Piracy in the Video Game Market Sales of counterfeit video games are increasing worldwide. In 2003, video game executives joined a coalition of movie, software and music companies to appeal for help from the United States government, citing that they had lost a combined $20 billion due to piracy in 2002 (Kent, 2003).

Video game piracy "is more than a $1 billion industry," according to Douglas Lowenstein, president of the Interactive Digital Software Association, the trade organization that represents the games industry (Kent, 2003). "It is well over $2 billion worldwide if you include all piracy, which would include PC games."

For Microsoft Corp. And Sony Computer Entertainment, which respectively make the Xbox and PlayStation 2, piracy is a major problem. "Given the popularity of consoles on a worldwide basis, certainly a significant share of the losses is coming from the console side," Lowenstein said (Kent, 2003).

Worldwide, console piracy is a huge problem and is one that takes many different forms. Hard goods are a major problem overseas -- pirated discs being available in scores of markets from Asia to South America to Eastern Europe to the Middle East. You would be hard-pressed to find a major country, outside of the industrialized world, where there was not a huge level of piracy," adds Lowenstein (Kent, 2003). "In fact, you would be hard pressed to find a country in which the pirate market does not dwarf the legitimate market.

Game companies can take measures to prevent unauthorized use of their games and hardware (Kent, 2003). For example,...

The non-standard DVD format is a major disappointment to customers who hoped to also use the game machine to play movies, but so far, the GameCube has not been successfully hacked.
Still companies like Sony or Microsoft both use standard DVDs in their consoles, supporting a thriving market in pirated PlayStation 2 and Xbox games (Kent, 2003). With video games, a medium that revolves around proprietary hardware, piracy comes in two forms -- "modding" and counterfeit software.

Modding simply adds chips to game consoles to disable the security precautions manufacturers built into their systems (Kent, 2003). Theoretically speaking, only Microsoft-authorized discs will run on an Xbox and only Sony-authorized games can play on a PlayStation 2. However, by adding mod chips to these consoles, owners can play non-authorized games.

Both the software association and its members have turned to foreign nations to fight companies that make pirated games. In the U.S., however, the association assumes a different approach, concentrating on pulling out the weeds of piracy rather than digging out the roots. American efforts rely on a statute in the Digital Millennium Copyright Act that allows it to shut down Web sites promoting mod chips and counterfeit games.

"It's called 'notice and takedown,'" Lowenstein said (Kent, 2003). "We notify [Internet service providers] that we have reason to believe that particular sites are selling illegal games. The ISP…