I finished my essay: PDF for your perusal Comments, suggestions, flames... all welcome. Though please bear in mind this is an simple economics essay (for school, eventually) rather than a business article I intend to publish in development circles, or something. Richard "Superpig" Fine
Smoother than a greased baby [TBRF|GP&T|Enginuity1|Enginuity2|Enginuity3|Enginuity4|Enginuity5|TB]

On the last page, in the "Increasing the time" part, there''s a missing word and closing parentheses in the middle of the paragraph.

Thought I''d point it out.

Very good essay. Gave me a good (and pretty enlightening) read.

I hereby award you a gold star and a cookie for using a word (pecuniary) which I had to look up. Good article.

quote: Original post by RuneLancer
On the last page, in the "Increasing the time" part, there''s a missing word and closing parentheses in the middle of the paragraph.

Heh, whoops. Got interrupted mid-thought. Fixed, and re-uploaded.

To save you having to read it again, the thing I was about to say there was that placing a copy-protection check towards the end of the game will make it much more likely to be overlooked by crackers, as most of them will likely not play through the entire game to check for protection. Especially if there''s already a check at the beginning - they''ll assume that''s all there is.

I like your ideas. Sadly, I''m at work, so I''m a bit pressed for time; furthermore, chances are I''ll forget about the thread when I get home because I have quite a bit to do this week. But I find your ideas to be very good.

I read through your paper somewhat quickly (again, being at work). Was your main intention to counter piracy, counter its effects on companies, or both? Some of the solutions you suggested were obviously targetted at making life harder for would-be crackers (such as stronger protection schemes), while others were targetted at helping companies provide their product at a reduced price (both in terms of publishing and selling prices).

I''ll try to give it an other look at home when I''ll have some more spare time.

After reading your paper (which was good), and after getting another graphics card to install in my computer here at work, I got an idea. While reading all the various marchitecture all over the box, I realized that a possible source of revenue for game developers, or all software developers for that matter, could be from hardware manufacturers/distributors. Video cards come with games. HP/Dell/Etc. computers come with Windows. Etc. If a large enough percentage of revenue came from these sources, piracy would be a much smaller issue. And hardware people obviously don''t need to worry about piracy much at all, for obvious reasons. My guess is that Microsoft makes a lot more money off of Windows and Office that are preinstalled on computers, rather than those that are sold retail. Of course, something like this would require a major change to the industry. Just a thought.

Nicely written and the technology stuff is good but the concept of reducing the cost of the software as you describe wouldn't work. There simply isn't the revenue there to cover costs for more than a handful of games. That means that the pirates would still target the other 2495 games that had to make their money from sales.

In addition, even if you got the maximum from each revenue stream, it wouldn't even come close to the potential revenue from sales. No publisher or developer will give up that potential revenue just to cover their costs. In addition most of the methods likely to bring in a reasonable amount of money (tech licensing or advertising) are back ended. You have to have developed the product first before you see the money so you have already incurred the cost. In fact you would most likely have to develop several projects before you could earn any significant revenue from either source.

Advertisers wouldn't pay any significant sums unless the title/franchise was established and that usually takes several iterations.

Tech licensing, likewise, requires that the tech is proven over several projects before you can charge anything more than a token fee. Worse still you need to sell ten licenses to make a decent amount of cash which means that for every game benefiting from licensing their tech there are ten whose production costs actually increase.

Options such as consulting and doing outside contracting are also problematic because neither will bring in anything close to the revenue that software sales do and they slow development allowing the competition to release better games sooner.

quote: Original post by Agony
If a large enough percentage of revenue came from these sources, piracy would be a much smaller issue.

Unfortunately the % revenue isn't nearly enough to be useful. OEM (Original Equipment Manufacturer) distribution deals are already standard practice but there are only a limited number of pieces of hardware that you can bundle a game with. What is more the amount a publisher recieved per unit is tiny (in the region of $1-2) and that money comes out of the card manufacturers profits. Any more than that and their card wont be competetive.

Dan Marchant
Obscure Productions (www.obscure.co.uk)
Game Development & Design consultant

[edited by - obscure on April 8, 2004 5:44:54 PM]

quote: Original post by RuneLancer
Was your main intention to counter piracy, counter its effects on companies, or both? Some of the solutions you suggested were obviously targetted at making life harder for would-be crackers (such as stronger protection schemes), while others were targetted at helping companies provide their product at a reduced price (both in terms of publishing and selling prices).

My intention was to examine possible ways of doing both, though as I stated at the beginning, piracy which isn't eating into effective demand isn't really a problem. So probably more weight on the 'counter its effects' than 'countering piracy' itself.

quote: Original post by Obscure
Nicely written and the technology stuff is good but the concept of reducing the cost of the software as you describe wouldn't work. There simply isn't the revenue there to cover costs for more than a handful of games. That means that the pirates would still target the other 2495 games that had to make their money from sales.

At the moment, I agree. Though the concept of creating a high-quality game and releasing it for free, using the other revenue streams I discussed to cover costs, would make for an interesting experiment, don't you think?

(Of course, such an experiment is unlikely to happen, just like 'repealing all laws' would be an interesting experiment, you wouldn't actually *do* it).

quote: In addition most of the methods likely to bring in a reasonable amount of money (tech licensing or advertising) are back ended. You have to have developed the product first before you see the money so you have already incurred the cost.

