VIDEO GAME PIRACY

A CASE STUDY VENKATESH KBS

TOPICS FOR THE DAY
CASE FACTS – PRESENT MARKET THE BIG THREE COMPETITIVE LANDSCAPE BUSINESS MODEL GAM
ING IN ASIA IMPORTANCE OF EAST ASIA PIRACY AND MODS STRATEGIES TO COMBAT PIRACY
WTO
CASE FACTS- PRESENT MARKET
Over the past decade, video game industry has grown into a global colossus worth
more than $20 billion a year in revenues. The four largest markets for video ga
mes are the United states, Japan, Canada and United kingdom. Console and portabl
e software sales: $6.2 billion, up 8% from 2003 Console and portable hardware an
d accessory sales: $3.7 billion, down 35% from 2003
GLOBAL GAMES MARKET
THE BIG THREE
SONY MICROSOFT NITENDO
XBOX
PS2 GAME CUBE
COMPETITIVE LANDSCAPE
Market forces seem to dictate that there is only enough room in the games consol
e market for three major players. in recent years Sega once a major player has b
een edged out of the hardware market by both Sony and Microsoft. Sony’s PlayStatio
n2 was the most popular regular console in the 2003, the machine dominating all
the major console markets across the world. Although only holding a comparativel
y small share of the console market, Microsoft’s X-box has enjoyed strong sales gr
owth. The machine’s technicallyadvanced offering combined with a strengthening sof
tware library, which taps strongly into the online gaming community, has helped
boost the popularity of the machine.
COMPETITIVE LANDSCAPE
Nintendo, famous for being one of the original electronic games manufacturers, h
as enjoyed something of a renaissance since the release of its hand-held Game Bo
y Advanced. Although the market is expected to experience a slight contraction i
n 2005 as unit sales of aging systems decline, it is predicted that 2005 will ex
perience strong growth with the release of Sony’s PlayStation 3 and Microsoft’s X-bo
x 2 reinvigorating the market.
THE BUSINESS MODEL
The razor and razor blades business model Here console {razor} is sold at a loss
and profit is made on the sale of the game {razor blades} For example in the ca
se of Microsoft Xbox, estimates suggests that company loses as much as $200 on e
ach Xbox it sells. To make profits Microsoft collects royalties on the sale of g
ames developed under license, in addition to producing and selling some games it
self. Each game typically retails for about $50, so Microsoft has to sell 6 to 1
2 games to each Xbox user to recoup the initial $200 loss on the initial sale an
d start making a profit
GAMING IN ASIA
The Asia-Pacific games consoles market has experienced fluctuating but ultimatel
y negative growth in the 1999-2003 period. Industry estimates suggests that Asia
n gamers will spend some $7.6 billion on videogame software in 2005, much of it
on low priced pirated games.
ASIA PACIFIC GAMES MARKET
QUESTION 1
HOW IMPORTANT IS EAST ASIA TO THE LONG TERM FUTURE OF THE VIDEO GAME COMPANIES,
MICROSOFT,SONY AND NITENDO?
IMPORTANCE OF EAST ASIA
•The Asian economic crisis is long over. Current growth in the region is unparalle
led. Asia-Pacific s markets are getting bigger and more prosperous all the time.
•According to PricewaterhouseCoopers Global Entertainment and Media Outlook: 200
5-2009, Improved economic conditions and an advertising upswing, combined with e
xpanding online distribution of music, films, books and video games, will be key
drivers triggering end-user spending in East Asia. •Overall, the video game marke
t will expand at a 16.5 percent CAGR to $55 billion in 2009 driven by growth in
Asia/Pacific, the largest market.
Industry estimates suggests that Asian gamers will spend some $7.6 billion on vi
deogame software in 2005, much of it on low priced pirated games, compared to $7
.4 billion in the U.S. Overall, the video game market will expand at a 16.5 perc
ent CAGR to $55 billion in 2009 driven by growth in Asia/Pacific, the largest ma
rket.
In 2008 the Asia-Pacific games consoles market is forecast to have a value of $1
.6 billion, an increase of 22.1% since 2003.
QUESTION 2
How big a threat are software piracy and mod-chips to the profitability of the v
ideo game business of these companies?
AHOY PIRATES HERE
The industry is threatened by rise in piracy, which cost the industry an estimat
ed $2 billion dollars in 2001.
The piracy problem is particularly serious in East Asia, excluding Japan, where
video games are routinely chipped – sold with modified chips called “mod-chips”.
LET’S TALK ABOUT MODS
• Modchip stands for modification chip and is a device used to play import, backup
, or homebrew games and/or circumvent the digital rights management of many popu
lar game consoles, including the Xbox and play station. Video game consoles are
routinely chipped with “mod-chips”, that overrides the console’s security system, allo
wing it to play illegally copied games and CDs.
Mod-chips allows users to play illegally copied games. Consoles with mod-chips i
nstalled offers a gaping gateway for software pirates. This directly threatens t
he profitability of console and game makers who follow razor and razor-blades mo
del. For example if the users are purchasing pirated games and playing them on “ch
ipped” X-box consoles, Microsoft collects nothing in royalties and may never reach
breakeven.
In East Asia, some 70% of game software sold in the region may be pirated thanks
to the popularity of the “chipped” consoles and low price of pirated games, which m
ay sell for one-third of the price of the legal game.
QUESTION 3
What strategies or tactics might the companies pursue to stop piracy? How succes
sful do you think these strategies might be?
TACTICS BEING USED TO CHECK PIRACY
The big video game companies tried to deal with the piracy problem in East Asia
by ignoring the market.
Sony launched its Play station 2 in East Asia two years after its Japanese launc
h, and Microsoft delayed its East Asian launch for a year after it launched else
where in the world. Questionable tactic
Another tactic is to regularly alter the hardware specifications of its consoles
, rendering the existing mod-chips useless. Temporary solution
Third tactic was to push the local authorities to legally enforce existing intel
lectual property rights law that in theory outlaws the mod-chip practice
WINNING STRATEGIES
The answer may be online gaming. Access to popular titles available only over th
e Internet is more controllable. The game code is harder to copy because it resi
des in a secure central "server" — a computer run by a trusted third-party such as
an Internet service provider. "Whenever illegal access is detected, they can sh
ut [unauthorized users] out."
INTELLECTUAL PROPERTY POLICY
One of the key tools for battling piracy is the Digital Millennium Copyright Act
(DMCA). It is used to protect intellectual property in the digital age. One sid
e affect of the DMCA is that it empowers game companies to protect their propert
y through a side door.. Not only the person making the software available but al
so, the ISP that he is using to facilitate the connection could potentially be h
eld liable as a violator of copyright.
• Global Gaming Alliance: Between the 3 major players, ensuring regular checks, co
mmon encrypting software with the objective of collectively combating piracy, br
ing down costs of new game development
Question 4
What role might international institutions like WTO play in such particular prob
lem?
The wto’s agreement on trade related aspects of intellectual property rights {trip
s} is an attempt to narrow the gaps in the way I.P rights are protected in the w
orld and to bring them under common international rules. WTO helps by being a gl
obal policeman. It solves cases of disputes between member countries. It made su
re that India recognizes the process patent. Similarly it can ask South Asian co
untries to raid game hackers and make strict rules and regulations against pirac
y.
THANK YOU