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.

Information makes itself free

Most people seem to take someone saying “Information wants to be free” as some sort of nerd joke, or as a justification for piracy, theft of trade secrets or some other dubious or illegal activity. The point it entirely missed there: Information not only wants to be free, it makes itself free… or rather, it’s made free by the process of technological innovation. Information wants to be free just like water wants to run downhill… of course you can lift it in a bucket, but it’ll flow downhill again as soon as the bucket is knocked over.

Consider what happened when Napster was put under legal pressure and the system failed? Napster was immediately replaced by newer, distributed systems. Technology leaped to meet this new challenge, and we got Direct Connect and eventually BitTorrent. The only way to get at these technologies was to adopt a broader strategy to prevent people from doing things they want to do… which means new laws, letting just about anyone monitor private communications to find when you’re doing something “wrong” (under their own definition of “wrong”).

Does it sound outrageous? Like something out of 1984? Well, it’s already happening. In Sweden, from the 1st of January 2009 (also known as tomorrow) a new law is in effect that lets the government monitor and save any traffic that passes the border of the country (which, to be honest, is basically every single Internet access).  Technology will find a way around this. The law, supposedly in place to hunt terrorists, will fail in every way to catch those intended as targets, since these people will simply encrypt their communications with a protocol resistant to man in the middle attacks.

So will the law not have any effect at all then? Of course it’ll have an effect — it can be used against people who don’t bother to encrypt their transmissions because they don’t think they’ve done anything wrong. Like people who don’t agree with the authorities about new laws, maybe. Or maybe people who want to organize to have other less abusive politicians elected the next time around? Anyway, I digress.

It gets even better than that. Another law is now being mashed through the “democratic” system (all major parties support it, so the poor citisens have nothing to vote for if they dislike it). This new law will let anyone with slight suspicions about copyright infringement request your personal information from your ISP if they have your IP, and without further proof they’ll be able to issue what in essence is a privately issued fine.

I believe again that technology will find ways around this. Let me give you an outline of such a scheme… everyone interested runs a local proxy. The proxy is connected to a p2p network of available clients. Each time an web access is done through the proxy, it’ll select a random client and use it to bounce the connection out onto the internet. The connection between clients can be public key-encrypted, which means all traffic essentially becomes random, and it’ll be impossible to track a session to a single client. I know there’s a bunch of problems with that, but a dedicated group of hackers could surely make it work.

So again the people who end up in trouble are not the high-volume culprits, the people who make money off of piracy… but rather the single moms who just wanted to see the end of that episode they missed when the baby started crying.

As coders, our work tends to be rather shallow on the grand scheme of things. I make games for people’s amusement, others make accounting systems or social websites. But maybe, maybe, just as BitTorrent and Napster are so accesible technologies that everyone can use them, maybe we can make new technologies to protect users’ privacy that are available to everyone in the same way. In a way, this is our big chance as software engineers and hackers to stand up for democracy, to fuel the internet revolution, and to actually make a difference in society with what we do. To make sure information stays free.

The only way to get around that would be to outlaw the use of the technology itself. Just like China.