.:Out-of-the-box:.

I’m observing that corporate approach to anti-piracy is just a bullshit, only pretending to do anything serious rather than shaping the positive attitude. Just to be clear, piracy is really bad behavior that damages good condition of software and media markets seriously. I’m not going to defend piracy itself, but lets challenge some thinking how to solve the problem.
To give you some background for this post, there is a marketing campaign started in Poland called “I don’t modify, I don’t steal”. It’s strictly Xbox 360 related, where modified game consoles are used to play pirated copies of games. Bad thing and risky, if you like to play on-line because centrally Microsoft bans these accounts more and more often. Ban itself is very strong whip for the bad guys asses, I think it’s the perfect tool to punish bad players who like to be online.

There is nothing bad to include anti-piracy messaging into your marketing strategy. Marketing is, obviously, nothing else but a tool to change perception. Romantic piracy times are over as also highlights General Manager of Microsoft Poland on his own blog, which is fine and gentle cut-off from the Jack Sparrow’s image to reveal the unhealthy business. Problem I see, is that main message coming from above campaign is that “you’re a pirate, a thief; so you will be punished and will be sent to jail”. That’s the common understanding I have from video content published on above websites. I personally believe, that it won’t work and it’s just a proof point that somebody didn’t make his homework or does not believe in the output.

Defining the problem

According to market research, piracy rate in Poland is high, waving around 57%. This number triggers the imagination, but says nothing, if you’re looking for answers why is it so high. Without questions like “why, who, when” and possible answers to these questions, it is totally not possible to manage the problem with a serious plan.
In my opinion, there is no single organization, that can change this number. Without serious analysis and even simple answers to these simple questions, one organization is not able to find good partners, who can really shape new, Utopian World without piracy at all (even US, the best of countries holds 20% of the bad guys).

I don’t have clear answers myself, but with simple reasoning I’m aware of a few facts. I live in a country where copyright law was established in 1994. It is only 16 years with “the tradition” of respecting intellectual property by the letter of law. That law in many details is still imperfect, which I’ll try to explain later. Remember the date and take this example on me.

I’m 30 right now, which means that when that law was established I was 14. Gaming world in 1994 offered games mostly for a teenager in age like I at the time. Funny is that in present times I’m also typical target for gaming entertainment. Another research I found and many game companies refer to says that, typical gaming consumer is 25-35 years old. These numbers come from a loose interpretation of researches like this. I’m in the middle of above brackets, still being entertained by the same hobby. Oldest current potential Xbox customers were 19 years old when the copyright law was set. It means, closing the group only by age, half of customer base during childhood and growing maturity periods lived in a country where it was legal to buy pirated media. It was legal to do so when half of the current, potential customers have learned that gaming was fun and it is still.
Remind yourself when your moral and ethical rules have developed and how hard job you or somebody else had to make to change it in later periods. I remember times of no copyright law very well and I have changed not without resistance myself.

Education not punishment

If this argumentation does not trigger your imagination I’ll restate it in simpler words. You have at least two generations of adult gamers in Poland without any formal education and habits helping them to understand what Intellectual Property is. Even if you tell them that it’s illegal for ages, they will accept the fact by the law, but if punished and possibly jailed, they will not understand morally and ethically, why did somebody hurt them so much. That explains also why Open Source is so extremely popular in Poland. Freedom in FOSS initiatives usually is understood as free, zero Dollar cost. True Open Source leaders in Poland have the same challenge, how to educate that Freedom is not necessarily in price, but in freedom to access Intellectual Property hidden inside. Access granted be the license and following rules described in the document.

Problem of the software and other media, like movies and music, is that Intellectual Property is uncovered, very fragile and visible. If you look at a car and IP hidden in its technical aspects. Design documents and other specification that makes it possible to build a instance of a car, a new car is not so easy to steal and have further value to have cars for free. Value is in the produced product so if somebody wants to have a car and do not pay for it, steals a car. Serious crime worth its punishment. Intellectual Property defining a car is hidden much deeper than in software. It’s hard to steal from a car company it’s much easier to rob the current owner of the car. In software it’s totally different. If a person makes a copy, that person steals the product and intellectual property together, it’s much easier to here to rob the vendor than the “current user” of an instance. Abstract vocabulary to find similarities, but I hope that you’re following me. Having that on mind I can agree, that average person who is not a copyright expect, it is really hard to understand value of Intellectual Property and for who that value is valuable.

