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Video game piracy: levelling up
Computer and video gaming is big business. Over 50% of American households own at least 1 dedicated games console. Games are available on more platforms than ever before; the rise of smartphone gaming has put high powered gaming devices into the hands of a vast market of potential consumers. All of this is reflected in the statistics: in 2012 an estimated $20.77 billion was spent on the games industry in the US alone.
However, like all digital content industries, video gaming has been beset by piracy. This article looks at some of the issues facing the industry. It summarises how the industry has responded historically, and how new business models and distribution options are changing the response from one of pure prevention, to one based on incentivising the user through a more service-based model.
The scale of the issue
Historically, pirated games were distributed physically. Copy protection on legitimate disks was cracked, and counterfeit disks produced and sold by criminal gangs in pubs and market stalls. High speed internet access and online file sharing technologies changed the distribution mechanic. Now, file sharing is the norm. Piracy takes place in the home with the user committing the act of downloading the illegal copy of the game. Users of pirated games usually pay nothing for the content; any profit to the online distributer comes by way of advertising revenue. Piracy has become massively decentralised and spread across multiple jurisdictions, many of which are difficult and expensive to litigate in.
As a result, the volume of pirated copies of games in circulation has exploded. In 2012 Ubisoft’s CEO estimated that, for its PC games, only 5-7% of copies in circulation were legal. Pirated copies routinely appear before the official game is even released: in 2010, pirated copies of the Xbox 360 version of “Call of Duty: Black Ops” appeared online a week before the game was released; the Xbox version was illegally downloaded 930,000 times between November and the end of 2010, whilst the PC version was pirated 4.2 million times.
Publishers often calculate their loss by equating each pirated instance of a game with a lost sale. In 2010, the UK trade association for the sector estimated an annual loss of £1.45 billion. Critics query whether it is true to say that every instance of piracy could be converted into a sale. Few deny however that there is a serious problem.
Video games are protected by a range of intellectual property rights. Most obviously, the source code of a video game is protected by copyright. In addition, copyright exists in elements of the game itself; for example the artwork, sound effects and plot. In R v Gilham it was held that the individual frames displayed during the course of playing a game were themselves artistic works. Game titles, and sometimes key characters, are also often protected by trade marks.
Practically however it is difficult to enforce these rights against pirates, now that piracy has moved to the home. Publishers have tried taking direct action against individual users of pirated games. However, this has proved controversial. For example, in 2012, the publisher of the popular game “The Witcher 2” wrote to individuals in Germany alleging that they had downloaded illegal copies of the game. The letters demanded compensation in settlement. No cases went to court and the company claimed that “the vast majority” paid to settle the claims. However, these tactics provoked a storm of controversy amongst the gaming community, leading the company to write an open letter to its customers pledging that the practice would cease.
This episode highlights a tension facing game publishers: how to take meaningful action to discourage piracy amongst their own user base, without alienating potential customers. Video games, especially blockbuster titles, are hugely expensive undertakings. The majority of revenue from a new release is taken in the opening weeks. Pre-release hype is therefore crucial. However, the gaming community is vocal and tech-savvy, and negative publicity at the pre-release stage can destroy a video game’s chances of making a good return, or any return at all.
Given these difficulties, publishers have focussed on preventing piracy, primarily through copy protection designed to make piracy technically difficult.
Dedicated games consoles often include hardware measures designed to prevent users from running illegitimate copies of games. This often involves a hardware modification to prevent the disk drive reading non-official media. This has been credited with reducing piracy on consoles compared to other gaming platforms.
However, hardware protection is usually cracked by hackers during the life of a console. Hardware products (called “mod-chips”) which allow the circumvention of hardware restrictions and associated user guides and instructions quickly appear online. It is illegal to circumvent such hardware restrictions, or assist others to do so, and sellers of mod-chips have been successfully prosecuted in the UK in the past. However these measures have only been partially successful; it is easy to find the necessary guides and instructions online, and pirated console games are available to find and download without difficulty on file-sharing websites.
Further, hardware copy protection has not been uniformly applied across gaming platforms. Smartphones do not include hardware protection, and PCs have never included hardware restrictions of this kind.
Games publishers have therefore sought to prevent illegal copying through DRM (Digital Rights Management) software incorporated into their games. Some forms of DRM encrypt game data to make copying impossible through normal methods. Other forms of DRM seek to give the publisher control of the conditions in which a game can be used, so as to reduce the possibility of piracy. For example, requiring a persistent internet connection to play the game, so that the publisher can verify the legitimacy of a copy each time it is played, or (in the context of PC gaming) restricting the number of permitted installs of a game before it ceases to function.
Inevitably DRM is cracked, and usually quickly; the hope is that it will work long enough to prevent large scale piracy in the first weeks following a game’s release. However, restrictive forms of DRM are deeply unpopular with gamers. Restrictive DRM is inevitably broken at some point and removed from the pirated version of the game. Critics argue that such DRM punishes lawful players of the game, by imposing restrictions in legal copies of the game which are removed from pirated versions. The user is essentially incentivised to play the pirated version over the legal copy. More restrictive forms of DRM have led to protests, and calls for boycotts from gamers, which can severely damage the marketing of a game in the months ahead of launch.
