Piracy and the Underground Economy

There is a clarion call that has been building in the voice of game developers in recent years. They claim that piracy is laying waste to their livelihoods and costing them billions in sales. It’s the same banner to which software developers, record labels and movie studios have been flocking for the past decade or so. They insist they’re merely defending the rights of the developers and artists to get paid, and that continuing to support piracy is not only illegal, it also robs the very people whose products we enjoy.

Fair arguments, I’m sure, but I want to introduce you to an entirely different perspective: Piracy supports an underground economy and the livelihoods of thousands of people in Asia, especially in countries where most people live below the poverty line. This underground exists primarily because its participants cannot afford the exorbitant prices charged by game publishers. It’s a point of view that isn’t often raised in American or “industrialized” media, but it’s easy to miss when you aren’t surrounded by piracy on a daily basis.

Welcome to the developing world
I was born into videogame piracy. Ever since my first console, the “Family Computer,” I’ve been bred on games that were illegally manufactured by videogame pirates. In fact, I had no inkling of video game piracy until late into the PS1’s life cycle, when I first spotted a legitimate copy of a game in a store window and made some curious inquiries. By that point, it was too late; I’d collected hundreds of pirated games, many of them from my favorite pirate company, Players. (They had rather aptly pirated the logo of the Indiana Pacers and ingeniously replaced the team’s name with their own.) Still, I resolved to do the right thing. I believed in people getting paid for what they created, and I loved the games that these companies developed. So I walked into a store that sold original games and nearly had a heart attack after finding out how much they were really worth. Original PS1 games at the time cost almost 30 times as much as a pirated copy! Imagine how you’d feel if, for your whole life, you bought games for a dollar apiece, then suddenly found out they actually cost $30. Like many a Filipino gamer, I couldn’t afford it, but I sure as hell wasn’t going to stop playing games. I just went back to the pirates.

That was many years ago, and unfortunately things haven’t changed much. I’m now personally involved in the videogame industry, so my views on piracy have altered somewhat. But it doesn’t change the fact that the majority of Filipinos and other people in the region continue to buy pirated games simply because 1) It’s all they’ve known, and 2) Even if they knew better, they simply cannot afford original games. Publishers and console manufacturers like Nintendo are convinced that once they stop piracy, the money from all those lost sales will suddenly come flowing into their coffers. For whatever reason they never take into account their prospective market’s spending ability. Thus, an underground economy has been built around the needs of the low-income Asian gamer to help them support their addiction. It’s not hard to relate: If you had $300 a month to spend on rent, food and all of your other expenses, how high would a $60 game be on your list?

In many malls in the Philippines, you can still find rows upon rows of stalls hawking pirated games. Plenty of them are sold in generic DVD cases and sport shoddy Photoshopped covers drawn by 5-year-old children, but a few have decided that a more subtle approach is best – they’ll wait for customers to inquire about their selection before taking out a folder of pirated games. The popularity of the PSP and the DS has also introduced an even more subtle method of piracy: ROMs. Side by side with these pirate stalls are cellphone repairmen with computers that hold the latest wallpapers, mobile apps, ringtones and, more often than not, entire libraries of DS and PSP games in what is probably the most cost efficient way to do business ever.

These people make no effort to hide their wares, nor do they make any bones about the fact that these games are “copies,” the more politically correct term for pirated material. You might think they’re criminals, or that they shouldn’t be taking jobs that steal from other people, but the fact of the matter is it’s business as usual to them. Like me, they grew up in an environment where piracy is the norm; telling them that what they’re doing is wrong or illegal just doesn’t resonate as much as you’d hope it would. And when you attack the source of their livelihood, well, let’s just say you won’t find many sympathetic ears.

Doing the numbers
Let’s do a little math. Let’s say there are 50 malls and commercial centers in Metro Manila (a very conservative estimate, as we seem to be on track for the record for the number of shopping malls built annually), and that each mall, on average, contains 20 stalls selling pirated games. Each stall employs around three people: one to man the register and two to entice and deal with customers. Let’s include the owner of the stall into the equation, since he also depends on piracy for his livelihood. That means in Metro Manila alone there are at least 4000 people (50 * 20 * 4 = 4000) who rely on piracy for their livelihoods. These people also have families, and Filipino families, alongside those of other Asian nations like India, rarely have less than five children. That brings the total to roughly 20,000 people in Metro Manila alone whose lives are partially, if not totally, dependent on money earned from selling pirated materials.

Now I’m going to take a huge leap and multiply that number by 10 to account for all the urban areas around the Philippines. That makes 200,000 people who directly benefit from piracy or rely on it to make a living. It may not sound like a huge number to you, but consider that the Philippines is a country of 91 million people, roughly 30 percent (27 million) of whom are below the poverty line. Employment isn’t easy to come by, either, with the latest unemployment rates at 8 percent and underemployment at 20 percent. This is also a country where the per capita income is roughly $3400. For comparison’s sake, an entry level game programmer in the United States earns an average of $60,000 a year.

In the Philippines, as in many other Asian countries, piracy isn’t a matter of right or wrong; it’s a matter of survival. To eradicate piracy means depriving people of jobs generated by this underground economy. It means eradicating the businesses that employ them and negating the taxes funneled to the Philippine government. Developers and publishers will claim a huge victory, but they’ll soon notice that those billions of dollars in lost sales aren’t exactly showing up on their bottom line. People still can’t afford their games. Everyone loses.

Tapping the Pirate network and the $5 dollar game

So how much would a game have to cost for the average Filipino to even consider purchasing it? First, let’s calculate the ratio of a $60 current gen game to the U.S. per capita income, which was roughly $46,000 in 2007. When you divide 46000 by 60 you get the ratio of 766-to-1. That means the cost of a video game in the US is 1/766 of the average American’s income. Let’s apply that number to the per capita income of the average Filipino, which is roughly $3400. If you take 3400 and divide it by 766, you get the interesting amount of $4.44. Why is this interesting? Because the cost of a pirated Xbox 360 game is around 200 pesos, or roughly $4.39.

Now you’ve got a dollar figure to work with. At the $5 price point, games become accessible to most of the market. Of course, it costs much more for a publisher to develop, market, produce and release a game than it does for a pirate to rip a CD and burn it a hundred thousand times. So let’s take our cue from the market and cut costs. For the past 10 years, Filipinos have consistently bought games with shoddy covers and no manuals, so they’ve proven they’re not picky about the quality of the physical product; as long as it works when they stick it in the console, they’re happy. Get rid of manuals, CD cases, and elaborate covers with marketing talk. Sell the discs in vinyl sleeves with a sticker cover of the game in front. Eliminate as much cost as possible in the production of the actual CD by having the pirates burn the CDs themselves, and simply supply them with the cover material. Then sell the games as usual. The public might not even have to know about it, and no fanfare means no marketing costs.

Extracting profit from a $5 game may not sound feasible, but you’d never lose a sale to piracy again, more people would be playing your games legally and nobody would have to lose his job. The Philippines is just one small representative of this equation. Many countries in Southeast Asia, not to mention the Middle East, have the same kinds of issues when it comes to videogame piracy. There’s profit to be made in these markets, but on a much smaller scale than most publishers are willing to accept. Drastically cutting costs to reduce piracy may sound ludicrous, but the fact remains that despite the best efforts of corporations and governments, piracy still runs rampant in many regions. Maybe it’s time we try something new.

Ryan Sumo is a starving pixel artist in Manila currently working on the next big thing to hit the DS. Or at least it will be once a publisher decides to pick it up.