only believes that piracy doesn’t actually represent a threat to its continued wellbeing, but that in fact piracy, in almost all forms, acts as a benefit to the industry, by generating hardware sales and hence increasing the size of the market as a whole. (The industry knows only too well, for example, that the most successful profit-generating game platform of all time, the Playstation, is also the most widely pirated.)
Of course, announcing this publicly would lead to an overnight collapse in the market, as no-one would be prepared to fork out 40 quid for a game ever again, so the industry is required to exercise a certain amount of public fibbing, and private doublethink. For example, ELSPA (the European Leisure Software Publishers Association) states that “fighting software theft is perhaps its most important task”, yet the organisation’s Crime Unit devotes just £500,000 a year to The War On Piracy (or “TWOP”), which represents a microscopically tiny 0.12% of the European games industry’s annual revenues of almost £4bn. It doesn’t sound like they’re all that bothered, does it? At this point, it seemed only fair to speak to ELSPA, in the form of its Deputy Director General, Mike Rawlinson. Mike, we said, given the figures in Screen Digest, this doesn’t sound like an industry in peril. If piracy’s been killing the games business for 20 years, why isn’t it dead yet?
“We probably haven’t reached the pinnacle of the potential of the market yet. We’re going through a phase of new platforms and new hardware penetration, which will of course expand the market.If you look at the music industry, you’ve had the expansion of the delivery format, the market expanded to its ultimate level, and now future growth is being hit because of piracy. That will occur in the games industry if we don’t continue to be vigilant on the whole issue of piracy.”
The rest of the industry doesn’t appear to share your fears, though. The rest of the industry seems to think that piracy at worst doesn’t harm them, and at best is actually a benefit.
“I think if you’re not working in it every day of the week, in the piracy sense, then you may not see the extent of the problem, particularly among young people. I’ve got a teenage son and he tells me regularly about his pals who are copying and swapping games, and they just do not see anything wrong in that whole operation.”
Why do you think people don’t see anything wrong in it? Why, in 20 years of campaigning, have you not managed to sway that opinion?
“Because it’s undetectable, uncontrollable and unpoliceable. That problem exists in many areas of society these days. People drive down the road at above the speed limit. I’m driving now – and perhaps I shouldn’t be when I’m talking to you – but I’m keeping to the speed limit and people are passing me every minute of the day. And why do they pass me? They know the speed limit exists, but they take the risk that there isn’t a camera around the corner and as long as they don’t get caught, it’s okay. In other words, people in society these days are getting very much to the case where they disregard the law if they can, and I think the same applies to piracy.”
That’s quite a serious allegation, isn’t it? Are you basically implying that we live in an outlaw society?
“Absolutely, I think that’s absolutely right, and I daresay that if we went around to your organisation, perhaps even my organisation, companies throughout the UK, we will find at least one computer in every business that has software that is not licensed.”
So the problem is that people are just fundamentally criminal scum, then?
“The difficulty is that people try to justify this behaviour to themselves by saying ‘I can do this, so I will.’ As a society, we do that because we think that computer software is not a commodity. If I go into town and see a bicycle that I want to use and just take it, obviously I’m depriving the legitimate owner of the use of it, whereas with a digital product, they’re not disadvantaged because they’ve still got the product, I’ve got it too, and there’s this notion that therefore no-one is harmed. But it’s wrong, and we have got to educate society. We’ve got to start with the kids in the schools, and make them understand that ‘If I can’t afford it, I can’t have it.’ It’s a tough lesson that everyone has to pull together to learn if we’re going to keep our society together.”
Do you have an impossible job winning people over while having to continually big up the business’ huge and growing finances?
“It’s a difficult job, but I don’t think it’s impossible. We do have the one advantage on the piracy side, and this is a very real factor, in that the majority of people who are trading in pirated products are criminals in other areas. There’s a lot of drugs involved in piracy, illegal immigrants trading in piracy because they can’t get legitimate employment, there’s tax fraud, benefit fraud and so forth, and what we have to get over to the general public is that if they buy products from these people, they make think they’re getting a quick fix of a cheap product, but actually they’re damaging the whole essence of the society in which we live, which ultimately means that they’ll be paying more through their taxes and VAT and so on. So people have to realise that actually they don’t want their own community to suffer, through these drug peddlers, illegal immigrants, people putting pornography on discs that could damage children, and maybe we can strengthen our arguments when people get to realise those things as well.”
