Just As Valve Shows That You Can Compete With Piracy In Russia, Russia Starts Cracking Down On Piracy

from the so-that's-how-it-works dept

Bill Bliss was the first of a whole bunch of you to write in with a version on the story of how Valve has continued to show how to compete with free. This alone, isn't new. We've been covering these kinds of stories concerning Valve and its CEO, Gabe Newell, for years. There's a lot in this latest talk by Newell that repeats what he's said for years, but there are also some new experiments in there as well. Such as the following:

Newell: The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates. For example, Russia. You say, oh, we’re going to enter Russia, people say, you’re doomed, they’ll pirate everything in Russia. Russia now outside of Germany is our largest continental European market.

Ed Fries: That’s incredible. That’s in dollars?

Newell: That’s in dollars, yes. Whenever I talk about how much money we make it’s always dollar-denominated. All of our products are sold in local currency. But the point was, the people who are telling you that Russians pirate everything are the people who wait six months to localize their product into Russia. … So that, as far as we’re concerned, is asked and answered. It doesn’t take much in terms of providing a better service to make pirates a non-issue.

Now that's doubly interesting, because at the same time as we got this story, we also got another submission (anonymously) about how Russia has finally started cracking down on infringement by arresting a Russian couple who was caught distributing movies online. Assuming they're guilty, they certainly don't deserve any sympathy, but it does seem intriguing to see these two stories juxtaposed.

The entertainment industry has been pushing hard for Russia to crack down on infringement, insisting that there's no way they can make money in the Russian market. And yet, Valve is proving that's false. It's just that these other companies are incompetent, don't know how to adapt, and don't know how to provide a good service. If you do that, you can make a ton of money even if the products are available in unauthorized ways.

Filed Under: competition, gabe newell, piracy, russia, steam
Companies: valve

Debate Time: Ubisoft Says DRM Is Needed, Valve Says No It Isn't.

from the don't-hate-your-fans dept

It's not every day you get two diametrically opposed views on DRM from two high profile companies in the video game industry, yet that is what happened recently.

While both were speaking to different gaming news sites, their conversations have an almost debate-like feel. So I think we will let the two execs duke it out on the debate floor. In one corner we have Martin Edmonson of Ubisoft Reflections speaking to Eurogamer. In the other corner, we have Gabe Newell of Valve speaking to Kotaku (thanks to Matt for being the first of many to send this in).

We will let Martin have the opening statement:

You have to do something.

It's just, simply, PC piracy is at the most incredible rates. This game cost a huge amount of money to develop, and it has to be, quite rightly - quite morally correctly - protected.

If there was very little trouble with piracy then we wouldn't need it.

Gabe shoots back:

We're a broken record on this. This belief that you increase your monetization by making your game worth less through aggressive digital rights management is totally backwards . It's a service issue, not a technology issue. Piracy is just not an issue for us.

Martin responds:

DRM is not a decision taken by us as a developer at all. It's a purely a publisher decision. The publisher has every right to protect their investment.

It's difficult to get away from the fact that as a developer, as somebody who puts their blood, sweat and tears into this thing... And from the publisher's point of view, which invests tens and tens and tens of millions into a product - by the time you've got marketing, a hundred million - that piracy on the PC is utterly unbelievable.

Gabe shares a story of how Valve protected their investment, in Russia no less:

When we entered Russia everyone said, 'You can't make money in there. Everyone pirates.'

When people decide where to buy their games they look and they say, 'Jesus, the pirates provide a better service for us.'

The best way to fight piracy is to create a service that people need. I think (publishers with strict DRM) will sell less of their products and create more problems.

Ok, so it wasn't a long debate, but I think the point is clear. Ubisoft and many other developers and publishers are under the impression that those who pirate games are doing so just to get free games. Yet, Valve has learned that piracy is a symptom of a greater problem: unmet customer needs. It learned that Russians pirated games to get a better quality localization than what the publishers provided. It didn't respond by upping the DRM. It responded by providing high quality localization.

So rather than fight your fans and treat them like criminals, why not embrace them and provide them with the product they want? It's amazing that anyone needs a debate to figure that out.