As a result, a growing number of publishers are turning away from restrictive forms of DRM. In 2013 Microsoft made a late decision to ditch a planned requirement that its Xbox One console must connect to the internet once per day following widespread fan criticism. In 2012, Ubisoft dropped its own persistent internet connection DRM, citing customer feedback.
In 2014, Ubisoft’s VP of Digital Publishing , Mr Chris Early, gave an interview to the GameSpot online magazine in which he articulated a growing trend to seek to incentivise users, rather than focussing on prevention. He noted that it was more important to focus on making great games which included ongoing service delivery which would not be available in pirated copies: “The reality is, the more service there is in a game, pirates don't get that…So when it's a good game and there's good services around it, you're incentivized to not pirate the game to get the full experience." 
Such services often take the form of additional downloadable content (“DLC”) made available post launch, such as new characters, updated visuals, or entire new plot lines. The DLC is distributed online and only to individual user accounts tied to legitimate copies of a game. Other approaches involve adding persistent online content to single player games, allowing the publisher to justifiably require a persistent internet connection to access, for example, a multiplayer element incorporated into the single player game world. As a side effect, the publisher is able to verify each copy of the game registered and connected to the service.
Where implemented appropriately, this approach has been praised by industry insiders. Gamers are more likely to choose to pay for a game if the legitimate version offers a better experience than the pirated version. Pirates may still be able to created pirated copies, but if the resulting experience is worse because additional services offered by the developer/publisher are missing, there is an incentive to purchase the lawful version instead.
Other business models
Publishers have also turned to alternative business models to combat piracy. The “freemium” model involves giving the base game away, and then charging for in-game content or bonuses (so called “micro transactions”). If the game itself is free, there is no reason to pirate it. Some sections of the gaming community object to this, especially where the micro transactions are not actually optional (due to the difficulty of completing the game if the relevant content is not purchased). However, the sector is growing quickly, especially on mobile platforms. Few believe it will replace the standard model of charging an upfront fee for a complete game, but it is proving an important alternative model for many publishers where appropriate for the game in question.
After years of struggling with piracy, new distribution and business models offer a real opportunity for games publishers to begin to turn the tide. The trend for developers to tie DRM to incentivising services, which are lost if the game is pirated, is only likely to continue. In addition, as game sizes continue to grow exponentially, there is a hope that file sharing will ultimately become significantly less convenient than legal online distribution services, which are becoming increasingly commonplace.
Ironically, it is the ability to distribute games digitally (which caused the explosion of file sharing in the late 2000’s) which is facilitating these new approaches. Some commentators predict that, ultimately, gaming will transition into a cloud service, as is already happening with music and film. Services such as “OnLive” allow gamers to stream games remotely; the gamer only possesses a thin client used to access the service, and the game is hosted entirely by the service provider. Such services are still nascent and are grappling with bandwidth issues. However, this could become the dominant method of accessing games in the future. If it did, it would represent the final transition of games from “products” to services, and could make large scale piracy a thing of the past.
Previously published in the Intellectual Property Magazine.
For more information, please contact Peter Dalton.
“2013 Sales, demographic and usage data; Essential facts about the computer and video games industry” (The Entertainment Software Association)
 “Ubisoft CEO claims 93-95 percent piracy rate on its PC games” (http://www.gamespot.com/articles/ubisoft-ceo-claims-93-95-percent-piracy-rate-on-its-pc-games/1100-6392939/) (although this figure has been criticised); “Call of Duty: Black Ops Nabs 'Most Pirated Game of 2010' Distinction” (http://kotaku.com/5720076/call-of-duty-black-ops-nabs-most-pirated-game-of-2010-distinction)
  EWCA Crim 2293
“The Witcher 2 devs claim 100% accuracy in identifying pirates, demand money from thousands” http://www.pcgamer.com/the-witcher-2-devs-claim-100-accuracy-in-identifying-pirates-demand-money-from-thousands/
“Splendid: CD Projekt To Stop Legal Threats” http://www.rockpapershotgun.com/2012/01/12/splendid-cd-projekt-to-stop-legal-threats/
 See Section.296ZB of the Copyright, Designs and Patents Act 1988; R v Gilham; “UKIE cases see two pirates given jail sentences” http://ukie.org.uk/content/ukie-cases-see-two-pirates-given-jail-sentences-0
 “DRM Hurts Companies More than Piracy, Developer Argues” http://www.forbes.com/sites/davidthier/2013/03/19/drm-hurts-companies-more-than-piracy-developer-argues/
“Ubisoft: DRM Can't Stop Piracy” http://www.gamespot.com/articles/ubisoft-drm-can-t-stop-piracy/1100-6420602/
 See, for example, EA’s Sim City 4 or Blizzard’s Diablo III, both of which are traditionally single player franchises but whose most recent incarnations have an online world element incorporated which necessitates registration and a persistent internet connection.
 For example, the PC platform “Steam” offered by Valve, Inc.