Of course, that's true for sales revenue as well - and as far as I can tell, most publishing agreements aren't front-loaded, in that the money is paid after the work is done (be it at milestones, or at the end of the project).

quote: In fact you would most likely have to develop several projects before you could earn any significant revenue from either source.

I can see that being true in many cases, but take, for example, Far Cry ... As far as I know, that's Crytek's only game, and yet I expect the engine will be in fairly high demand. Similar thing with Valve's Source engine, though they do have their earlier reputation to build upon.

quote: Advertisers wouldn't pay any significant sums unless the title/franchise was established and that usually takes several iterations.

At the moment, I agree. However, if advertising in games becomes more prominent - through the established franchises such as Unreal Tournament - and the effects of advertising in games can be seen to be significant, then advertisers will be more willing to 'take a chance' with less established games.

quote: Tech licensing, likewise, requires that the tech is proven over several projects before you can charge anything more than a token fee. Worse still you need to sell ten licenses to make a decent amount of cash which means that for every game benefiting from licensing their tech there are ten whose production costs actually increase.

See my earlier example. Though with your second point, you're forgetting the whole point of using middleware at all - the money saved (mainly in labour costs) by not spending the time developing your own engine. If you could take Crytek's engine for $50,000 (plus, say, $20,000 in time spent learning it), or spend $80,000 in staff costs while they develop something equivalent, the choice is pretty obvious.

quote: Options such as consulting and doing outside contracting are also problematic because neither will bring in anything close to the revenue that software sales do and they slow development allowing the competition to release better games sooner.

I agree, and I also think they're one source of revenue which doesn't stand up to long-term use. It's diving your resources, yet economically firms are more efficient when they're specializing - lower administration costs, greater economies of scale, and so on. I thought I'd put it in because I was slightly short of options, but it's like renting out your excess warehouse space or something. In the end it comes down to ease of hiring and firing; it may be more efficient to just fire your excess employees, and hire them again when they're needed.

[edited by - Superpig on April 8, 2004 7:22:01 PM]

quote: Original post by superpig
At the moment, I agree. Though the concept of creating a high-quality game and releasing it for free, using the other revenue streams I discussed to cover costs, would make for an interesting experiment, don't you think?

Well actually no. The math simply doesn't stack up.
A top flight game could probably attract $1 million in ad revenue per placement. Lets be generous and say $2 million and they get three deals for their game.
$6 million
Then tech licensing at $350,000 per shot with ten deals
$3.5 million

Looks good so far. Spend 5 million making a game and end up with $4.5 million profit (world-wide) so why wont it happen?

i. Only three developers out there have the skills and clout to pull in deals like that (so we are back to my 2495 other projects point) and only the top three titles would attract that sort of revenue. All the others would only get a fraction of this amount and so would make a loss.

ii. More importantly no publisher in their right mind would accept $5 million profit instead the slightest mearest chance that they have the next GTA.
- In 2002 there were over 100 games that sold over a million units (that is just console, just USA). Each of those will have made in excess of $7 million in profit. Now include world-wide sales and that amount doubles to $14 million profit per title. many titles that sold less would have made as much profit if their development was done carefully.
- The lifetime sales on the top four titles for that year were each over 4 million units (again console only and USA only), generating over $166 million in publisher revenue each.
Double that for world-wide sales (lets say $300,000,000) then deduct $5 million dev budget, $2 million marketing, $8 million COG and $1 million for extras and in the region of $56 million to the console manufacturer in license fees ($7 per disk on 8 million units world-wide sales) you are looking at:
$300,000,000
-$72,000,000 costs
$228,000,000 profit on one game.

The developers share at a conservative 15% royalty would be over $30 million.

One last point. Video game sales last year amounted to $16 billion sales world-wide. Giving them away would wipe that off the world economy and bankrupt all the video game shops and distributors.

quote: Original post by Obscure Tech licensing, likewise, requires that the tech is proven over several projects before you can charge anything more than a token fee. Worse still you need to sell ten licenses to make a decent amount of cash which means that for every game benefiting from licensing their tech there are ten whose production costs actually increase.

quote: Original post by superpig See my earlier example. Though with your second point, you're forgetting the whole point of using middleware at all - the money saved (mainly in labour costs) by not spending the time developing your own engine. If you could take Crytek's engine for $50,000 (plus, say, $20,000 in time spent learning it), or spend $80,000 in staff costs while they develop something equivalent, the choice is pretty obvious.

Sorry but in this case your facts are wrong. I am currently negotiating two Renderware licenses for clients and saving money isn't a factor. Middleware is used because it is proven tech that reduces risk and helps get a product to market faster. The costs savings your quoting are wrong because your costs are too low. The id web site lists the Q3Arena license at $250,000. Other top class engines are around the same price.

Conclusion
I would stick with the technical suggestions and avoid the financial ones because giving away software worth $16 billion in order to prevent the loss of $1 billion to software piracy doesn't really work

Dan Marchant
Obscure Productions (www.obscure.co.uk)
Game Development & Design consultant

[edited by - obscure on April 8, 2004 11:04:04 PM]

The way I see it is that probably the only really effective way of dealing with piracy is to require the gamer to use an account on a game server. There would most likely be thieves there too but compared with todays rampant copying it would be significantly less copying/stealing going on (depending of game solution of course)
Which is why I believe so many developers are looking to go down that road sooner or later.