In part one of this series I discussed the view of piracy within the video game industry and briefly compared how piracy is viewed in other industries and by other intellectual property generating individuals. To continue that discussion I’m going to examine what steps are currently being taken by the industry to discourage piracy and how the effectiveness of these steps vary based on the individual reasons behind game piracy. Using that as a metric I’ll attempt to do some educated prognostication about the future of video game content management.

In order to effectively discuss the various approaches to piracy deterrence it must be understood that, to some degree, everyone in a pirate. Regardless of if you’re lending a physical game disc to a friend or running a bittorrent search site, you are a part of the video games black market. Even the video game resale market exacerbates the piracy situation. I’ll address these instances in more detail, but for our purposes let’s assume that based on the RIAA/MPAA definition of content piracy a faultless paragon of virtue does not exist anywhere in the digital rights management space. Unless we can demonstrate how a specific response to piracy could be improved, there is little use in placing specific blame on individuals or businesses with regard to the behaviors which enable piracy. Naturally this article isn’t meant to be a solution for piracy (I don’t believe a solution exists), but instead to serve as a thoughtful look ahead at the potential ways the market effects of piracy can (and have!) been mitigated.

Some anti-piracy propaganda has transcended rhetoric and become comedy

If everyone is a pirate, then the real question becomes, why do people pirate content? While the reasons are varied, they can be pretty succinctly split into economic and cultural factors. Using this type of split is also beneficial because cultural and economic descriptors can also be applied to general geographic locations, a factor which can play a large part in the mitigation process we’ll be discussing later. In general, the economic factors can also be described as overt factors. These are the reasons people usually give when asked why they pirate games. The cultural factors tend to be more covert in nature and while they may play as large a part in individual rationale for participating in game piracy, they are rarely stated outwardly.

Most of the overt, economic factors tend to deal with one of the most basic economic concepts, that of opportunity cost. Stated plainly, people choose not to pay for games or content because they don’t feel that it is worth their money, time, or other resources. An interesting twist on this is that due to strict anti-piracy measures taken by the industry (perhaps most notoriously the SecureROM system), players may choose to pirate games because the added inconvenience of navigating the anti-piracy measures put in place to play the game legitimately may actually deter legal use of the product. In this case, players who have legitimately purchased a game may pirate a hacked version of it to circumvent such measures.

Anti-piracy policies have also been the target of outright mockery.

Similarly, gamers may feel that the mechanisms for playing pirated software better meet their needs as a consumer, regardless of monetary cost. A player who mods a console to play copies of games directly from an internal or external storage device may do so because the ability to not have to switch discs or cartridges represents a major feature that was lacking in the original configuration of the hardware. Custom firmware on the PSP and the R4 chip for the Nintendo DS are examples of the types of modification which enable loading multiple titles onto a single device. Part of the problem with these modifications is that while they do allow increased portability of a game library, they lack other controls to prevent running unauthorized software and are often used as a mechanism for piracy based on monetary or other factors.

Culturally, piracy may stem from a desire to run unofficial software or games. The technical mechanisms put in place by the owners of the platforms traditionally presented barriers to unofficial games or applications. Policy based standards like the Nintendo Seal of Quality or the requirement of software development kits have always served as intentional measures to control quality and product perception in addition to being a way to control market segment and intellectual property use. This factor has historically applied more to the console market than to the PC games market, but with the convergence of the two (at least in terms of hardware and development tools), using complicated and expensive authorization methods to prevent the creation of homebrew software has become less effective. Combined with the standardization of media delivery via network connections or standardized storage devices, the technological resources required to run unsigned code have fallen drastically. Such unsigned code could be anything from simple games created by aspiring developers to fully fledged media centers designed to completely re-purpose technology.

The telltale switch below the P1 controller port identifies this Xbox as a hacked console.

Another reason why people pirate games is a lack of respect, either for the game maker, the industry as a whole, or the rules associated with use of content. This lack of respect could stem from a lack of understanding of the video game production industry or from a lack of respect for the restrictive structures explained above and function as an intentional act of subversion. Such an act could even be born out of a desire for investigation and discovery and not specifically out of malice. Some people see copy protection as a challenge to be bested and are less concerned about the piracy which results from their actions so much as the act of circumvention itself. Depending on cultural norms, notions of copyright protection and intellectual property ownership can also factor into the choice to pirate software. Combating cultural acceptance of piracy is significantly more difficult but can be accomplished via the implementation of diverse licensing rights management strategies.

The used game market also feeds into the cultural acceptance of piracy by obscuring the true market value of the product being produced. Because of the disproportionately high profit margins associated with the resale market in comparison with the cost of initially producing games, the value of the game as developed is decreased. In these terms, the value of the game for the developer, from the perspective of the consumer is the delta between the cost of the new game at retail and in cost in the resale market. While this doesn’t appear to be a logical situation, the implication is that the value to the developer is really the twenty to thirty dollars that make up the difference between used and new, and not the value of the initial purchase price moving through the supply chain associated with the initial development. This disparity in turn reduces the perceived damage on the part of the individual from pirating games. Unsurprisingly, many developers have little respect for the used game resale market, some even speaking out against it.

