How It All Went Wrong

A man unexpectedly entered the office. Afterwards, no one could tell how he got there or how he left — he wasn’t supposed to be there, no one was supposed to get in without an appointment. The walls were lined with framed CDs and behind a large mahogany desk sat the label CEO in his luxury leather armchair. Surprised, he listened to the mysterious man begin,

“Dear Mr. Record Label Executive, let me tell you something. You should listen to me, because I can tell you why it’s all wrong now. I can tell you how it all went wrong, when it went wrong and what effect it has on the world today. I am the messenger of the future.”

“Who are you?” said Mr. Record Label Executive, clearly not used to being in this position. “And how did you get into my office?”

“That is of no importance,” the man answered. “You can call me Lime, if you need something in the way of a name. What is important is my message. Your problem is that the youth refuse to buy your records. They download them, file share them, and refuse to pay. Correct?”

Confused, Mr. Record Label Executive nodded.

“People have been asking for paid download services for a decade, yet you were too afraid to let them have it — afraid they would just file share the downloaded music — so you gave them nothing.”

“Ah, but we created…“, Mr. R. L. E. started.

“Nothing of sufficient quality“, the enigmatic Lime cut him off. “You gave them nothing that could match what they sought. So they kept downloading, they kept file sharing. For free, because that was the only available way.

“It went on for a long time like this. Kids grew up, who’d never bought a CD in their life. They too started file sharing. For free, illegally.”

By now, the man in the luxury leather armchair was leaning forwards over his large mahogany desk, nodding.

Lime impatiently paced the room. “You see, there’s a new generation out there, who’s always downloaded music for free, because there were never any legal paid download services out there to download from. Don’t you see what you’ve created? A whole generation who’s never paid a dime for music, who has been taught that music is free, without value. You taught them.”

“Now wait a minute! How can they think they can just steal the music artists have put so much effort into?” Mr R L E protested.

“They’re not stealing anything. You never gave them options, so they all learned that music was free. You taught a whole generation that music and other entertainment had no value. That is when it all went wrong!” He paused to look at the stricken man before continuing, “as you hunt them now for what they feel is natural and right, all they feel towards you is disgust, fear and anger for your greed. Imagine, all those millions of potential customers out there who are now lost to you because you didn’t take the chance of selling them what they wanted, out of the fear of what might happen if you did.

“Now they’re a million very angry people instead, who want only to see your empire crumble.”

Mr R. L. E stared at him aghast as the realization dawned. They looked at each others in silence for a while.

“I see that you understand,” the mysterious man finally said and headed for the door. “Millions of angry people,” he repeated. As he closed it behind him, he added, “and now you’ve given them martyrs.”

The Economics of Making Your Customers Hate You

The spectacular trial and marketing disaster against the Pirate Bay continued today, with the verdict of the first court (no doubt this will be appealed a few times around).

The three guys from the pirate bay, and their internet co-location and bandwidth provider were sentenced to one year in prison and a total of 30 million SEK of damages today. Whatever you think about the pirate bay, the sentencing of their internet provider is nothing short of incompetency from the Swedish court.

But let’s put that aside for a moment.

Let’s just look at the costs and benefits. These guys now have to pay 30M SEK for their sins of building a search engine. Let’s put that into perspective, shall we? 30M SEK is (with today’s exchange rate) €2,680,246. Contrast this with the spendings of the industry: 75M Pounds is what the record industry spends each year hunting pirates, apparently (only the record industry… who knows what the international movie associations’ and games associations’ and writers’ associations are spending…). With today’s exchange rate, that’s €81,466,099.

That means it’d require 30 such spectacularly unpopular court cases against major file sharing sites won just to win back the costs spent on hunting pirates. Really, who is it that thinks this is a good idea?

In other news, if you’re going to pirate a game, please do it off the ‘net and where it wont hurt the companies that tries to support it for the people who buy games. If you pirate a game and then try to get support for it, you’re a real asshole.

A Trial, A Spectacle, A Marketing Disaster

I’ve been following the trial in Swedish court against three of the guys behind The Pirate Bay (and one of their providers). Initially, I decided not to post about it here, as the trial is mainly political in nature, intensified by the theatrical spectacle that the pirate bay and their supporters are trying their best to fuel. I don’t really intend this blog to be about politics… but the more I’ve heard and read from the trial, the more that decision changed.

It changed not because the trial is less political than expected (or less spectacular, indeed), but because of the involvement of the industry I work in, and because of the way it’s being conducted in our names. It’s become increasingly clear to me that not only the outcome of this trial but also its very existence affects me, regardless of my choices. To explain my view on it, let me begin with some background.

The games industry has had its own battle against piracy, very separate from the other parts of the entertainment industry (Music and Movies) — our very nature is that we’re an interactive media, which differentiates us from them. The grander the interaction, the harder it becomes to do any meaningful piracy, to the extreme of online-only games and MMOs, where piracy of the game client is almost to be considered helpful.

