PC Gaming Piracy = $13.66 Billion dollars?

I recently read an interview IGN had with Cevat Yerli, CEO of Crytek, the creators of Crysis (Link).  Interestingly enough, within a few minutes into the interview, the topic of piracy appeared.  The stats given by Cevat Yerli was for every 1 PC Game sold, 15-20 copies of the same game is pirated.  This is an ugly statistic.  To put it in a bit more perspective, if there was absolutely no piracy, how much money would the PC Gaming market have been worth in 2007?

According to NPD, the Retail PC Gaming market in 2007 for the US was worth approximately $910.7 Million, a little under a billion (Link).  If we assume Cevat Yerli is correct about the 1:15 ratio of sales:priated games, then approximately $13.66 BILLION ($910.7 Million * 15) worth of PC games were pirated in the US alone.  That is a pretty remarkable figure.  Of course, this is the way the RIAA and MPAA performs their music and movie pirating analysis and eveyone knows HOW ACCURATE or even remotely accurate their numbers are.

In actuality, this number is very inflated and I would be surprised if the $13.66 BILLION can actually be translated to even $1 Billion worth of sales.  Here are a number of reasons why:

1.  The price of a pirated game is about $0-$5.  The price of a new PC Game on retail shelves is $50, and an older catalog PC Game usually runs on average $20.  The $13.66 Billion figure relating to piracy loss was calculated with the assumption all users who pirated the game would have purchased the same game if a pirated copy was not available.  I would disagree, the basic law of supply and demand does not support this assumption.  As price goes up for a good, demand falls.  Therefore, if there was no “pirated” AKA free copy available, then most “Pirates” would not have purchased the game in the first place.

2.  Another key assumption is PC games that have been pirated are new games or games freely available on the retail market.  I would disagree, most older PC Games are just not sold anymore within standard retail channels.  If the game was not incredibly popular (i.e Starcraft), only online locations such as ebay or craigslist would have a copy, and even then its not a guarantee.  Yes, purchasing from ebay and craigslists are options, but even those are filled with obstacles.  Can the good be trusted?  Would I received the product in working order?  Has the CD-Key been shared with the world, thereby preventing me from enjoying the game?  These are common questions most customers will ask.  In almost all cases, the pirated version of an old game is the easiest one to obtain and to test without having to put significant time, effort, and risk to searching for an older game.  One of the reasons PC Games are “Pirated” is due to the lack of avaliablity within the retail channels.  These games should not be counted as a pirated game, as the no sale would have occured in the first place since there was no product to purchase.

3.  When a Game is installed, some general/specific information about the computer where it is installed on, is communicated back to the “Mothership” aka home server.  Everytime the Game is run, it phones home for verification.  If verification fails, the game fails to load.  In the event a game is resold, traded or given away as a gift (after being played) and installed on a new machine, the information communicated back to the Mothership changes.  In some cases, the game can still be played.  In other cases, protection kicks in and disables the copy.  Even though the method of obtaining the game was completely legitimate, the game was prevented from being run because the specifications of the newer machine did not match the specifications on file with the home server.  These instances can be any scenario where a change in hardware occured, such as the game installed on a new machine or the machine received an upgrade (i.e. new graphics card) and as such resulted in new information being sent to the home server.

I am fairly certain the majority of such issues are resolved quickly and most customers are able to freely play their game after contacting customer service.  But is this how most publisher gather statistics on pirated games?  Based on installation attempts for different machines?  The validity of the 1:15 ratio is what I am calling into question.  Publishers and other companies within the industry have an incentive to inflat the real numbers surrounding the problem to help further cause in bring it down.  Most numbers reported should be taken with a grain of salt.

4.  The pirated PC Game is a superior product in terms of value.  This is a fact.  A pirated game is free and can be installed on any machine without restrictions.  It can be backed up multiple times and stored for future use.  In addition, it respects the computer as a personal device and as such does not send out “information” to the Mothership.  A fully legimated copy purchased in stores can only be installed on 2-5 computers, cannot be backed up and stored for future uses, and does not respect the privacy of the personal machine.  For all of those additional restrictions, a customer is being asked to pay $50.  Anyone who is given a choice AND has the funds to purchase a game will still pick the pirated copy over the legitmate one.  If the customer does not have the funds … refer to reason #1.

Those are just but a few of the reasons why PC Game piracy is NOT a $13.66 Billion.  There are of course lots of additional factors, i.e. without piracy, would the game have even sold copies to begin with, since piracy is a form of marketing, etc.  I would estimate the total loss of sales to the industry to be about $500 Million – $1 Billion.  Even if my estimate is underestimates the impact, I believe it is a much more reasonable estimate thnn the $13.66 Billion dollars that was implied.

On a side note, I agree PC Piracy is a problem, since for aspiring developers it literally breaks their ability to continue as independent game makers.  But fighting against something that is driven by market forces is never a good strategy.  Rather to win, a new value proposition has to be introduced, something pirate games cannot copy, but this will be a post for another day.