Piracy Heats Up

Electronic Gaming Business, Feb 25, 2004

Piracy moved back into the forefront of the gaming industry in February. As a number of unrelated events underscored the ongoing problem. Last week, the FBI unveiled a new anti-piracy seal for movies, music and games that specifically warns counterfeiters that the agency actively investigates cybercrimes like swapping of copyrighted material over the Internet. The Entertainment Software Association joined with the International Intellectual Property Alliance (IIPA) in a report to the federal government about the state of digital piracy worldwide as government agencies perform their annual review of counterfeiting and determine how to pressure foreign governments to respect intellectual property. For instance, the IIPA estimates that up to 96% of U.S.-made entertainment software in the People's Republic of China was counterfeit in 2003, representing more than half a billion dollars in lost revenue. Battling game piracy remains a multi-front war against evermore sophisticated and determined foes.

Closer to home this month, the legally embattled 321 Studios released its Games X Copy, which overcomes most forms of copy protection on PC games so that consumers can make back-up copies.

321 Studios has sold about 1 million DVD copy programs and sales of the new Game X Copy "have been great - better than expected," says company spokesperson Julia Bishop-Cross. She claims that 60% of the company's customers are parents who are frustrated with scratched and damaged discs, and that this is the base that specifically asked for a game back-up utility. "We have put in a host of anti-piracy measures," she assures publishers, including watermarking and the inability to make a copy of a copy.

Nevertheless, 321's controversial copying utility for DVD movies has attracted multiple lawsuits by movie studios, and a federal judge on February 20 banned further sale of DVD X Copy for violating the U.S. Digital Millennium Copyright Act. How the ruling will affect the game copy software is unclear. The Electronic Software Association declines to comment on 321 Studios or any intention to file suits against the company on behalf of game publishers. Ric Hirsch, SVP, intellectual property, ESA does say "the issue of making back-ups has become very distorted. A number of people on the Internet use the term 'back-up' to justify making illegal copies. A lot of this has been an attempt to cover up illegal activity by providing a 'back-up' service."

While there is a fair amount of illegal CD copying and selling in the U.S., as well as importation of bootlegs from more organized overseas pirates, "a substantial part of the piracy activity we are seeing in the U.S. is on the Internet peer-to-peer networks, which is quickly becoming the mass market protocol on the Internet," says Hirsch. The ESA uses an automated monitoring service to detect illegal file swapping online and has sent ISPs and colleges 130,000 "take down" notices about users on their networks trading in bootlegged games. While colleges have been quick to comply, according to the ESA, consumer ISPs have been less cooperative, especially since a court ruling in December that denied the recording industry's attempts to get the names of suspected pirates from Verizon.

Hirsch says it is not clear to him that the gaming industry should pursue the same controversial tactic as the RIAA and bring suit against individual consumers for counterfeiting over P2P networks. "We are looking at a lot of different strategic options," he says. "We're trying to focus on a more positive and constructive dialogue with colleges. They are very concerned about copyright and trademarks."

Pirate Factories

The biggest challenge for the gaming industry remains the relatively unrestrained and highly organized systems of PC, cartridge and console software piracy occurring in Asia and Eastern Europe where expensive CD-burning factories continue to churn out bootlegs. Malaysia continues to be the top source of pirated console software, while Russia produces the most bootleg PC wares.

The biggest cost of international piracy is that it stunts the game industry's ability to expand into new markets. In order to market a console into the massive but notoriously bootleg-swamped Chinese mainland, Nintendo developed a special console with extra piracy protection and an exceptionally low price point. When Sony announced it was entering the same market with an unmodified PS2 late last year, Sony China Chairman Hiroshi Shoda said bluntly, "We have to realize the reality, that piracy cannot be contained 100%. We have to be courageous to face the reality." Well, courageous and wealthy, according to Doug Lowenstein, president, ESA. "If you are looking at a market where you have to compete with $1 or $2 and $3 software, that's a tall order," he says. "You have to make the assumption that you're going to lose a lot of money for a number of years in order to develop a legitimate market. I think companies will do that successfully and very cautiously where they think the potential for the market is really great."