With the emergence of the Internet, the games industry quickly picked up on the budding culture of participation that was thriving with the new possibilities — “user-generated content” as it’s so nicely called nowadays started appearing as level editors and levels for Doom, mods for Battlefield 1942 and Half Life. At first, the unexpected creativity shocked everyone, but then it was all embraced by the game studios and eventually turned into the massive support systems for user-generated content that today exist in games like LittleBigPlanet and the Trackmania games series (awesome games by the way).

Today, there’s basically two problems for the industry (well, winning the “simplification of the year” award here, but anyway): piracy for PC titles, and used game sales for Console titles. Yet if you listen to the internal dialogue in the industry (at least my part of it), the talk about what to do about this is not about punishment, it’s about new business models, and about providing more value for owners of original game copies, like giving away free stuff. I can guarantee that you’ll see more of that in the future.

Contrast this with the Music and Movie industries, who have been happily strolling along with the “shove it down their throat” business model until now. With a tight grasp of the market, distributors have been able to pocket most of the money, sending only spare change to the people doing the actual creative work.

With that background, I find it extremely strange how there are computer games in the list for the trial. It gets even weirder, in that World of Warcraft is one of them. So, one of the games that’s the very poster child for the new business models I mentioned above, that give away their game client on free trial discs, is a part of a lawsuit against a piracy site? Wait, what?

Why does this happen? Simply put: because the studio is one step removed from the publisher, and the publisher is one step from these umbrella lobby organizations. The end result is that the people doing these lawsuits are pretty much lost when it comes to the material they’re representing — they have absolutely nothing to do with its creation. The middle man is behind lawsuits, because the middle man is being cut out in the new world with a new economy, and more of the money is starting to flow directly to games studios, directly to musicians.

The behavior of the industry lawyers in the court has been nothing short of disgusting. With no actual case, they’ve spent the entire sessions trying to discredit the professors who have taken the witness stand, acting like an IFPI lawyer was qualified to pass judgment on who’s fit to be a professor and who’s not. They’re so eager to hide facts that don’t fit into their outdated view of the world that they don’t even realize that not only is it an insult to the Professor in question, it’s also an insult to the entire academic world and everyone who’s had a hand in reviewing and publishing his papers.

I’m proud that I’m part of the sector of the industry that is trying to move with the times rather than ride the lawsuits all the way to the end. I’d like to be able to say that I’m proud that my studio’s products aren’t on the list for that lawsuit — but sadly I think it’s just a question of random selection.

In the end, even if we aren’t associated directly with the lawsuit, we’re funding these organizations and we’re indirectly connected to it by our very profession, and treating people that way is nothing short of a marketing disaster. With the amount of money we spend getting games out there, not having the process sabotaged by a public backlash should be priority.

My conclusion is that it’s time to sever the connections and publicly distance ourselves from anything even remotely to do with suing our customers, and go back to working together with the gamers out there on the net. We have nothing to win in court, and nothing to lose in the market.

The mountain of flowers sent to professor Roger Wallis and his wife by (and paid for by) people following the trial on the net shows how deeply people care (and are obviously willing to pay for things they care about). I’d rather recruit this unprecedented movement of creative energy than die slowly of starvation like the likes of IFPI are going to. After all, there’s only so many years you can spend 75 Million Pounds on jailing your customers — if you somehow don’t run out of money I’ll guarantee you’ll run out of customers.

If you’re interested in the trial, check out the Wired article series or follow #spectrial on twitter.

Illegal Opinions

In some interesting comments to my last post, a commenter named HomerJ makes some claims about the state of the music industry, about surveys done and about downloading content.

The “radiohead experiment” was a failure. Read this article: http://www.comscore.com/press/release.asp?press=1883 Basically most people freeloaded and paid either nothing or next to nothing for the music. Radiohead still made some money out of it, but way less than they could have via normal commercial channels.

This is a very interesting point, and the article is a good read, yet there are a few things to note here if you want to interprete it as a “failure”…

What we know from their data is that about 2 out of 5 people who downloaded the album paid for it. In the model they tried, people were invited to determine what price they thought was reasonable, so different prices were paid by different people. So the assertion that HomerJ makes is that they made less money from this than they would have from normal sales.

Before drawing any conclusions from this, let’s do the math: With an average of 40% of everyone paying $6, the number needed who would actually buy the album at normal download cost ($8) is 30% for a break even. Now there was a whole lot of attention in the media about this, so it’s pretty certain that a fair few people downloaded it just out of curiosity… that’s the whole point, isn’t it? And if a few of these people liked it, and paid for it, that would otherwise not have bought the album. Also, some of the people who paid less for the album may not have bought it at all, while the people who paid more would of course only have paid $8 for it.

So in order to declare this experiment a success or failure, you have to take into account all the above factors in order to determine whether the amount of people who would also have bought the album for $8 if it had not been available for free download is more than 30% of those that downloaded it. The answer is in no way obvious, so I’m not going to claim to know it… but claiming it as a failure only on the basis of that study is a leap of faith, rather than a logical deduction.

Essentially, this comes down to something I’ve written about before as well: it’s time to overcome the primal reaction of feeling let down by someone “taking my stuff” — what matters is not how many percent of all people freeload, but how much income there was as an end result.

