Why piracy isn’t hurting gaming industry… sort of

Whether a person gets pirate copies of games or not is somewhat irrelevant when it comes to sales. Copying game as an action does not affect sales. What is relevant whether this person buys games or not. Not buying (whether he pirates games or not) means he is voting that this industry should not get money.

If he buy games, then he is voting that this industry (or let’s say certain game development company) should get money.

Introduction
I’ve been honing up my economics knowledge, and I must say that I’m starting to lean into accepting that piracy as is, is not necessarily hurting our gaming industry. In fact, I feel that it can be proven quite easily that a “pirating games” as an action alone does not hurt the industry.

Here’s example. If there’s a person who is not spending any money in games, then whether he pirates games is quite irrelevant. Whether he pirates or not, then our Trout Slap Studios example gaming studio is not getting any money from the pirate.

But Trout Slap Studios is not getting money from many other people, who don’t play games.

The direct effect of piracy as such, does not mean that we lose sales. The same way as my dad is not playing nor buying any games, the same way random pirate is not buying any games. If pirating games as such means sales are lost, then equally well can be said that thanks to my dad who buys no games, games industry is losing sales.

Think this for a moment.

The mere act of piracy is equivalent for not pirating and not buying the game
If we whine that piracy means lost sales, then we can equally say that the fact that some random guy at the streets is not buying our game means we are losing sales. And since piracy here is not relevant – only “not buying” is relevant factor, we can conclude that piracy can be removed from the equation and simply state that “not buying” is the important factor here.

Let’s say there’s some random student living in some poor country where he barely had money to buy the computer and eats only cheap tuna fish. He has no money to luxury products such as games, so he pirates. He was putting 0 dollars in the system, and now pirates, still putting 0 dollars. Whether he pirates or not, is irrelevant for the industry: since he has 0 dollars to give to the gaming industry, gaming industry cannot benefit from him.

There are cases where piracy might cause the situation where sales are affected. We will be getting there soon. For now, just let’s try get our minds around the fact that “pirating a game” is not automatically a lost sale.

This is when piracy is not hurting anyone:
Let’s look at the next example: let’s suppose there’s a person who has kept buying NHL games. He bought all games from ’94 to ’12… spending 50 dollars (just conveniently picked sum) each year. This means the following is happening:

  • Gaming industry as a whole is getting 50 dollars in the system each year, and the makers of NHL game benefit the 50 dollars (I leave any other middleman and taxes and transactions and whatnot cost away to simplify the example).

He has no money left to other games, so here’s what can happen:

  1. He pirates all other soccer games
  2. He doesn’t pirate any other games

If he chooses first option, that means soccer games maker isn’t receiving any more money (since the chap spent his 50 dollar budget to NHL game).

If he chooses the second option, that means soccer game maker isn’t receiving any more money.

This suggests that act of piracy alone doesn’t necessarily hurt gaming industry, if we accept that there is certain budget that the pirate is using for gaming. His budget is 50 dollars, which he gives to certain games – and that’s it. Whether he pirates or not doesn’t have meaning to the profit of other gaming companies.

In this case, piracy might hurt the industry:
Only the following types of piracy can hurt gaming industry:

  • The guy who was previously giving money to gaming industry stops giving any money to the gaming industry. He stops spending 50 dollars to gaming industry. Since everybody is pirating games, he concludes, he too can pirate everything. Now the guy doesn’t pay for the next years NHL game, but pirates it.
  • A guy who was just about to click “order” heard his buddy saying that he can get the game free by pirating it, cancels the order. He was about to buy the new NHL game and bring 50 dollars to the industry now decides not to put any money in the industry. This means possibility of piracy has made this person to decide not to give money. If there wouldn’t have been possibility of piracy, then this chap would have purchased the game.

The direct consequence of this is the following:

  • Makers of the NHL game will not receive 50 dollars from either chap – so they are getting hurt (when you compare to the situation where this chap was always spending 50 dollars, or to the chap who was about to click “order”)
  • Soccer game devs don’t get that money either, same situation as the previous year.

So… does it hurt the industry or not?
Now, whether piracy hurts our industry (or at least the developers) boils down to this question:

  • Did the possibility of getting the product free mean that the guy is decreasing his gaming budget?

There’s two potential answers to this:

  • If the guy who was spending 50 dollars per year thinks he’ll just buys shoes instead, and that he will from now on get all games as a pirate… then yes, in this case 50 dollars is leaving the gaming industry. Thus, it’s the loss for the gaming industry. It means gaming industry will have less money.
  • If on the other hand the guy who was spending 50 dollars per year thinks he keeps spending that 50 amount and pirates other games then no sales are lost.

I repeat this bit differently: we all have some limit on how much money we spend to games. For some people it might be 10 dollars per year. For others, it’s 400 dollars. Or 0 dollars.

