I can’t tell you what piracy is doing, but it doesn’t seem to be killing the industry

Capture of the Pirate, Blackbeard, 1718 depicting the battle between Blackbeard the Pirate and Lieutenant Maynard in Ocracoke Bay (cropped)

The fact is that despite the movie and games industries bemoaning rampant and uncontrolled piracy of their products, both industries are burgeoning. The movie industry is “suffering” under record revenues, and the games industry revenues have grown more than 300% in the last decade (to more than double that of the movie industry).

And yes, rampant and uncontrolled piracy is happening – yet the industry is getting more money over the counter than ever before. It’s difficult, then, for the industries to show how much they’re being hurt. Would their record revenues be higher? By how much? Nobody knows the answer, but thanks to France, we can take a guess.

You see, back in 2010, France introduced stiff anti-piracy legislation that (after a bit of a rocky start in its early months) reduced online piracy by a whopping 66%. How, you might ask, did this affect sales?

It didn’t. Publishers’ sales curves continued their trends, unaffected.

One sector that is hurting generally, though, would be the big games publishers who develop for consoles. While there’s certainly a lot of PC games piracy, this is eclipsed by the levels of piracy for console games, and exacerbated by the high costs of console games development.

While situations were reversed for many years, PC games sales are taking an increasingly large share of total games sales, and are in the majority, with projections that PC games sales will constitute a full three-quarters (or more) of total games sales in 2013.

Faced with the higher costs of developing games for consoles, the higher levels of piracy for console titles, and the decreasing market-share of console titles in the games market, what do you think the strategy is for big publishers? That’s right! More console titles, and fewer PC titles!

Wait… what?

Seriously. I know it makes no sense, but the big games publishers don’t seem to make decisions based on real evidence. They never seem to have. It isn’t their style.

As an aside, more women over 20 play games than boys under 20. The publishers know this – they pay for the research to be done every year, year after year. Just how much attention does that key female demographic get? About 2% of total titles, and no marketing at all to them. That’s the sort of studied business-sense you get from a major games-publisher.

Much of the total games industry revenues, therefore, are starting to come from smaller publishers. The “B-list” publishers, and the “non-blockbuster” PC games.

That’s another sector that’s hurting for profits right now. The publishers that are pursuing the “blockbuster” strategy. That’s been in the works for a few years now, and hasn’t shown any signs of actually panning out. Blockbuster (or AAA) titles essentially represent increased risk. More money poured in on a roll of the dice. That can turn fat revenues into fat losses with a single misstep, with a shortage of B-titles to pay the bills.

“You can’t compete with free”

That’s what you hear said, over and over, but the fact is that every content publisher for the last century has had to “compete with free” and by-and-large have been successful.

Last year alone, we gave the games industry $70 billion US Dollars, despite the relatively free availability of most of their products. Next year, the industry projects new record revenues.

I’m not downplaying piracy here. If you’re a content-creator, it really stings to see your work copied and made available in ways that don’t provide you with royalty payments or income. It hurts, and you don’t want it to happen. It just does, and we can’t stop it. We’ve tried everything technologically feasible to-date, and it hasn’t worked. In years to come, maybe we’ll eventually come up with something that does work.

Will that improve sales? I’m not so sure.

What is clear is that there’s a huge market there that is paying, and one which could be served better and become even more profitable, if only the big publishers start making better business decisions about their costs, their platform targets and their market demographics.

There’s more than 70 billion reasons to reassess publishing and marketing strategies.

12 thoughts on “I can’t tell you what piracy is doing, but it doesn’t seem to be killing the industry”

  1. I used to hang out with a lot of “pirates” – here’s how most of the conversations went:

    “Dood! I downloaded that cool ZZZZZ game man!”
    “So how is it?”
    “I dunno, I’m downloading some stuffs & haven’t had time to play it.”
    “What about those other titles you were telling me about last week?”
    “Haven’t gotten to them yet.”

    Srsly, most of the “pirates” I ran into were just grabbing stuff for the sake of having it, like pinball rewards. Certainly some of the stuff they had, like Photoshop or Premiere, they didn’t even know how to use; a lot of the questions were “what is this ZZZZ thing I just downloaded?” Or they’d play a game for an hour, decide they didn’t like it and pack it away in their little digital treasure chests. Gotta collect ’em all.

