Sunday, February 28, 2010

Estimating The Cost of Game Piracy

The Motivation

A few years ago we had an idea on how to create a fairly hard to crack DRM.
Coming from a security background (among other things) we knew what most people in the field know - All defenses can be breached. It is simply a matter of resources.
In the case of game copy protection we knew that there are considerable resources invested by hackers and crackers to break copy protection. A good[1] copy protection can buy whoever is using it a few months at most. We figured that if we can make a sufficiently flexible and complex copy protection we can buy about 6 months for a given game before the protection is broken.
To see if this was a worthwhile cause we wanted to know what is the real value of a good copy protection. We also wanted to know if the 6 months we believed we can get would be good enough[2].

I believe that the value of a good copy protection should be the number of additional copies of a given game that would be sold if the game cannot be copied minus the number of copies that would have been sold if those resources would have gone to improving the game (or investing in marketing - in other words - the alternative cost).

It is very hard to say how many copies of a game could be sold if some additional funds are put into any aspect of making a game. It is also very hard to tell how much is lost due to the additional inconvenience introduced by some of the more intrusive protections[3].

On the other hand it might be possible to find out how many games could be sold if there was an unhackable copy protection.

Looking For Numbers

In my quest for numbers i ran a search to see if there were any research that could reasonably estimate how many copies of a given game could have been sold had it been protected.
Unfortunately none were available. What i found was plenty of articles citing the BSA and IIPA for pirated software numbers and estimates for the loss of income due to those pirated copies.
This might be considered good evidence but after taking a more in depth look at the numbers and methodology i decide i don't really trust the results (i might go more into that in a seperate article - but i am certainly not the first to question those surveys) .

I also found this very comprehensive article about game piracy in general. I recommend it to anyone who wants to get a good understanding of the different aspects of game piracy.

So the question remained - How do you measure the actual loss due to piracy?
If you want to compare things, finding something that is reasonably similar is a good start.
Like The Economist's Big Mac Index - you want a product that is arguably of the same quality, make, reputation etc' as possible if you want to make a good comparison.
I think that i found such a product for piracy loss research - Cross platform titles.

A Different Approach

There are two[4] 7th generation consoles on the market - Microsoft's Xbox 360 and Sony's Playstation 3.
These consoles are arguably[5] the same in terms of interface, level of graphics and the type quality and number of titles released for these consoles.
The Xbox 360 has been hacked many years ago (i think sometime in 2006).
The Ps3 on the other hand had not yet been hacked. Sony has made considerable efforts in securing the PS3 and so far - 4 years and counting - The PS3 had not been hacked.
My argument is that since the Xbox 360 had been hacked and the PS3 had not been hacked, the difference in sales of various titles should reflect the loss of revenue due to piracy.

In recent years more and more titles are being released to both consoles. These games constitute a comparable (identical?) product. Most cross platform titles look the same on both consoles, distributed enjoy the same publishing houses, have the same level of publicity and the same kind of gameplay, story and whatever other aspect you may choose to consider. They are also - for the most part (and for all games considered in this research) - released at the same time.

A good comparison should consider alternative or competing products. This aspect is much harder to account for. I cannot accurately or reasonably claim that it doesn't make any difference or that i can accurately measure or correct for it. I hope i can reasonably persuade you that it is of reduced importance because of two things:
1. If you look at the current (at the time of writing) top sellers lists of both the Xbox 360 and the PS3 you'll find that 5 of the top 10 sellers on the PS3 lists are cross platform titles (3 of them are the top sellers) and 6 of the top 10 sellers for the Xbox 360 are also cross platform.
2. To further reduce the impact of console specific titles on the overall numbers i tried to include as many games as i could find in the research.

Still, I acknowledge that competing exclusive titles have an impact on the overall results. But i think the numbers themselves demonstrate that this impact is not likely to be too significant.

Correcting For Console Sales Difference

The final significant difference between the consoles is the numbers of consoles sold.
Currently Wikipedia (no. for dec 2009) cites 33.5 million PS3 consoles sold vs. 39 million Xbox 360 consoles sold. For the sake of transparency i am showing the adjusted and unadjusted numbers.
It should be noted that without correcting for the number of consoles sold, the total number of copies sold from all titles i looked at are significantly higher on the xbox 360.

Commutative unadjusted game sales for 56 leading titles by console (unadjusted):
Without correcting by the number of consoles sold there is a predictably higher number of copies sold on the Xbox 360.

The Commutative game sales from 56 leading titles by console, adjusted by the number of consoles sold:
As you can see - once we adjust to the number of consoles soled the commutative number of copies sold is almost identical. The green line at the bottom shows the difference between the consoles.