Regardless of the specifics, the important thing to consider is how to mitigate the risks content piracy pose to individual developers, as well as the industry in general. If we examine our initial opportunity cost statement, possible solutions present themselves. The obvious way to address the problem is to improve the opportunity cost of paying for video games. This can be done either by making the prospect of paying for game content more attractive than not paying for it or by increasing the penalties associated with not paying for games. Penalizing the pirate has been the route taken by the music industry and appears to have failed in terms of business solvency, as well as artist and consumer satisfaction.

The splash screen from a popular Dreamcast Bootloader

By contrast, the video game industry has taken a twofold approach when combating piracy through penalization. End users of pirated software are rarely penalized through legal channels, but instead distributors of pirated software (often the owners of servers or bittorrent sites) and makers of rights management circumvention devices are targeted. Legal moves against mod-chip manufactures have historically been the norm, but as software modification becomes more practical, lawsuits like the one recently filed against George Hotz (aka GeoHot) should become the de facto course of action for companies looking to control their intellectual property.

The other side of the penalization approach does target end users of pirated software. The interconnected nature of gaming platforms has meant that regardless of strength of network, game companies have the ability to police end users to various degrees and monitor the software that is run. By combining monitoring with online rights management, companies can blacklist accounts which participate in piracy or other unapproved behavior. This technique has been used by Microsoft on XBox Live and by Blizzard on Battle.Net. Similarly, Nintendo and Sony have both released updates to their consoles which disable installed homebrew programs and can potentially disable a system, leaving it “bricked.”

Emulation of classic games is a popular reason for jail-breaking many systems.

As serious as those penalties sound for the end user, any non-legal action by the company may be a moot point, depending on why protections are being circumvented. For instance, a user who has converted their XBox to a media center may not care about the ability to play games at all, let alone pirated games. Likewise, a gamer who has modded their PSP to use custom firmware to add specific functionality is unlikely to upgrade to a non-custom version of the firmware at any time. While this doesn’t stop these users from pirating games, it can limit the usefulness of pirated software when taken in consideration with other measures. In contrast to the punishment approach, one of the most promising piracy prevention mechanisms has been implemented by adding value to the network connectivity of the system.

Xbox Live is one of the best examples of the network-based added value approach to piracy deterrence on the console side of the market. Like most game networks, Xbox Live has the ability to verify the authenticity of the software the user is running and enact measures against those individuals who run unauthorized or pirated software. The difference between Xbox Live and its competition in the console market is that it also represents a well implemented social gaming network. The strength of this network goes beyond that offered by a simple application of Metcalfe’s Law to include additional perks associated with membership. Beyond raw matchmaking, the ability to view competitive friend data, access exclusive content, and extend the media center capabilities of the Xbox via interconnection agreements with NetFlix and ESPN have afforded the Xbox Live platform significant competitive advantage over its rivals.

Conversely, the Nintendo network implementation is startlingly weak. While applications such as NetFlix exist, the lack of intuitive, real time friend interaction damages the relative network power. Because the Nintendo network lacks the same level of integrated chat and matchmaking options as a part of the network, many of these features are left to developers to implement, resulting in a wide range of results across games. The additional requirements of Console and Friend Codes make connecting with acquaintances cumbersome and often prohibitive. The stated reasons behind strict network controls like these have been to make the console more friendly to young gamers. While marketing their console to a younger audience has worked well for Nintendo so far in terms of sales, it hasn’t done much to engender them with the core of the game market or with third party developers. This decision has also limited the usefulness of the network, making console upgrades less important and subsequently improving the utility of jailbreaking, homebrew, and piracy on the Wii.

The homebrew channel enables many features users feel are lacking from the default Wii Software

Sony’s Playstation Network falls somewhere between the Nintendo and Microsoft offerings. While their network lags far behind Xbox Live in terms of gamer utility, Sony has tried to take steps in the right direction with projects like Playstation Home. However, the combination of a less robust market share for console games and the absence of an exclusive online “killer app” has made the platform less attractive by comparison than the Xbox. Personally, when given a choice between a game on the PS3 or the Xbox 360 I base my judgement of which to purchase on one factor: online play. If a game lacks a significant online component I will purchase it on the PS3 for the marginally more impressive hardware and graphics. I purchase any game with a network or online component on the Xbox in order to take advantage of the more robust network.

