Internet piracy... a term that evokes a great deal of emotions and reactions for all sorts of different people involved in the video game industry. It does not matter who you are: a consumer, a video game developer, publisher, or even a pirate – the issue of piracy will affect each and every one of these people in different ways, either directly or indirectly. The focus of this article is to share some of the knowledge I have gained through a recent management related assignment at my university. In the literature-based research, I made some shocking discoveries about the issue of internet piracy that I think most everyone who will read this will never have been able to imagine.

So what is internet piracy? Fortunately, every single book and author on the topic seems to agree (more or less) on what internet piracy is: the downloading or purchasing of illegal (non-official) copies of copyrighted material. This material can be video games, movies, music, and books. While the definition of internet piracy is clear-cut, where the controversy arises is in two specific places. Namely, why people pirate copyrighted material and what the impact is of said piracy.

Big companies such as Apple, Ubisoft, Microsoft, EA, Valve, etc, all have different views on how piracy affects them and influences consumers. Take Ubisoft for example, they cannot make up their mind about piracy. They say one thing, taking a certain path to combat piracy, then suddenly decide to drop that path for a few months - before going back more severely to the original route they decided to drop. It is almost as if the management in Ubisoft have a big board in their management boardroom, in which they toss a headless chicken and see where it stops. Their most recent statements and video games have been made with the viewpoint that piracy is completely bad and is fully the fault of “evil” consumers who want to get out of paying money. As Guillemot (CEO of Ubisoft) himself has stated, “On PC it's only around five to seven per cent of the players who pay for F2P, but normally on PC it's only about five to seven per cent who pay anyway, the rest is pirated”.

Reading the statement by Guillemot, it became clear that Ubisoft was getting this number from somewhere, so more research was needed on this. Eventually I managed to find the source myself and that is when bricks were shat. It turns out there is a big alliance between the largest software companies in the world called the BSA, whose mission statement is “BSA’s global mission is to promote a long-term legislative and legal environment in which the industry can prosper and to provide a unified voice for its members around the world.” On that same page they also have a bit about piracy and the first thing it says is “Software piracy negatively impacts software publishers, creates unfair competition for legitimate companies, damages brands through distribution of substandard products, and exposes customers to a range of IT risks including security breaches and data loss.”

So how does the BSA relate to Ubisoft then? The BSA is a non-profit alliance between 30 different global software companies including Apple, Microsoft, Adobe, AVG and many more well known names. This organisation is part of who was responsible for the American “SOPA” (Stop Online Piracy Act) legislation. In addition to this, the BSA also provides consulting services to software firms who seek it. It is here that Ubisoft got these piracy figures from, the way to identify it is within this booklet available here, which explains terms and formulas created by the BSA including something called the “piracy rate” this term also comes back in Guillemot’s speech.

Can it really be true then? With such big software firms behind the BSA, surely they have reliable statistics? It is well worth reading the full booklet from the BSA that explains the piracy rate and how they calculate it. However I will be kind enough to point out the key things from the booklet. Firstly, the piracy rate itself is based on a calculation which is based on another calculation which is loosely based on real sales figures, but even here there is a lot of silliness involved with coming to the actual sales figures. The formula makes a lot of big assumptions and can easily bend the actual figures, it is not worth going into too much detail here as to the obvious flaws in these formulas as they were probably created through years of supposed studies by PhD and Master certificated professors and researchers. Instead, it is far easier to take these numbers and apply them with factual knowledge.

According to the BSA booklet, Russia has a 70 to 75 percent Piracy Rate, the blame of this is placed on poor laws and control and it even says outright that countries like Russia are “home to rampant piracy”. Thus it would be impossible to sell any legal software in those regions. Yet Valve has brought Steam to Eastern Europe, including Russia and Gabe himself has stated  that “prior to entering the Russian market, we were told that Russia was a waste of time because everyone would pirate our products. Russia is now about to become our largest market in Europe.” So how is it that a country with 70 to 75 percent Piracy Rates is vastly becoming Steam’s number one market? If the BSA research were correct, then Steam would have been met with massive failure in the Russian market. Thus, the BSA research is invalid as a theory and statistical formula has to be applicable in all situations, unless clearly stated in the research itself that the theory cannot be applied to those specific situations along with a valid reason for this.

Giving BSA the benefit of the doubt, I used the full capabilities of my research skills to find any and all empirical research that would prove that the BSA is correct. However, I was completely unable to find any. Instead what I found was a long list of research performed on various parts of the entertainment industry regarding the usage of DRM and the impact it has on consumers. While sadly none of these can be linked directly here, I can provide the author’s names and the year of publication; these can then be put in Google scholar to find previews of the papers I found (ironically papers saying DRM is bad, have DRM in them). The first source that promotes a DRM free environment is Matt Mason (2008), his book “The Pirate’s Dilemma” can be downloaded for free through his site. In his book he looks at both sides of the piracy debate along with research performed in the area. He concludes that consumers are more likely to purchase software if it is DRM free and provided at the quality and price point consumers want. In addition to this book, I also found multiple research papers that examine the applications of DRM on music. One such paper is by Rajiv K Sinha, Fernando S Machado, and Collin Sellman (2010), for their paper they conducted research in America on 2000 college students to discover if DRM increases or decreases sales. The result of their research was that DRM was promoting piracy while decreasing sales. In this same research, they also discovered that the majority of the 2000 college students would purchase all their music if it were provided DRM free.

Another study by Brett Danaher, Samita Dhanasobhon, Michael D Smith and Rahul Telang (2010) found similar interesting facts in their research. For their research they examined if the piracy of NBC shows would go up or down due to the removal of NBC shows from the iTunes store. This happened after disagreements between Apple and NBC regarding the decision for iTunes to go DRM free. NBC felt that this would cause more piracy of their shows and thus decided it would be better to remove their shows completely from iTunes. For this study they collected data from Amazon and Mininova. From the data and research they performed, there was a noticeable decrease in the sales of NBC shows (even on Amazon) while the number of times their shows were downloaded through torrents skyrocketed. This links directly in to what Gabe Newell has stressed repeatedly, that piracy is not a cause but an effect. As Gabe Newell states “In general, we think there is a fundamental misconception about piracy. Piracy is almost always a service problem and not a pricing problem. For example, if a pirate offers a product anywhere in the world, 24 x 7, downloadable from the convenience of your personal computer, and the legal provider says the product is region-locked, will come to your country 3 months after the US release, and can only be purchased at a brick and mortar store, then the pirate's service is more valuable. Most DRM solutions diminish the value of the product by either directly restricting a customer’s use or by creating uncertainty.”

With this much empirical evidence and this many industry experts, one important question becomes clear: Why do companies still refuse to increase their sales and profits by reducing piracy through improved service quality and the removal of DRM in games? To this question I am afraid no one can provide an answer, people can only make large assumptions and theories as to why companies would want to hurt their own sales and decrease their profits. As there can be no possible reason for a company to take actions and important business decisions that lead to decreased revenue and profits, possibly even losses.

With that in mind, I will leave everyone with one last statement by EA “Piracy Can Help Us Sell More Games”.