Estimating The Cost Of Piracy

The following graph shows the ratio of adjusted PS3 sales and Xbox360 sales.
I believe that part of this ratio can, at least in part, be explained by piracy.

According to these results the estimated loss due to piracy is around 5-10%.
However it should be noted that this is the case if (and its a huge IF) all of the difference between the sales of these titles between consoles is solely due to piracy.
There are many other factors that may effect game sales.
If we make the assumption that game piracy incurs a significant loss and is by far the most significant possible factor effecting sales of these titles between consoles than this number may be accurate.

Personally i do not believe this to be the case. I believe that there are so many possible different contributing factors to the differences in sales between consoles that they must contribute (positively or negatively) to the sales of games between consoles.
In other words - i do not believe that there is enough of a difference in the number of copies sold to reasonably claim that piracy incurs a measurable loss on game sales.

[1] - Good at being a copy protection. The most successful copy protections tend to be pretty evil in what they actually do.
[2] - We were wrong btw. it seems that games sell mostly during the 2 months before Christmas. This is probably why many releases are targeted around that time.
[3] - Sony BMG's care is perhaps the most famously intrusive and destructive of those.
[4] - Well, Nintendo would have you believe that there are 3 but you can't really compare the level of graphics or the gameplay in Wii to the other consoles. Xbox360 and PS3 are consoles for gamers. Wii is the casual gamer console. You also can't reasonably claim that the titles released to the Xbox 360 and Ps3 are the same as the ones released on the Wii.
[5] - This is the subject of many arguments. For the sake of full disclosure i own an Xbox 360. I (no longer) claim it has better graphics than the PS3. Only that it both consoles are practically the same.

This is the list of title's whose sales numbers i used:
Army of Two
Assassin's Creed
Bad Company
Bound in Blood
Brutal Legend
Burnout Paradise
Dark Sector
Dead Space
Devil May Cry 4
DiRT 2
Fallout 3
Far Cry 2
FIFA Soccer 09
FIFA Soccer 10
Fight Night Round 3
Fight Night Round 4
Grand Theft Auto IV
Guitar Hero III
Hell's Highway
Los Angeles
Madden NFL 09
Madden NFL 10
Mirror's Edge
Modern Warfare 2
Modern Warfare
Mortal Kombat vs DC Universe
Need for Speed Carbon
PES 2009
Prince of Persia
Project Origin
Saints Row 2
Sid Meier's Civilization Revolution
Sonic Unleashed
SoulCalibur IV
Street Fighter IV
Tales of Vesperia
The Force Unleashed
The Simpsons Game
Tiger Woods PGA Tour 09
Top Spin 3
World at War
World in Flames
World Tour
WWE SmackDown vs Raw 2009
WWE SmackDown vs. Raw 2010


Mit said...

Couple of questions
1. How did you perform your sales adjustment?
2. Did you account for title prices?
3. Did you adjust for geography and cultural differences (I.E. PS3 sells mostly in Japan where something can be said about purchasing games and the local GDP while XBox sold mostly in the states where games cost this much compared to the GDP)

As always:,_damned_lies,_and_statistics

Yossi Naar said...

1. Sales are adjusted by the number of console sold at the given moment in time - in other words: we multiply the number of copies sold of a given title for the xbox by the ratio of commutative sales of ps3's to xbox's sold at that point in time. I left the number of copies sold on the ps3 without adjustment, as only one needs to be modified (we could have also corrected the ps3 sales by the reverse ratio).

2. Good Point. No - i did a surface check on amazon to verify that these games were sold at the same price across consoles. I found some negligible (~1$) differences so i decided not to go into it.
It is pretty hard to get good estimates for the actual price at the time of sale. But it would be interesting to adjust for that if someone has these numbers.

3. No, and it is not true that PS3 sells mostly in Japan.
It is true that there are non negligible differences in terms of general regions.
I.E In Japan approx 4.8 million Ps3's were sold vs. approx 1.2 million Xbox 360's, Out of a total of approx 32 million units Ps3's and 38 million Xbox360's we can't really say that Ps3's don't sell outside of Japan.
It can be (reasonably) claimed that these are non-negligible differences.
As for GDP - an interesting point, but AFAIK there is no published work that links GDP with the specifics of local consumption behavior, certainly not with games. There are too many cultural differences that require an explanation.
It's possible(data is available) to completely discount japan from play or focus just on the US, but the point was to demonstrate the global rates.

Number of consoles sold by region:[]=PS3&cons[]=X360&reg[]=Total&reg[]=America&reg[]=Japan&reg[]=Total+Others&start=38578&end=40237

Anonymous said...

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Yossi Naar said...

well - obviously the comment from "anonymous" is a weird kind of spam.

I wonder which kind - perhaps a marker?

I will leave it in for now as it is a curious thing.