On the PC there are several examples of the use of network value and game design to curtail piracy. These all function on essentially the same principals as the console market, but are slightly more fragmented due to the nature of the PC/Mac market. Steam, Battle.Net, and Facebook all fall under these categories and each addresses slightly different market segments. Facebook started as a robust social network and has been adding a game component for the past several years. While still nascent in nature and almost wholly dedicated to click-through type social games, Facebook has perhaps the most potential to be a major player in content control moving forward but at this time does not have a robust payment or content management model in place.

Blizzard’s recently re-launched Battle.Net system established a digital rights management system and common social platform between their massively successful Starcraft, Diablo, and Warcraft franchises. From a sales and rights management perspective, Battle.Net binds content purchases to individual accounts, eliminating piracy outright. However, in order to get buy-in from the community, it was crucial that this system also add value to the end user of the software. Battle.Net provides this benefit to the gamer by improving communication between games and a more centralized social network specific to Blizzard titles. The high brand loyalty to Blizzard titles and importance of community within individual Blizzard games means that even though Battle.Net is limited in its universal appeal, the addition of unified social networking features for all Blizzard games adds enough value to prevent disenfranchisement of the end users.

Steam, the other main PC gaming network, covers a wide range of games and developers. It functions as both a game distribution hub and the central network for all Valve titles. With relatively low barriers to entry for developers and a significant, diverse market presence, Steam demonstrates several differences in approach between itself and the Blizzard model. Because Steam’s primary focus is to function as a game delivery and content management system for the PC as a platform (rather than just for a single developer), the potential network size is not as limited. This brings significant value to the network itself. Continual cross promotion between games and a near constant string of sales and specials have lured players to the Steam platform, establishing Valve as one of the most powerful forces in the video game market, despite the relatively small size of the company.

Never underestimate the power of a hat-based contest...

Perhaps the most telling factor in the ability of the Steam system to minimize piracy while maximizing player engagement arises when it is viewed in relation to the console games market. Recently Valve entered into a partnership with Sony to deliver exclusive content and game environments to the PS3, designed to coincide with the release of Portal 2. While Portal 2 will also be available on the Xbox, the PS3 version not only includes the potential to play with PC gamers, but includes a free copy of the PC version of the game and faster access to game updates and user created content. This move, in addition to the inclusion of “Big Screen” mode in a recent Steam update allows us to conjecture that Valve is definitely looking for an inroads to the living room-based, console game marketplace. The potential to combine the Steam network with the Playstation hardware (and nascent network) could provide Valve with a valuable expansion to its business and Sony with a powerful network and effective digital rights management tools, which have thus far been the primary hindrance in their ability to compete effectively with Microsoft. Given this, it wouldn’t surprise me if a Steam client for PS3 is announced within the next year.

It is apparent that regardless of the platform, one of the most effective ways to combat piracy is to increase the value to the customer of the legally obtained product. This can be done via strength of network, but also through codes which unlock online play, exclusive downloadable content, or other incentives which also help to curtail the effect of the game resale market. Technical mechanisms are not the only ways to combat piracy and raise the value of game content. Some studios leverage their named designers to combat piracy by targeting the cultural factors in game piracy. Attaching a recognized persona to a project and selling it as the work of a specific person diminishes the victimless nature of much digital content piracy. Depending on the execution of advertising campaigns and the charisma of individual developers, this approach can be very effective, especially for smaller studios.

The R4: Bane of Nintendo's existence

The buzz surrounding Scrolls is certainly indicative of this sort of mechanism at play. While I will be the first to tell you that Minecraft scratches my Obsessive Compulsive itch better than just about any other game, it is far more sandbox than actual game. The political capital built from its reception and beta sales by Notch and the team at Mojang has been significant enough that their new game Scrolls has already generated notable excitement despite the studio having yet to ship a completed product. This speaks to Notch’s understanding of digital rights management and piracy prevention. His assertion that “piracy isn’t theft” is interesting because it re-frames the debate to the benefit of the developer, but also highlights the importance of tying digital content to individual consumers.

Viewing a pirated game as a potential sale, through online rights management tools is probably the future of the video game market. Instant access to content you have licensed seems to be one of the best solutions to the problem of piracy. The challenge then becomes presenting the most attractive network or platform to capture not just the initial purpose, but to continue the engagement of the player, either through content addition (like wearable hats in TF2) or universal access to your games (like Zynga’s cross-platform support of Words With Friends). The effectiveness of this approach is seen in the nature of anti-piracy actions already. Companies with strong rights management networks and significant gamer buy-in (i.e., Xbox Live, Steam, Battle.Net) are spending less time defending their content against piracy, despite the fact that piracy of these products certainly exists. Companies with weak networks and rights management solutions, such as Sony and Nintendo, are constantly battling piracy enablers. As gaming enters the world of cellphones and tablets, the strength of a network is going to become the most important asset a company can have. Recognizing this fact is the key to understanding how piracy will be controlled as the industry moves forward.