If we keep spending that money – as much as we can (no excuses here) – then piracy is not hurting our buying habits. If we keep buying then it’s quite irrelevant whether we pirate some other games too or not. Since we have used our budget, we have put the money we can to gaming industry.

Act of piracy – aka downloading game for free – alone is not hurting anybody.

Of course there’s the “budget” that is tricky.

Some might use this reasoning to conclude that they “wouldn’t pay anything anyway” and keep on pirating, and I would suspect that people who say so don’t necessarily really mean this. They just use it as an excuse not to pay for games, so that they can get other stuff…. but if games would be impossible to pirate, would this force them to buy game? If the answer is “yes”, then piracy is hurting sales. If answer is really “no”, then piracy isn’t hurting sales.

Some pirates say that “they don’t buy because it’s not convenient to get the movie, so they pirate it to rebel”. In reality, these pirates could very well pirate the movie, and buy the movie too. This way they would support the makers of the movie AND would get the movie conveniently. I don’t know if this happens, but I do get the impression that usually pirates who claim the “they would support but…” don’t really do so.

The conclusion is this:

If piracy affects “where we put our money”, then it affects industry too
Only if piracy means that the person who consumes games is putting less money in to the gaming industry (and decides to do something else with the money) because he figures out that he can get all stuff free, in that case piracy hurts the industry…

…for short term.

I repeat: only if piracy means that our mr. pirate does not bring any money to gaming industry (money he would have otherwise put there), then industry gets hurt.

Short term impact is that developers of games software (and of course many other groups that are connected with the system) don’t get the money. If everybody is pirating games, and nobody is giving money to developers – this means that developers are in trouble.

Long term effects of piracy?
Long-term effect of piracy will be interesting to see. The raise of different pricing systems like free 2 play or gaming bundles are here to stay.

Gaming industry has about 2 choises here. One option is to stop making games. Let’s close shoppe and start all making something else if nobody is interested in paying for games. We can all start making shoes and hope that people buy them. That sure would stop gaming piracy, as there would be no games to pirate.

Or alternatively – if developers and publishers are willing to take the challenge – the industry must adjust. The industry must find ways to produce fun to people, and somehow get necessary money to survive, and to develop more and better game.

It’s similar when somebody has made an invention that benefits the mankind. If the founder is given money from all the people who are allowed to use the invention, then that will be bloody harsh for the world and the inventor benefits. But if the inventor let’s everybody else use his technology for free, we all (except the inventor who got no money) will be happier. The inventor might get pissed off and stop inventing (tough for mankind)… or he could try figure out if he could get money in some other ways, so that his masterbrain could be focussed on new inventions. (Of course economic cycle will be quite complex to draw, but at least the short term effect is pretty much as described – I’m not trying to be academically accurate here to make a point)

With digital delivery, it is possible to share games to wider audience than ever in the history of gaming. The possibility of being able to connect with billions of human beings who can enjoy fun games sounds great.

I think developers and publishers need to take piracy as a challenge, and focus on figuring out what people are willing to pay for. If that means more gaming bundles then so be it. In societies, I feel people must be given right to vote with their wallet.

I do think that those pirates who are reading this, read the text fully. If you pirates like some games, then purchasing those games means you are contributing to the industry and helping developers meanwhile the developers try figure out new ways to adjust.

I still like the idea of being able to show my influence by purchasing games. I don’t mind if people pirate games, but I would hope that these people would also consider buying some games. Since players have the ultimate power at their hands about the future – after all, we all can decide where we put our money (well, at least as long as government doesn’t mess the developing market by supporting the industry in different ways…) – this means we also have the responsibility.

Piracy doesn’t necessarily hurt sales, but it isn’t helping either
If we want more fun new gaming experiences, then we try show our support to those developers. One way or another, game developers must get their money if we want to see more games from them.

Whether you get pirate copies of games or not is somewhat irrelevant.

Whether you buy games is relevant. Not buying (whether you pirate games or not) means you are voting that this industry should not get money.

If you buy games, then you are voting that this industry (or certain developers) should get money.

If you enjoy games and want and can support the developers, then do so.

12 thoughts on “Why piracy isn’t hurting gaming industry… sort of

  1. Grulnork

    This is also how I think about piracy, but I want to add some things.

    1. Freedom to the consumer

    Piracy gives players the possibility to try out a game without restriction, before purchasing it. Everyone can remember games they bought and turned out to be bad. Often the game got overhyped/advertised or you had put your trust in a biased review.

    Or sometimes you just think you like a game but it turns out you do not. Without piracy I may have bought a game and be very unhappy with my purchase and restricting me to buy other games (I would have liked), because my budget is limited (assuming a world without piracy). It could even result in buying less games, because this can make you very sceptical about future purchases.

