As has been widely documented, online file-sharing technologies generated considerable turmoil in the music industry over the past decade. The mainstream peer-to-peer network Napster introduced an era of noncommercial music copyright infringements. Music copyright violations reached unprecedented heights as consumers illegally downloaded music through a wide array of decentralized peer-to-peer (P2P) file-sharing platforms and torrent Web sites. Compelled by a marked decline in traditional record sales, major music record labels had to downsize and restructure their business models in order to tap into alternative sources of revenue, including proceeds from concerts, advertising income, and so forth.4
While all of this came to pass, the video game developers ... found out that everything would be all right. Judging from the overall expansion of the video game industry, it appears almost as if the industry skipped the "Napster moment" of the Internet piracy and illegal file sharing. In 2013, the video game industry was on track to generate $93 billion in revenue (up from $78 billion in 2012) and the introduction of new home consoles is expected to drive up revenues further (estimated at $111 billion in 2015).6 It is clear that Internet piracy has not prevented the video game industry from prospering.
In light of these numbers, the efforts by video game trade groups to portray video game piracy as an existential threat are best dismissed as an example of the lobbying boy that cries wolf to Congress. In contrast to the exaggerated numbers suggested in most industry press reports, a recent academic study identified a mere 12.6 million unique peers of illegal copies across 200 countries in 20102011. Just about 20 countries accounted for 76.7% of the total traffic in illicit digital copies of computer games on BitTorrent.2
Instead of combating online piracy, segments of the video game industry are occupied with preventing video game resales and preempting secondhand video markets by way of one-time activation codes for new games and online gaming. What a luxury position the video game industry finds itself in today: working hard at preempting the Copyright Act's first sale doctrine that reserves the public the right to resell their lawfully purchased video games.
Although it would be remiss to overlook the negative effects of video game piracy in today's connected online world completely, it is clear that video developers face nothing remotely close to what the music record industry endured. The video game industry has thus far avoided the immense illegal copying that fundamentally disrupted the ecology of the investments in and distribution of content by the traditional major label record companies.
The absence of a piracy watershed moment for video games is remarkable.
Looking back at the history of the video game industry, the absence of a piracy watershed moment for video games is remarkable.
The video game market was one of the first content industries that faced the emerging trend (and threat) of decentralized, noncommercial piracy by hacking groups that used bulletin board servers (BBS) and smart modems in the late 1990s. As a sign of the times to come in a world of quasi-universal Internet access and drastically increased bandwidth, the outlook was bleak. The potential threat of widespread piracy was compounded further by the fact that computer game enthusiasts are early and enthusiastic adaptors of novel software applications. More so than the typical music collector, video game users are likely to embrace file-sharing technologies and also more apt at making the most of these technologies; including the circumvention of copy protection and piracy enforcement efforts. Also, video game users often form a relatively close-knit community that is accustomed to sharing information and programs across networks and user groups.
So why did the "Napster moment" never come to pass for video games? Why did video game piracy remain at bearable levels?
First, the move from personal computers to console platforms such as Sony PlayStation and Microsoft Xbox has significantly slowed down the negative effect of piracy on video game development. In order to run pirated games on consoles platforms, hardware modifications are necessary; most notably soldering modification chips inside the console. Even less intrusive ways of circumventing copy protection measures that do not involve hardware modifications, such as console jail breaking, require multiple steps and technical know-how in order to obtain root access to console operating systems. The risk of damaging the console and voiding its warranty has severely hampered the potential development of black markets in pirated console video games.
As the failure of the music industry's Secure Digital Music Initiative's watermark protection system illustrated so vividly,3 no copy-protecting technology is fail-safe: the very same technology that is used to create a lock can be applied to break that lock. The console video game experience suggests an amendment to this maxim: rather than creating a supposedly unbreakable lock, the gaming industry is best served by creating locks that necessitate keys that are inconvenient for consumers to turn.
Second, as a generation of console gamers grew up to become young professionals, game producers now benefit from having a group of avid gamers that are more likely to be deterred by the inconvenience and effort involved with evading copy protection measures. Contrary to most teenagers, young professionals are more concerned with time constraints than with the $60 or so price of the latest blockbuster video game. For these professionals, the availability of games for sale on cloud systems and online stores further tips the balance in favor of purchasing video games lawfully over the inconvenience and risk of pirated games that might not work properly or will not accommodate online gameplay.
Third, video game console platforms also benefit from a distinct selection effect: the average console user is less tech savvy and therefore also less likely to successfully circumvent copy protection measures than its PC counterpart. When PC users put together a "build" for gaming, the expertise and curiosity involved also enables them to track down, install, and run pirated versions of video games on their computer systems. As Cliff Bleszinski, a lead creator at Epic Games notes: "[T]he person who is savvy enough to want to have a good PC to upgrade their video card, is a person who is savvy enough to know BitTorrent to know all the elements so they can pirate software. Therefore, high-end video games are suffering very much on the PC."5
Fourth, over the past two decades, legislation and litigation have erected legal barriers that impede the development of markets in copy circumvention technologies and applications. Article 1201 of the Digital Millennium Copyright Act (1998) prohibits the manufacture, import, and public distribution of any technology (product, service, device, component, or part thereof) primarily designed or produced for the purpose of circumventing a technological measure that controls access to a copyrighted work. Likewise, a series of decisions by U.S. courts have rendered illegal technologies and business models based on copyright infringements. As a result, the shadow of copyright liability looms large over technology markets. Interviews with venture capitalists and investors indicate the fear of copyright infringement directs potential investors away from technologies and business models that involve entertainment and copyrighted content.1 So although hackers are always able to develop applications that circumvent copy protection measures, legal restrictions prevent entrepreneurs from marketing these technologies to the public.
Finally, software gaming communities are usually tight-knit and their members tend to favor secluded networks over public file-sharing sites. As a result, copyright law has always been more difficult to enforce in this segment of the piracy spectrum. But while secretive networks and closely held norms among video game pirates make it nearly impossible to effectively combat piracy, those very same norms and entry restrictions actually preclude video game piracy from expanding to Napster-like levels. Entry into the most pristine and lavish piracy forums and platforms is selective and well out of reach for most members of the general public. Noncommercial video game pirates have every incentive to keep the piracy landscape self-contained. Legal video game sales not only sustain the development and production of costly blockbuster video games, but also enable pirate communities to stay under the enforcement radar as they continue to share illegal versions of video games among themselves.
Although video game consoles were once considered severely outdated, and questioned as an acceptable alternative to gaming on more powerful personal computers, video game consoles have now proven themselves as a sustaining force for game development industries. Piracy inconvenience is a big part of the success story of video game consoles. That leaves the more sobering part of this story. Even if the processing power and flexibility of PCs offer superior platforms for the development of game technology, piracy opportunities are likely to inhibit the full development of gaming on these systems.
3. Greene, T.C. SDMI cracks revealed. The Register (Apr. 23, 2001); http://www.theregister.co.uk/2001/04/23/sdmi_cracks_revealed/.
4. Hiatt, B. and Serpick, E. The record industry's decline. Rolling Stone (June 19, 2007); http://msl1.mit.edu/furdlog/docs/2007-06-19_rollingstone_industry_decline.pdf.
5. Koroush G. PC game piracy examined. Tweakguides (Apr. 2012); http://www.tweakguides.com/Piracy_5.html.
The author is grateful to three anonymous referees, Zachary Eskridge, and Jacob True for comments and suggestions.
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