No change, then, in at least the policy ELSPA wish to present to the public. It’s all too easy to pick holes in (for example, the view that the industry will in fact keep growing for as long as new hardware formats come along, which of course they always will), and it’s certainly a pessimistic view – people are inherently criminal and will do crimes if they can get away with it – but it shows that the industry’s trade body is at least aware of the PR battle it has on its hands with TWOP. Whether going into schools and saying “Piracy is naughty, and will get you in trouble with evil drug dealers and illegal immigrants and pornographers” - much as the industry’s been doing for the last 20 years with a spectacular lack of success – is the solution to the problem is a different matter. You’d think that even the most recalcitrant student would learn a lesson after 20 years of failure. If, that is, they wanted to succeed in the first place.
*Though his real name is Simon Reid, 12 Riddoch Hill Avenue, Blackburn, West Lothian.
Considered, thought-provoking, convincing and effective rhetoric? Or laughable scaremongering and hysterical dogma produced with no hope or intention of reducing piracy at all? You decide.
“If you use illegal software, then you contributed towards… large sums of that money could have quite easily (and probably has) been invested in the IRA, the Maffia[sic], Triad gangs, money laundering rackets, prostitution rings… how do you feel about that?” – From “The Morality Of Piracy, www.elspa.com
“You may think that saying "piracy harms children" is unfounded, but it really is true. Many pirate compilation discs, mainly for the PC, also contain explicit pornographic material. Not just 'glamour' pictures, but anything and everything including paedophilia and rape.” – From “The Morality Of Piracy, www.elspa.com
THE FAST TRACK
Last month we ascertained that the Internet - or what most people know as the Internet - is rubbish for downloading pirated software. But what about the slightly different area of peer-to-peer file sharing, which is now bigger than ever, despite (and in fact probably because of) Napster being effectively shut down last year?
Similar packages, such as Morpheus, enable you to download any type of media directly from other people’s hard drives through an increasingly popular network called FastTrack. A cursory search conducted in the course of this feature brought us pirated fruit in the shape of Black & White and Colin McRae 2, although as we were trying to download the full US version of Medal of Honor in both cases, our disappointment was palpable.
This seems to be the main problem. Aside from the reality of needing a broadband account the sad truth is that people out there love to mess with you and your big downloads - two users were even offering full versions of Quake 4, at just over 18MB each. And if you’re still tempted then remember that the risk of catching something nasty is inevitably higher as well - you’re not downloading from people who have any interest in you coming back or staying on friendly terms, and as we’ve just seen from our fake files, you already know they’re happy to screw with you.
CULTURE OF DESTRUCTION
One of the things that muddies the ground of piracy so much is the moral ambivalence most people feel towards piracy in the forms of emulation and abandonware. The games industry’s indiscriminate hatred of all forms of intellectual-property infringement does much to foster the “them and us” mentality that helps pirates to thrive. More confusing yet, the industry prevents a far from united front. The number of authors and publishers of old 8-bit and 16-bit games who have now granted permission for their old games to be distributed free of charge on websites is now counted in the hundreds, and growing all the time, particularly (for some reason) regarding Spectrum and Amiga titles. Others, however, flatly forbid the distribution of their old games. Codemasters, one of the publishers who feel most strongly about piracy, take this view and block any distribution of old titles, even in instances where the actual game authors (such as the Oliver Twins, creators of many vintage Codies titles and now running Blitz Games) have given their personal assent. But why, Gavin Raeburn, Codemasters Studio Head? What harm are you preventing by stopping gamers playing Speccy games like Advanced Pinball Simulator in 2002?
“The first reason is that we are always looking at how we can rework old classic games for new formats. For example, Jester have just bought the rights to a number of old Spectrum games, like Manic Miner. These games are ideal for mobile phones, GameBoy and set top boxes etc, and are a potential source of revenue for the publishers and developers. We are even looking at giving away some of our slightly newer games, such as Psycho Pinball on PC (which I coded BTW!), on our website to increase traffic. Secondly, any kind of distribution of old titles would need to have a detailed contract attached to it to ensure that IP or other related content was not being given away accidentally. This is an expensive legal minefield that does not justify the resource or the time to implement.”
But hardly anyone else in the industry seems to think that it – or even piracy in general – matters that much (see JOLLY JACK TARS). Do Codemasters feel like some sort of isolated keepers of the intellectual property flame?
“This just shows the extent to which people need educating both in and out of the games industry. I have met people in shops who on seeing my Codemasters T-shirt have asked me how they can their new Codemasters game for a friend. I have seen news stories on TV showing kids playing games, where you can see racks of gold disks that they have bought illegally. Most people don't even realise that they are doing anything wrong here! Piracy is theft. Taking something that is not yours, is theft. You do not walk out of EB with a game without paying, because you know that is theft. Why should it be okay to get someone else to do that for you, where you are then accepting stolen goods, be it on gold disk or via a download? Just because software piracy is easy to do, and the consequences of your actions are never apparent, this does not mean it is right. This is no different to putting in a false insurance claim. You think no one is suffering from this, but of course premiums go up, and this affects everyone."