Filed Under: debate, drm
Companies: ubisoft, valve

Buyers Who Purchased Modern Warfare 2 Via Steam Discover DRM Puts Them 2 Days Behind Everyone Else

from the that-sucks dept

When talking about video games, we sometimes hear that Valve's Steam is one of the few examples of "DRM that works," but that's hard to accept when you hear ridiculous stories like this one. Apparently people who downloaded Modern Warfare 2 via Steam, expecting to be able to play the game today (along with everyone else who bought it in a store today) have discovered that the DRM has been setup so you can't actually play the game until Thursday. Ouch. It's yet another example suggesting that Infinity Ward really does not care at all about PC gamers. The game will likely sell millions of copies anyway, but it's really amazing to see how badly the company treats its PC gamer fans.

Filed Under: drm, fans, games, modern warfare 2, steam
Companies: activision, infinity ward, valve

Valve Exec Explains How To Compete With Piracy

from the service,-value,-pricing dept

Last month, an exec at Valve Software noted that "Pirates are underserved customers" and said when someone realizes that, they also discover: "I can do some interesting things and make some interesting money off of it." It looks like the company is sharing some data to back that up now as well. A whole bunch of you have been sending in reports from Gabe Newell's keynote speech at DICE. Newell is the founder and managing director of Valve, and he provided plenty of reasons that show that "piracy" is not the issue at all: service, value and pricing can easily trump piracy.

He started out by pointing out something that we've discussed in the past: digital content is best viewed as a service, not a product. As a service, you focus on providing continual value -- and people are paying for that future value (which is a scarce good prior to delivery), rather than an infinite good already created. There's value in paying for that future (scarce) service, and it trumps paying for an abundantly available good.

From there, he noted that the reason "piracy" is doing so well is that the "pirates are ahead not just on price, but on service." In fact, he noted that since DRM decreases the service value for customers, it also tends to increase piracy, rather than decrease it.

Then, he showed how that combination of service and smarter pricing allowed the company to run experiments and make a lot more money -- competing quite successfully against piracy. The most stunning example: last weekend, the company ran an experiment with the game Left 4 Dead. It heavily discounted the price, and sales shot up 3,000%. And this wasn't just a case of building off a small base. The sales over the weekend were more than when the game launched.

In fact, it looks like a big part of the problem facing the industry is that they charge way too much for their products. Here are the numbers Newell shared from Valve's experiments with "sale" pricing:

• 10% off = 35% increase in sales (real dollars, not units shipped)
• 25% off = 245% increase in sales
• 50% off = 320% increase in sales
• 75% off = 1470% increase in sales

Newell then says when they decrease the price by 75%, they are making 15% more than when they were charging at full price -- though, I'm not sure how that math works out from what's stated above (I've been playing around with the numbers, and something is missing...).

Between all of this, it's pretty clear, yet again, that "piracy" is hardly the issue. If you provide a valuable ongoing service at a much more reasonable price, there's no problem at all. Once again proving that the issue is a business model issue, rather than a legal issue. It's too bad so few old school content providers are willing to recognize this, and quite troubling that some folks in our government are still missing this as well. It's going to lead to bad laws and even worse enforcement of the law.

Filed Under: gabe newell, games, left 4 dead, pc games, piracy, pricing, service, software, video games
Companies: valve

Valve Exec: Pirates Are Just Underserved Customers

from the and-then-you-see-the-opportunities dept

We've had a ton of people submitting this, so figured a quick writeup is in order. Jason Holtman, the director of business development and legal affairs for Valve, was speaking a video game conference, when he noted: "Pirates are underserved customers." This is a point that plenty of folks have been making for a while, but having an exec at a company like Valve make it is important. But, even more important was his next sentence:

"When you think about it that way, you think, 'Oh my gosh, I can do some interesting things and make some interesting money off of it.'"

This past weekend at the MidemNet conference (on which I'll be writing much more), I heard a few music industry folks say something at least somewhat similar to the first part of the comment: talking about how they had to learn to bring "pirates" back into being legitimate customers. But, then they missed that second part. As one attendee said, the music industry execs kept freaking out about how much money they will lose, while ignoring how much money there is to be made.

Filed Under: jason holtman, pirates, underserved customers
Companies: valve