    I remember downloading scores of stuff from TuCows and a hundred other sites. Most games released a shareware/1-level trial game so you could see if it caught your interest. I bought many games based on this type of trialware. That system, which had been in use a long time, got eliminated. I, for one, didn’t enjoy plunking down $40 or more on a title that was half-baked, riddled with bugs and badly-scripted.

    A lot of the “piracy” figures I see could probably be triaged with this in mind; a lot of those “pirate downloads” are just feathers in a Robin Hood’s cap. It’s hardly lost “income”; most of the people copying that stuff play it minimally or would never have bought it in the first place.

  2. Any idea why piracy is bigger with console games? It is not just ’cause they’re putting out more games for consoles, right?

    Btw, do you got any numbers comparing the level of piracy of games that come with DRM and other piracy-countermeasures versus games that just count on the good faith of the people buying original copies?

    1. Gog.com has some good numbers on that. The Witcher 2 was sold both as a completely DRM-free digital download from Gog.com or as a DRM-enabled digital download through other services – both versions for the same price. The DRM-protected version was cracked and widely pirated, whereas the DRM-free version saw little piracy at all.

      1. Does that also explains why console games are more pirated, ’cause consoles have all sorts of DRM and such?

        1. Also (I believe) because console titles tend to be more costly, and usually require physical media. The convenience of downloading can’t be overlooked.

          1. So does the presence of DRM and related “features” influence how much a game is pirated?

  3. “While there’s certainly a lot of PC games piracy, this is eclipsed by the levels of piracy for console games, and exacerbated by the high costs of console games development.”

    “Seriously. I know it makes no sense, but the big games publishers don’t seem to make decisions based on real evidence. They never seem to have. It isn’t their style.”

    Really? Every year TorrentFreak.com publishes a list of most pirated games by platform. Every year PC piracy eclipses console piracy many many many times more.

    For 2011, estimated downloads and release dates of top pirated games:

    PC
    1 Crysis 2 (3,920,000) (Mar. 2011)
    2 Call of Duty: Modern Warfare 3 (3,650,000) (Nov. 2011)
    3 Battlefield 3 (3,510,000) (Oct. 2011)
    4 FIFA 12 (3,390,000) (Sept. 2011)
    5 Portal 2 (3,240,000) (Apr. 2011)

    Wii
    1 Super Mario Galaxy 2 (1,280,000) (May. 2010)
    2 Mario Sports Mix (1,090,000) (Feb. 2011)
    3 Xenoblade Chronicles (950,000) (Aug. 2011 EU)
    4 Lego Pirates of the Caribbean (870,000) (May. 2011)
    5 FIFA 12 (860,000) (Sept. 2011)

    360
    1 Gears of War 3 (890,000) (Sep. 2011)
    2 Call of Duty: Modern Warfare 3 (830,000) (Nov. 2011)
    3 Battlefield 3 (760,000) (Oct. 2011)
    4 Forza Motorsport 4 (720,000) (Oct. 2011)
    5 Kinect Sports: Season Two (690,000) (Oct. 2011)

    http://torrentfreak.com/top-10-most-pirated-games-of-2011-111230/

    Not sure if there’s better numbers to go on out there but TorrentFreak seems to aggregate from top torrent sites.

    Particularly compare Modern Warfare 3 on 360’s piracy vs. its’ PC versions numbers, because they both actually released the same date and this franchise usually tops the charts every year it releases with the exact same disproportionate four times the amount of piracy on PC.

    Now given that piracy, what were Activision’s net revenue percentages between all platforms/revenue sources?

    Activision-Blizzard (year ended December)
    ——-
    Online subscriptions 29%
    PC 8%
    Playstation 3 20%
    Xbox 360 24%
    Wii 7%
    Handheld 3%
    Distribution 9%

    Still make most of their money from WoW subs, but 360 was reponsible for 24% of their revenue vs. 8% on PC.