“Working with ELSPA and similar organisations and
distributors around Europe has shown that piracy levels are as high as 60%
in places like Spain and Portugal, and in other places like Argentina and
the Far East, piracy levels are around 97%. If we do not attempt to stem
piracy in any way, this will become a more and more accepted practice, and
our industry will not be able to sustain itself. Why will consumers continue
to buy products from legitimate sources if they can buy a pirate copy at a
much cheaper price where developers and publishers do not get paid for their
investment and hard work? People get away with what they can. It's human
nature, but that doesn't mean it's right, and if our industry is to survive
and continue to take risks and invest in producing quality titles, then we
need to protect it. I do not see why my team and I should bust our balls
each and every day of the year to get quality product out to the consumer,
only to have a large number of people steal this work from us? No one else
would accept their work or property being stolen from them, and I don't see
why we should accept it either.”
GONE IN 60 SECONDS
As alert readers of last month’s article will recall, in the name of investigative journalism your reporter recently journeyed deep into the criminal underworld of software piracy, which is to say went down to the local open-air market and talked to some pirates, both sellers and customers. And let me tell you, viewers, very few things make a 30-something journalist feel more conspicuous than going up to 14-year-old boys in hospital car parks in a freezing January downpour and saying “Hey, can I talk to you for a minute? I just want to ASK YOU A FEW QUESTIONS!” (this last being shouted loudly at the fast-disappearing youth as he races off over the horizon in terror). Anyway, once I’d managed to look sufficiently unlike either an undercover policeman or a child molester by copying some facial expressions and stances I saw in a Linkin Park video on MTV2 once, I got to talk to a few market punters. Most, as you’d expect from a constituency of mostly teenage/early-20s blokes, made little coherent sense, but one, a gamer in his late teens, had a couple of interesting insights. We’ll call him Surprisingly Articulate Pirate Kid.
PCZ: So, if it’s not a completely stupid question, why are you here buying pirated games instead of proper ones?
SAPK: It’s a pretty stupid question. Why do you think?
PCZ: Um, because they’re four quid each instead of 40?
SAPK: Yeah, and because most of them are crap.
PCZ: Come on, that argument doesn’t work any more, does it? Big chains like EB do exchanges with no questions asked if you don’t like a game that you’ve bought these days. Surely you can’t still use the “It’s too much to risk if it turns out to be rubbish” routine any more?
SAPK: Yeah, but what happens if there’s nothing good to exchange it for? Even if you swap it, like, three times, the other games could all be shit as well, and you’re still 40 quid down with no good games to show for it. Plus you end up getting banned from the store. [PCZ legal note: We have no evidence to suggest that any game retailers have banned customers for repeated use of exchange policies.]
PCZ: That can still happen with pirate copies too, though. All the games you’ve bought here today could be rubbish, and you’d be just as out of pocket.
SAPK: They do exchanges here too, though. But
the real difference is that you don’t need 40 quid in the first place. I’ve
hardly ever got 40 quid in my hand at a time. It’s like, if I’ve got 20 quid
I’ll go out, or buy a CD. I never get to 40, y’know? Down here you only need
a fiver and you can get a brand new game.
Which is, of course, an excellent point. A huge percentage of the gaming market, even the PC one, is still made up of teenagers, and with official government statistics showing average pocket money to be somewhere around two quid a week, it doesn’t take a genius to figure out the frequency with which teens (or anyone else, when it comes to it) have 40-quid-sized chunks of disposable income, ie almost never. It’s a bit like the makers of Chupa Chups deciding to move upmarket, put blobs of the finest caviar in their lollipops and sell them for 20 quid a shot, momentarily forgetting that the chief market for lollipops isn’t upwardly-mobile stockholding City executives, it’s young people. Like, duh.
AN INDUSTRY UNDER THREAT?
“By knowingly purchasing a counterfeited computer game, you are putting at risk the livelihoods of everyone involved in the legitimate leisure software industry.” – Extract from “The Morality Of Piracy”, on ELSPA’s website (www.elspa.com)
AN INDUSTRY UNDER THREAT?