HomerJ also commented:

I can ignore a study when it says that it is based on surveys. I don’t need to disprove it because the underlying methodology is known to be too faulty and biased for usage. Of course pirates don’t particularly care, they’re happy to use anything to support their freeloading.

Ah, of course… anyone who thinks this way only does so to support their freeloading, to justify their piracy. It may suffocate the discussion, but really does it ever win anyone over, or convince anyone? Intimidation is unlikely to get you customers.

It’s a discussion where one side inevitably calls the other side names — which really is quite a curious fenomenon. I’m happy to discuss the facts, research, ideas and to hear arguments… but I’m not happy to be called a criminal whos only motivation is to justify my own criminal behaviour (which it’s taken for granted that I have), when talking about broader ideological issues. I may not agree with someone, but calling them a thief or criminal because of their opinion isn’t likely to help either of us.

It’s a somewhat slippery slope of debating that shows in all parts of copyright and piracy debates… some opinions are simply considered illegal even to express, or at the very least the only reason to have said opinions is that you’re a criminal. I find that highly dangerous even in the broader sense that it threatens the very democratic foundations we build our nations on… In the words of Voltaire, “I do not agree with your opinion, but I would fight to the death for your right to express it“.

And as noted, I already make my living from copyrighted works, in a business hit extremely hard by piracy.

New Entertaining Times

I’m sorry there’s been a bit of a pause in the posting here. We’ve successfully gone through the process of finishing up our first internal demo of my  new project (nope, not telling you what it is… yet), and I’ve been introducing a new AI coder to the Frostbite codebase. It’s kept me more than busy… but now I’m back in business with a few days off, and I figured it’s time to reflect on some of the news of the last few weeks.

So, earlier this week the news hit of a dutch study performed by the researchers at TNO on behalf of the Dutch government, showing among other things that people that do illegal file sharing in general buy more entertainment media than those who don’t. A good summary of it is available over at MarketingVOX. A similar study was been done before by the Canadian government and concluded that there was a positive effect from the illegal downloading of music.

Looking at sales, the album that sold the most on downloads last year was Nine Inch Nails’ Ghosts, even though it was given away for free. And recently, Monthy Python sales on Amazon spiked by 23,000% as all of their material became available for free on youtube.

So there are two interesting questions that come out of this research… first of all, the big music businesses aren’t stupid when it comes to making money, usually, so how come they’re ignoring this research? And second, why is the PC games sector being killed by piracy if this is true — shouldn’t it apply to games as well? Or was all of that just a big lie?

The answer to the first question is rather obvious: The big music companies aren’t the ones making money. Their business model is based off a tightly controlled music sector where big hits like Britney Spears are produced over and over by a very small set of producers. They’ve been able to select who gets to release an album for a long time now, and they’ve taken most of the profits from the sales themselves.

Now, in contrast, smaller bands and artists are profiting. The money from Ghosts took a much more direct route from consumers to Trent Reznor, and none of it ever landed in the pockets of EMI or Sony. New talents are emerging through other routes than the record labels. Not strange these companies are trying to stop the flood, but rest asured that the result will only be drenched music industry lawyers. Musicians are freeing themselves from the clutches of big business, and profiting from it.

The second question is more tricky. Are we wrong? Do the people who pirate actually buy more games? No, obviously not as a general case, because we’re losing money on selling PC games, and the industry as a whole is moving away from it. So what’s the difference?

I think one key thing to consider here is the cost of games. The currently high cost of games is a large enough barrier that I’ll think twice about buying something. If I hear a song and fall in love with it, the cost of a download or a CD is low enough that I might buy it impulsively just from that entertainment value. In contrast, I’ve looked at buying Call of Duty this month, thought about it and decided not to on the basis of cost — and yet most of the people we expect to buy our games probably have less money to spend.

Why do games cost so much? With Steam and other digital distribution channels there’s no need to make a DVD, print a manual, make a box and ship it across the world… so the download should be cheaper, right? Of course it should, but enough people still buy games at retailers like GameStop and Game to let them bully the industry. Whenever a company wants to sell a game’s download version cheaper, the retailers step in and say “No, if you do that we wont sell your game” (“so people have a choice” — wait, what?). The sooner you stop buying games at retailers, the sooner we can break this evil lock-in and lower the price of games.

But I don’t think that’s all to it. I think at least part of the issue has to do with replay value. If I download an album from a torrent site, I’ll listen to it for a while, start loving it, and buy it because I’ll still play the album hundreds of times after I bought it. With some games, there’s next to no replay value. The point of “love for game starts” is very close to the point of “game ends”, and thus there’s a very short period in which there’s a high incentive for the player to go and buy the game.

The online portion of games counter this. Comparing the play time of a singleplayer game to a combined SP/MP or a pure multiplayer game, there’s a huge increase in replay value. Sadly, that does nothing to save the singleplayer experience, so the only reasonable way forward is to bring down the cost of games.

Especially as downloads fix another major problem in the process: that games aren’t available to some people at release.

So what’s the conclusion to all of this? Simple: buy your games online, help break the retailers’ stranglehold on the games industry.