    And demos are not a replacement of piracy in this case either. Demo’s are what the publisher wants you to see, another marketing tool. The rest of the game may as well be very bad. Just like trailers are not a good representation of a film.

    This may not influence the total revenue of the industry, but it sure will improve quality and punish bad business practises.

    It is now up to the gaming industry to find a business model that includes this benefit. F2P games do this to a certain extend, but it is often by restricting content and frustrating players with time sinks.

    If it was for me we would move to a donation after consumption system (basically what sensible pirates do already). The problem with that is that other parts of our economy do not work that way and that makes it tempting to spend your money elsewhere. Ideal would be if the majority of the economy would work that way, or at least the entertainment industry as a whole.

    2. Possible benefits for developers

    What I miss most in this article is that piracy can be very beneficial to game developers and content creators in general. It is free advertising. It happens often enough that I tried out a game I would otherwise not have bought and halfway the game I am so hooked to it that I decide to purchase the game and support the developer.

    It is also very well possible that people who usually don’t buy games, get introduced to them by piracy and then become (new) customers.

    The question of course is if this compensates for the possible loss of purchases, because of players decreasing there gaming budget to buy other products.

    3. Partial piracy protection does hurt the industry

    What happens a lot now is that some part of the industry protects better against piracy. Always online DRM partially protects against piracy. Consoles are a lot harder to pirate. Multiplayer games and MMO’s require servers.

    What happens now is that people are not free to do what I described in my first point. But rather that they are forced to pay for the games that are harder or even impossible to pirate and pirate the rest of the games.

    Big companies as EA and Activision-Blizzard who have a bad reputation, because of bad business practises, but still produce (some) quality games. They are the companies who do the most anti piracy measures which are also very anti consumer.

    This means that it is harder for people to support the games they like, with the risk that quality games and developers disappear for the benefit of the games, who may also be good, but are better ‘protected’ against piracy.

    This again is not effecting the total revenue of the industry, but it does possibly negatively influence the quality. And overall quality of games will attract more customers to gaming branch.

    Reply
  2. gogu

    ofc always there is someone to blame.I agree that some will buy every game they like, some will buy some games when they are on offer and the rest will pirate them, some will never buy a game and pirate every thing they find , and some will pirate just for the simple fact they can do it and not buy it.

    BUT!!! what about consoles , if you think is even worse.You will buy a game with 50 bucks , you will play until you get bored of it , and trade it in to a game store, and guess what you will trade it for another “already paid” game and the producer will get absolutely nothing from that transaction ,so in the end you just play legally a game and the producer get nothing.About this no one says nothing , they just blame piracy so they can move slowly from pc to consoles where they can control every thing.Now with ps4 is bs, and i will bet new xbox will be the same >what they intend to do is to sell you the game trough psn/live and not the physical disc, that means no resell , you bought it , you wash on your head with it.SO you pay from the start s..t loads of money extra for a game , console version 50 pc version 40 and you dont have a chance to recover some money ,not to mention that on pc there will always be a time than you will get the same game for pennies , and guess what , piracy will rise on console the same as the pc.
    BE AWARE PRODUCER AND PUBLISHER ! when you try to abuse , you will get abused , as for single way you find to get some extra money from the client there will be someone who will find a way to take all from you and give you nothing
    ps:i am not a console boy, the only games that are indeed great to play on consoles are fighting , racing and soccer games, but only with friends on spilt screen not online
    pss:CONSOLE GAMING WILL NEVER GET TO SAME QUALITY AS PC GAMING(except maybe for the couple of months after console launch, witch will hapen once in ages) CONSOLES GET OUTDATED ON THE 2ND DAY OF THEIR LAUNCH

    Reply
  3. Uvindu

    I’m Sri Lankan. Growing up, I had no access to buying games. Even when digital editions of games or getting things off e-bay became available, the asking price was way off what any average Sri Lankan could afford. So yes, I downloaded almost all the games I played. Now I’m earning money and I have started to buy games that I want to play. I have also bought 3 consoles. I don’t see, piracy as the bogeyman it’s painted out to be. For most parts of the world, piracy is the only way someone would even consider playing a game.

    Reply
  4. Itlas

    I TOTALLY agree with you,about everything!
    I think game industry should lower the price of the games,for example why a game when it is just released costs 50$ and after 6 months it costs 30$ to become 19$ after a year,why some classics costs only 12-9 $ and they are the same packaging of when they were released first time?
    This is a fraud of the publishers to the gamers,they just ride the hipe and the novelty for a game,rising prices excessively,of course people download games,if a company can afford to lower the price of a game with time it should release that game with the cheaper price FROM THE BEGININNIG,if a game costs 30-25$ it would be more simple and easy choose to buy it and play instead than download it waiting for the torrent,having problems finding cracks or having to crack your console.
    Untill games publishers will continue to cheat with the market people will continue with piracy.

    p.s. i’m sorry for my english but it’s not my primary language

    Reply
  5. PW_Shea

    Reading this post made me realize two things:

    1. I care more about piracy insofar as it affects the industry negatively

    2. Piracy is still wrong, should be as illegal as robbing a bookstore. Doesn’t matter if I’m going to read the book or not. Doesn’t matter if my taking the book appreciably decreases the availability (most likely, it does not). It’s still categorically wrong.