“Despite all the doom and gloom talk of console transition and a ‘difficult’ market, the total UK market for leisure software grew again in 2000 to reach £934.4m – the highest value ever reached… this is quite remarkable given the cyclical nature of the games business and the fact that all previous transition periods have actually resulted in a significant downturn in the overall market. We believe that this demonstrates the inherent strength and vigour of this now mature industry.” – Extract from the most recent edition of “Screen Digest”, the industry’s yearly statistical bible.
AN INDUSTRY UNDER THREAT?
“It is perhaps the comparative dynamism of the leisure software market that is the most impressive. Over the five-year period from 1996 to 2000, the interactive entertainment market has grown by a staggering 111%. By comparison, video retail spending grew by 37%, cinema ticket spending by 36 percent, and video rental and music spending by just 16%.” – Extract from the most recent edition of “Screen Digest”, the industry’s yearly statistical bible.
AN INDUSTRY UNDER THREAT?
“Globally, we estimate that the world interactive leisure software market was worth $17.7bn in 2000. Indeed, according to our estimates, the world market has more than doubled since 1995, and there are few – if any – other media markets that can show comparable growth.” – Extract from the most recent edition of “Screen Digest”, the industry’s yearly statistical bible.
FOGGY MOUNTAIN BREAKDOWN
When passing sentence on a pair of convicted game pirates last year at Leicester Crown Court, Judge Richard Bray said "I have not closed my eyes to the fact that the retailers and publishers [of videogames] are grossly overcharging the general public." But are they? Even after 20-odd years, there’s still a dense mist of confusion over who actually gets what from the price of a game, and hence who’s to blame for them being so expensive. (Since we established last month that it’s got bugger-all to do with development costs.) Various attempts at explanation have been made, often contradictory or plain wrong - one games magazine famously even managed to forget to include VAT in their breakdown of where the money went. But the big problem is that most attempts to break down the pricing of games operate from a fundamentally wrong premise in the first place. Trust PC ZONE to get it right, and read on.
AVERAGE NEW GAME RRP: £39.95
At a fat 17.5%, VAT immediately bumps up the price of your game from £34. Of course, VAT isn’t a flat-rate fee – if games cost less, the VAT would be proportionately less too. So you can’t really blame the government for the price of games.
RETAIL MARGIN: £14
It’s long been a strange fact of life that, especially in Britain, by far the biggest chunk of the price of leisure software goes to the people who do the least work on it. While margins have been squeezed in recent years, roughly 40% of the retail price of a game (exclusive of VAT) goes to the people who simply buy ‘em in, stick ‘em on a shelf and pay some spotty kid four quid an hour to flog ‘em. Of course, before you go and burn down your local Electronics Boutique in righteous fury, remember that games rarely sell for the RRP these days - certainly not beyond the first couple of weeks - and 100% of the ubiquitous discounting comes straight out of the retailer’s pocket, making a big hole in their cut to add to the risk of stocking a stiff. And again, retailer margin is a percentage, so it’s not an obstacle as such to prices being lower.
An arcane process by which games magically arrive from the duplicators to the shop shelves, via blokes in white vans paid by the boxload.
MANUFACTURING COSTS: £0.50
Physical production of games costs the square root of sod-all. After all, if pirates can afford to duplicate games, put them in nice cases and still flog them for two quid and make a profit, it doesn’t take a genius to work out what sort of costs are involved. In fact, with blank CDs costing about 6p each in bulk quantities these days, 50p is probably an over-generous estimate.
Developer royalties are becoming rather less of a factor these days, as more and more development teams are actually in-house staff. It’s almost impossible to fund games development independently now, so more and more games are created by developers as part of a salaried job rather than on a royalty basis. Of course, those salaries still represent an expense to the publishers, and most developers still receive some kind of royalty on sales, so in fact this situation contributes to increased costs. After all, if your developers spend four years producing a game (for the sake of argument, let’s call this purely imaginary game “Waikatana”) and it stinks the place out and only sells 25 copies, you’ve still had to pay them fat developer wages for four years.
However, with around half of all games now being licensed properties, you now have to consider the royalties being paid to the licensor, whether it’s David Beckham, Celador (owners of Who Wants To Be A Millionaire?), the F1A or whoever. Such bodies wised up long ago to the industry’s former practice of buying up licences outright, and now they take a chunk of sales as well as an upfront fee. Between licensor and developer, then, it’s probably fair to account for 5% of a game’s ticket price going in royalties. (Although, also see the “DEVELOPMENT OVERHEADS” section for why even that represents far from exact science.)
HARDWARE LICENSE FEE: £0
If you release a game on the Playstation 2 or Game Boy Advance, a whacking 25% or so of the VAT-exclusive price – as much as £9 – goes straight to Sony or Nintendo for the privilege of being allowed to publish your game on their nice format at all. With the PC, of course, this fee doesn’t apply, which makes the fact that PC games generally have the same RRP as console titles a lot harder to excuse.
