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Probably the single most obvious reason why DRM doesn't (and can't) work

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I'm one of those people who does not condone digital piracy. Period. But by the same token, I'm smart enough to realize that attempting to "combat" it through digital rights management schemes is never going to work. Not because of technical reasons (even if that technology has so far proven itself to be ineffective at best even when not flat out broken) so much as it is for social reasons.

And because of that, the questionable claims made by frustrated digital property producers as to the calculated magnitude of their financial losses becomes all the more specious. Most of these claims seem to state (without any proof) that every copy obtained illegally directly translates to the actual loss of a sale. This is a presumption which neatly ignores the fact that many of the people who do pirate something would never buy a licensed copy - even if they had the money to do so.

But that doesn't stop companies from making projections based on that presumption. Usually it goes something like this: Well...if you take a given number of copies pirated times our MSRP, then our losses due to piracy are...

There are a couple of problems with this methodology. Lets ask a few questions:

Q: How do you know how many copies were actually "pirated?"

A: Well...if you look at the number of torrents in a given month... (translation: We pulled a number out of our ass)

Q: How do you know everybody who pirated a copy would have actually bought it had they not been able to download it for free?

A: We just know. (translation: We're so full of ourselves that we've come to believe everybody wants to own our products. So piss off!))

Q: Why do you always calculate the alleged loss using your obviously inflated MSRP?

A: Hey! That's what we charge for it on our website. And it's a fair price! If Amazon wants to cut it's own throat, who are we to tell them how to run their business? (translation: question please?)

Q: Do you actually sell many copies on you website that way? I mean, y' full list price?

A: I'm sorry. Our sales figures are proprietary information. (translation: And you can expect your ISP to get served with a DMCA takedown notice the minute your article mentioning any of this appears!)

And so it goes. It's mostly accounting projections done using questionable assumptions and methods. And as somebody with a degree in accounting, all I can say is FUBAR! I'd love to see them attempt to convince the IRS they should be allowed to claim losses on their taxes using this same logic. You'll need something much better than a hunch plus some grade school math to convince those guys you experienced a business loss that merits your being able to take a deduction for it. The IRS is a stickler for actual and provable when claiming an expense for tax purposes. :mrgreen:

But I'm talking as a businessman with an accounting background. What would a software game developer have to say about all this voodoo? Read on.

Super Meat Boy game developer Tommy Refenes has put his tuppence in on the topic and produced one of the best articles on what the real problem is with attempting to combat digital piracy with DRM. His conclusion: You can't prevent the loss of sales when there are no real 'lost' sales to begin with.

Some highlights:

Apathy and refunds are more dangerous than Piracy.

I think I can safely say that Super Meat Boy has been pirated at least 200,000 times. We are closing in on 2 million sales and assuming a 10% piracy to sales ratio does not seem unreasonable. As a forward thinking developer who exists in the present, I realize and accept that a pirated copy of a digital game does not equate to money being taken out of my pocket. Team Meat shows no loss in our year end totals due to piracy and neither should any other developer.

For the sake of argument, some of those people that did pirate Super Meat Boy could have bought the game if piracy didn’t exist but there is no actual way to calculate that lost revenue. It is impossible to know with certainty the intentions of people. With the SimCity fiasco and several companies trying to find new ways to combat piracy and stating piracy has negatively affected their bottom line I wonder if they’ve taken the time to accurately try to determine what their losses are due to piracy.
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All loss in a retail setting is calculable because items to be sold are physical objects that come from manufacturers that have to be placed on shelves by employees. You have a chain of inventory numbers, money spent and labor spent that goes from the consumer all the way to the manufacturer. A stolen, broken, or lost item is an item that you cannot sell. In the retail world your stock is worth money.

In the digital world, you don’t have a set inventory. Your game is infinitely replicable at a negligible or zero cost (the cost bandwidth off your own site or nothing if you’re on a portal like Steam, eShop, etc). Digital inventory has no value. Your company isn’t worth an infinite amount because you have infinite copies of your game. As such, calculating worth and loss based on infinite inventory is impossible. If you have infinite stock, and someone steals one unit from that stock, you still have infinite stock. If you have infinite stock and someone steals 1 trillion units from that stock , you still have infinite stock. There is no loss of stock when you have an infinite amount.
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Consumer confidence plays a very important role in how customers spend money. I think its safe to say that EA and Maxis do not have a lot of consumer confidence at this point. I think its also safe to say that the next EA/Maxis game is going to be a tough sell to people who experienced or were turned away by talk of frustration regarding SimCity.

As a result of piracy developers feel their hand is forced to implement measures to stop piracy. Often, these efforts to combat piracy only result in frustration for paying customers. I challenge a developer to show evidence that accurately shows implementation of DRM is a return on investment and that losses due to piracy can be calculated. I do not believe this is possible.

The reality is the fight against piracy equates to spending time and money combating a loss that cannot be quantified. Everyone needs to accept that piracy cannot be stopped and loss prevention is not a concept that can be applied to the digital world. Developers should focus on their paying customers and stop wasting time and money on non-paying customers. Respect your customers and they may in turn respect your efforts enough to purchase your game instead of pirating it.
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Great article. Read the rest of it here.

(With a tip of the hat to TechDirt :-*  for posting a link to Mr. Refenes' blog post.  :Thmbsup:)

There is in fact a good case to be made that piracy can actually increase sales. 

A recent study by the Institute for Prospective Technological Studies, a think tank that is part of the European Commission (can one get more establishment than that?), finds exactly that in the case of online music.

Also, Tim O'Reilly claims that removing DRM from their ebooks greatly increased sales.

Of course, this only works if what you are selling is something that people actually want to own.

Also, Tim O'Reilly claims that removing DRM from their ebooks greatly increased sales.
-xtabber (March 20, 2013, 10:34 AM)
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I'd be very interested is seeing how they established that correlation. Is there a link to any of that?

I remember reading an interview with Tim O'Reilly in which he made that claim, but I don't recall when or where it was.

But according to David Pogue, the NYTimes tech columnist, O'Reilly actually did a test with one of his titles and found that while removing DRM did increase piracy, it also increased sales of the book. 

In any case, there is no doubt that O'Reilly's anti-DRM policy has really paid off for them.  In the last year, they have picked up the distribution for ebooks from Microsoft Press and Wiley's Wrox and Dummies lines, among others.

In any case, there is no doubt that O'Reilly's anti-DRM policy has really paid off for them.
-xtabber (March 20, 2013, 12:43 PM)
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Well it certainly has in my case. I don't willingly buy any media with DRM on it. And I have often declined to get e-books from some sources because of it. (That is also the main reason why I still have so much 'paper' in my tech library.) On the other hand I currently own at least a couple dozen O'Reilly e-titles. And I generally make it a point to always get the new editions whenever they come out (even if I don't really need them) precisely for that reason.

Desired behaviors need to be rewarded if we want them to continue, right? ;) 8)


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