    The story is the same for other big publishers that tend to top sales and piracy lists, here’s EA since it’s on the chart too and Ubisoft since it’s mentioned in the other article:

    EA (year ended mid-May)
    ——-
    Xbox 360 32%
    Playstation 3 28%
    Wii 3%
    Mobile 7%
    Handhelds 2%
    PC 25%
    Other 3%

    Ubisoft (year ended mid-May)
    ——-
    Xbox 360 29%
    Playstation 3 22%
    Wii 33%
    Handhelds 6%
    PC 7%
    Other 3%

    Same story of more success on consoles, even for EA in a year of Origin and TOR launching and the always on the PC sales chart Sims.

    I imagine other big publishers numbers look very similar, so I don’t think it should be surprising they favor consoles when for any given cross-platform title, piracy is many times higher and sales are many times lower on PC vs. consoles.

  4. I always hear about video games not targeting women and how bad it is that games usually target young men and I think that misses the mark in a lot of ways.

    First of all, what would games look like if they did target women? Lets look at the difference between ‘male’ and ‘female’ games. I know, at best I am being sexist and at worst I am being closed minded for thinking about gender in binaries. Just let it slide and humor me for a minute.

    When we were kids we were socialized to like different kinds of games. Boys are supposed to enjoy zero sum games that involve running and full contact and laughing off injuries and stupid things like that. Girls… I don’t know what games they were supposed to like, to be honest. They played with beads and cards and braiding stuff and played cats cradle and talked a lot and spent a lot of time watching us running around having fun, but I didn’t really see them playing sports much. They danced about with hula hoops or something sometimes. I don’t know, at the time I thought girls were weird so I ignored them. I didn’t want cooties.

    I could be totally wrong about what the girls were doing, and if so just let me know but this is where my impression of the difference between ‘female’ and ‘male’ games comes from.

    ‘Female’ games are casual games, right? To be more precise, playing something like cats cradle is more like playing casual games backed with a social network because it is abstract and you play it with a group of friends, or at least one friend. Casual games don’t resemble running around fighting over a ball, so they can’t be ‘male’ games.

    The thing is, casual games are out there and they are doing fine. Companies like Zynga are making a lot of money. Casual games are so much fun that most ‘AAA blockbuster’ games have a casual game element in them. The casual game element is not usually the main focus of the game, but it’s usually in there. Casual games don’t usually have much of a traditional game element in them though, so it doesn’t really work both directions.

    Casual games are not just for women. They are for older people as well. My game design professor used to show us numbers showing that the most hard core gamers in the world are casual gamers over 60. They are putting more hours in to their casual games than young men put into their AAA games. Granted, this professor built his career on casual games so his perspective might be off a bit but his numbers were solid.

    What you are missing when you say that game companies should make more ‘female’ games is that ‘AAA blockbuster’ games is a genre that is necessarily targeted to the audience of that genre. Saying that they should target women more would be like asking Asimov or Jules Verne to write romance novels instead of sci-fi because the market for romance novels is bigger. We have a romance novel section and a sci fi section at a book store, so why can’t we have a AAA section and a casual games section at a game shop? I mean, aside from the fact that brick and mortar game shops are archaic.

    The AAA title game makers would like you to think that they are the be all and end all of video games, but that is simply not true. AAA games are a niche. They are not supposed to be mainstream. Mainstream games don’t require expensive specialized gaming hardware or big downloads and installations. Mainstream games run on browsers and smart phones and connect to major social networks. Most people don’t have a clue about what really is mainstream and what is niche.

    In other words: Mainstream games do target women more than they target young men.

    AAA game makers just blinded you to that fact with their slick marketing that makes them look like the biggest player in the room when they are actually the smallest player. AAA game makers are a little dog with a loud bark while casual game makers are the huge silent elephants in the room that everybody is ignoring.

    Where will the revenue growth in the gaming sector is going to be in the future? It’s not on the console. Even when the AAA devs figure out how to use DRM properly, that is not going to grow as well as more pervasive social games that can be played for years without the devs adding new content. The growth is going to be from games like farmville selling farmville credits and other casual game buffs at 7-11 convenience stores. AAA style games will still exist but we are in the slow decline of their utility for making revenue and entertaining people. CMU’s Jesse Schell did a great presentation on this idea, which he called the gamepocalypse. It’s long but it’s a great talk:

    http://fora.tv/2010/07/27/Jesse_Schell_Visions_of_the_Gamepocalypse

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