In software product equals to CD, not the license, many software consumer say so judging the value. This is common misunderstanding where good examples from known world and comparisons are the point for education.

If I looked for “piracy” examples in car industry I’d have only one example from recent times. It’s F1 theft incident between McLaren and Ferrari. Stealing that multi million value in technical specs and punishment with multi million penalty was exactly for something like piracy in their world. This is an example I find and understand quite well, it’s hard to use it as reference to a common gamer and any software user.

So, I’m going to repeat that once again, considering piracy, we have in Poland serious problem with education. Strong lobby with local government is necessary to build long-term healthy program. It must be a priority for both sides. Frightening consumers with arguments, they totally do not understand won’t bring positive effects in long term. Short term fear won’t bring any revenue I believe, so why wasting time in ineffective approach?

Equalizing economic chances

If you take a look at the numbers, you’ll find strong correlation between well prospering countries and low piracy rates. On the opposite site, you can see countries where average GDP per capita is very low. Take a look at some examples. There is one country with exact piracy rate equal to 50%. It’s Cyprus. Their per capita annual income average is close to $30k. Poland with 57% of bad guys is much worse, close to $14k. Our the only serious CEE competitor I see, is Russia with 76% of the piracy rate. Russians by average earn $12k. Two best countries for a comparison: US, 20% piracy rate, $47k. Next legal to US is Luxembourg: 21% piracy rate and more than $80k average income. Lands of an opportunity, aren’t they?

These numbers remind me with my own example. I’m in an age that I’d simply lie if I told you that I never pirated. When I was a kid I could legally go to the store and copy music tapes, VHS video tapes and software. There was no problem to photocopy rare books not available to have in original. I’ve changed long before I even thought I could join Microsoft at all. Story of that transition is related to my relocations.

I was born in small town with no perspective for education and reasonable job, so I moved to Cracow, then to Warsaw. From these three spots, only in Warsaw I found prosperity as common thing. I have no numbers, but I believe an average income per capita in Warsaw should be close to double of the country wide average. Most friends and family I have left in Czestochowa are happy having job with 2000 PLN monthly payment. This is around 700 USD. Cut some taxes to find yourself with $500 Net in your wallet for a living. These guys, when looking at $59 retail price for a game, do not see a commodity. They see exclusive item they want, but hardly can afford. Most of my friends in Warsaw perceive retail price of a game as commodity, they can afford. None of them is pirating anything. It’s ethical question where the answer is obvious to them and to me.

One of the problems of piracy is, that most vendors offering gaming entertainment perceive their products as commodity. Marketing works so well that even people, who cannot afford them think that it is a commodity they should have, they deserve to have. Output is visible in numbers.

Fire in the hole, and the hole is in law

Piracy with books was killed in Poland with good offers and availability. Internet era disrupted it little bit, but rather in theory than in strong practice I perceive. Music and video piracy is not very well solved by the law, so how can it be expected that people will respect the fact.
In Poland you’re not allowed to share media resources and get profits from the precedence, but you’re allowed to download them for personal use, if you don’t share it forward. By this definition any P2P network used for sharing copyrighted content is banned, but Google’s search with -ext:mp3 keyword is not. Bad guy is that one who publishes, similar to narcotics business. Dealer is bad, junkie needs treatment. There is no treatment option for MP3 junkies on this schedule.
When you try to explain fact, that somebody has illegal music to average music consumer in Poland and to suggest that he’s not supporting his favorite artists, many people are confused, totally not understanding why bother if it’s legal. Legality evangelists are exposed as utter idiots just because the law is not clear.

Again, I’d start with the government to lobby for good law and looking for the atmosphere of support. Good offers are also important, so lets move forward.

Challenging business models

One of the things that irritated me most in the marketing campaign that inspired my post is an excuse that there will be no Xbox Live in Poland because we suck at piracy. This is obvious answer to me, that alternative business models for gaming and services are totally not understood at the office. I’m observing trends and from these observations, I see that for gaming companies same bad as piracy is used-games market. When used-games appear in E-Bay and alternatives, retail sales freezes (another research I found, says that it almost immediately drops about 20%). Publishers have no revenue from used games as well as from piracy.