And here’s the rub. Putting an average price on game development as a percentage of retail cost is, of course, a farcically impossible task. Development costs are a fixed one-off fee, wildly variable anywhere on a scale between £100,000 (Mr Driller, say) and £50 million (the latest Final Fantasy), and depending on sales could account for anywhere between 2% and 400% of the game’s total retail revenue. (because, of course, not every game makes its costs back, far less turns a profit). This is part of the reason why the whole “development costs” issue is such a total red herring with regard to game pricing – there simply is no such thing as an “average cost” in percentage terms for producing a video game, and it’s highly misleading to pretend otherwise.
What that realisation leaves you with, then, is a slightly less headline-friendly but much more informative figure. From an RRP of £40, a PC game publisher receives about £16.50 per copy sold (regardless of any discounting). To figure out if you’re being fleeced or not, multiply that by the number of copies sold (anywhere from single-figure thousands for a flop to many millions for a smash hit) and subtract the costs of production, from development to admin to marketing and so on. (Then remember to factor in subsequent budget/mid-price/compilation sales, which are effectively “free” extra cash and can sometimes actually generate more money than the original full-price release.) If, on the other hand, the same game had an RRP of £15, the publisher would be receiving about £5.25 per copy (a slightly lower percentage, since distribution and duplication costs are absolutes rather than percentages), obviously meaning about three times as many copies would need to be sold to make back the same money. Would you buy three times as many games at £15 as at £40? Would people you know who don’t buy games buy them at that price? You’ll have to judge that one yourselves.
The bottom line you’ll end up with is that pricing games at £40 is a Las Vegas way of doing business. The majority of games don’t and can’t pay for themselves, but the occasional big win bankrolls all the failures. It’s when those big hits don’t come along that the fundamental fragility of the business model is exposed, and it’s that, not piracy, that causes most of the financial hardships affecting game publishers.
JOLLY JACK TARS
The games industry’s official party line on piracy couldn’t be any clearer. Publicly, the industry believes that piracy costs the games business billions of pounds every year, does untold damage to software publishers, imperils the continued survival of the industry, is morally despicable and exposes vulnerable young children to paedophilia and heroin. (The last two assertions being taken directly from the website of ELSPA, the European Leisure Software Publishers Association. “The guy that did you a 'favour' by saving a few quid on a game today could tomorrow be selling heroin to your son or daughter”, warns the site in apocalyptic tones.)
However, in private the industry’s views are very different. A little over a year ago, Computer Trade Weekly, the games trade newspaper of which I’m occasionally Features Editor, conducted a poll of its readers, asking the question “Is piracy killing the games industry?” With CTW’s readers all being either games industry professionals or retailers, you might expect the result to be something of a foregone conclusion, but in fact just 18% of respondents voted “Yes” and 10% “Don’t know”, leaving a whopping 72% in the “No, piracy isn’t killing the games industry” camp.
Even more dramatically, industry-focussed newsstand games magazine Edge conducted, around the same time, its own detailed anonymous survey of industry personnel. The results were little short of staggering. In answer to the question “Have you used pirated software in the last three years?”, a massive 85% replied “Yes”. When then asked “Do you consider yourself a criminal for having done so?”, 74% said “No”. Only 23% agreed with the statement “Piracy is theft”, and indeed, only 32% could even be persuaded to answer “Yes” to the question ”Is downloading a game from the Internet without paying for it morally wrong?”.
Further questions in the survey included “Does piracy lead to job losses within the games industry?” (just 37% saying “Yes”), “Would the software industry be larger and accrue more revenue if piracy didn’t exist?” (53% “Yes”, leaving almost half of the industry unconvinced that piracy does any financial harm to the games business at all, and – most revealingly of all – “Is a modicum of software piracy of benefit to any gaming format, as the availibility of pirated software encourages uptake of hardware?”, a huge 75% of respondents within the games industry answered “Yes” (with another 13% unsure, leaving just 12% saying “No”)
The conclusions of the survey speak for themselves. Not only does the games industry (and respondents to the survey included some very senior figures) enthusiastically embrace pirate software itself (and see nothing wrong in doing so), but it doesn’t believe that piracy damages publishers and developers, and furthermore believes that the widespread availibility of pirate games is actually a benefit to a platform (and hence to the industry as a whole). Indeed, we’re looking at one of the most striking declarations of “Do as I say, not as I do” in the entire history of polemic.