    Reply
    1. Juuso Post author

      1. As argued, piracy alone is not necessarily affecting industry negatively. Only if money is not coming in the industry, then we are in trouble.

      2. I actually think that abandonware, low-income people should very well pirate stuff they cannot afford (and I don’t mean the chap who drinks beer every night and says “I cannot afford games”), but the people who really don’t cannot afford to pay. For them… I don’t mind them pirating games. It’s in my hopes that at some point they start to show support, or pay what they can.

      I don’t have any scientific data whether “possibility of getting game free aka pirating it” causes people to drop their gaming budget from what it would have been. It might be quite interesting subject to study.

      But like pointed out, the act of copying a game irrelevant. What is relevant is “whether money comes in the system or not”.

  6. Roman Budzowski

    Piracy is hurting game business.

    Example: let’s assume we have $100 spending limit. We use $50 to buy games and $50 to buy ice-creams. If you want more games, you need to spend less on ice-creams, and vice versa. Because you can’t pirate ice-creams, you might think “well, I’ll spend less on games and steal those that I can’t buy”.

    Then… you can also say my spending budget for games is $0. You could argue that because you don’t plan to spend any money on games, game industry isn’t hurt by piracy. But if you couldn’t steal games, you most probably would change your spending habits and increase your budget for games.

    Reply
    1. Juuso Post author

      Piracy only hurts, if it means guy is not buying games.

      But if you still buy games without lowering your budget, then piracy is irrelevant factor. Only relevant factor is how much money comes in. Taking the chap in your example – if he chooses to spend $100 on games, $0 on ice cream then it’s irrelevant whether he is pirating every other game in the planet or not.

      If he pirates, end result is he has spent $100. If he doesn’t pirate, well, then too he has spent $100.

      “But if you couldn’t steal games, you most probably would change your spending habits and increase your budget for games.”
      This we do not know. I’m not saying you are wrong, I think this might be true. One counter argument though is: it’s possible for you and me to pirate games – yet we buy them. I have friends who buy some games and pirate others. Why is this? Why don’t they pirate all games?

  7. Tobias

    Very good posting. !!!

    The relation between devs working for the big publishers and how much they get from sales is very loose. It happens more often than one could wish for, that all the devs are laid off and their studio is closed – even if sales were good.

    Since some time, maybe 2 years or so, I have stopped buying the newest games altogether. Am I a pirate? No… I’m just fed up with DRM and buying new hardware all the time to play that stuff. So instead of buying the big games from big publishers I buy indie games, whenever possible from indie devs directly (I don’t like Steam, among other reasons because I can’t run it on my company laptop), I buy the humble bundles and I buy from gog, and a lot. So I’m clearly voting for games without DRM here, but I guess I’m not spending less in total than every before…

    Seems that in many ways, games industry comes closer to movie and music industries and all their measures against what they call “piracy” and how to retain their “rights” on the movies and the music.

    Reply
  8. tdl

    As you well put it, piracy can mean lost revenue for the game industry. I can’t help but think of it from an indie developers point of view, though. I think in the case of indies, buying the game definitely means supporting the developers (unless you got a really crappy publishing deal). But the big corps, now, there we have to think hard, does buying the game support the developers really? Well, yeah, sure it does keep their jobs, but the profits go to the owners of the corp. While in indie firms the developers might often be big shareholders in their firms, in big corps its often the opposite. So most of the profits is going to someone else than the developers.

    From the point of view of the developer working for a big corp: as I said, sure, he can lose his job if the game isn’t bought enough, but, hey, he’s apparently talented, he can get a job at another firm, maybe an indie one. His pay might go down though. If that’s what motivates the developers…

    I got one more thing: alternatives? Picture a sosialist world, a developed one, where the government would fund the arts and entertainment including games. Indie shows talent, gets a grant, makes a game, people get it for free. Win-Win? (-ish) I know there’s a bag full of holes in my line of thought here, but just saying it out loud.

    Reply
    1. Wolfos

      Buying a game from the big boys tells the publisher “this is a good game, so it makes a lot of money, make more like it!”.

    2. Juuso Post author

      Like Wolfos said.

      I don’t like government funding… I think gov should stick to focus on healthcare, povery, and whatnot stuff. I dislike the idea of gov supporting art (games included). I like the idea that individual people have the possibility to vote using their wallet to say which sort of games they want.

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