Piracy in the Video Game Market

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, in an effort to fight piracy, Nintendo's newest gaming console, the GameCube, uses hard-to-copy mini-DVD discs. 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 will then typically notify the seller and ask them to either remove the stuff or close down completely."

The U.S. music, movie and software industries have called for the United States to begin legal action against nations that are major sources of piracy at the World Trade Organization (WTO) to stop widespread piracy they said cost them at least $2.5 billion in 2004 (Reuters, 2005).

Major piracy rings are large in countries like Taiwan and China. However, these countries are now obligated, under WTO rules, to outlaw piracy and crack down on it. In an effort to meet standards, these governments are forced to tighten controls and restrictions on piracy. This will undoubtedly have a positive impact on the video game industry.

Video game companies can effectively prevent the vending of mod chips in the United States, and are currently patrolling the Internet, sending out cease and desist letters to those offering the chips for sale. As a result, the companies that people can order the mod chips from are usually based outside of the United States,

Console piracy is a global industry, and the only way to fight it is with a global approach (Kent, 2003). When game companies describe the battle against piracy, they constantly mention Korea, China, and Singapore. Most agree that local authorities are helpful in shutting down bootleggers, but that the industrialized nations have the best laws for fighting piracy.

"The mod chip penetration rate does not scale here the way it does in other countries," says Stevan Mitchell, Interactive Digital Software Association vice president of intellectual property policy (Kent, 2003). "We have seen new accounts that suggest in Hong Kong, for example, between 80 and 90% of the Xboxes that are made available in storefronts have been pre-modded for sale in those markets. It's an academic issue relegated to copyright office proceedings in this country, but it is a very real economic issue in Asia, and it's a growing issue in Latin America as well."