Difference between piracy and used games market is that used games customer has will to pay and buy the software. If you imagined the idyllic world with no thought of piracy, would you bet that all pirates had purchased games in the same numbers instead? I would not.

The only solution for both scenarios currently evaluated by vendors is dramatic change in business models. Two major keywords appeared: Electronic or Digital Distribution (ED) and Downloadable Content (DLC).

Electronic Distribution I understand as offering license purchase for download and play of any titles offered by particular ED platform. XBLA, PSN, App Store as examples. DLC I understand as offering downloadable extensions to the already purchased title. For many people I’d spoken to DLC equals to my definition of ED. I distinct these two for a reason. In context of piracy and used-games market, there is no better way to stop it than to offer a distribution, that technically and by definition does not allow to copy itself or resell. That’s the dreamworld for all publishers and platforms they utilize. DLC with my definition matters also for old-school, old model with boxed versions. It’s more gentle way to keep games on gamers’ shelves and make the period of no used-games offer longer. If you had a reason (like DLC) to keep your games in your own collection, somebody else, who would not find it on Ebay would hopefully consider buying them from a retailer.

These two examples are strictly bound to very well developed services ecosystem. That’s the way to grow. Instead of punishing pirates a priori, give them alternatives which are less vulnerable and more attractive to the customer base. Answering simply, start the God damned Xbox Live Service and push to sell more On Demand Games offered in Electronic Distribution models than push very fragile boxes through traditional distribution channel. Everybody will be happy and pirates troubled.

Making a conditional if piracy is lower, Xbox Live is more probable is equal to laughing out loudly at the customer base saying you’re so naive..

One of the gaming community, on-line magazines in Poland, Polygamia.pl published information about the campaign. In one day they have gathered more than 300 angry voices perceiving it exactly as I wrote. The only recommendation that appears in my mind is, to listen to the customers and stop watching brainless Excel sheets. That will never kill the piracy even if we all, honest customers and employees, so hardly believe that tomorrow will be better.

Globalization, consumers are ready, nor the vendors are

Last but not least as for business models. Did I mention $59 retail price for a video console game in current generation? Using today’s exchange rate $1 = 2.8PLN. It means that, by simple exchange, retail price in Poland if equal to American should be around 165PLN. Take this, retail prices on the launch time start from 200PLN and very often are close to 250PLN.
That’s right, Poor ($14k avg. income) Polish gamers are rich enough to stand the situation of average retail price up to $90.

Funny thing is that almost no gamer realizes where this price comes from. What people are aware of (thank you Internet) that their fellow players in other countries have better salaries and cheaper games. In EU with have bloody thing called VAT (Value Added Tax), it works close to Sales Tax in US. Major difference between US and Poland for example is how we present prices. Being European, when I saw Nindendo DS in Gamestop with retail price $169 I found myself shocked that I had to pay 9% more. Later I got used to remember sales tax. Americans have really nice method to show how much I pay to the vendor and how much country takes from the transaction. In Poland we have 22% VAT rate. Nobody in Poland realized that 165PLN + 22% ~= 200PLN. Prices keep that tax included. We Poles bitch stores and vendors not the country government, while the answer to the question, why is it so expensive is not that clear. Maybe we have the same price but taxes are bloody high. Question is to educate who’s bad here or maybe again, start lobbying to change the rate for gaming items? What a challenge..

Another consequence of changed business models and on-line shopping is that I can go around this obstacle and order a game from other countries. Risky if the store is outside the European Union. Customs will be more than happy to add some taxes to the package. But England for example? Darksiders is really fresh title, good for checkout. Ciao says that the cheapest option I can find is £32.79. Quick math, exchange rate £1=4.56PLN, mentioned price is then about 150PLN.

Customer has to be really smart these days. The smartest customers have to be real pain in the ass on the profits chart, I believe.

Concluding

I’m personally supporting every action that can positively change the conditions on the market for customers and for the vendors too. Piracy is a serious problem damaging many different industries. I believe that no single company’s marketing campaign can change a bit. I’d first address the problem seriously with local governments and education. I’d think twice before launching any aggressive rocket against any customer. It’s mostly about politics and good economic atmosphere. Hell, we have reelection in Poland in 2010, why not include this social and economic problem to the discussion table and ask a few tough questions to the wanna be presidents of tomorrow.