We've been hearing a lot about game piracy recently, with big developers inflicting draconian online-only DRM systems on their users, and blaming their declining PC game sales entirely on piracy. I'm not questioning that piracy is common, since even honest, DRM-free, indie developers like 2DBoy report a 90% piracy rate. I am, however, questioning what this means. How much revenue are developers actually losing to piracy?
The common industry assumption is that developers are losing 90% of their revenue. That is, pirates would have bought every single game that they downloaded. From personal experience, I know this is not possible -- most pirates that I've met have downloaded enough software to exceed their entire lifetime income, were they to have paid for it all. A more plausible (but still overly optimistic) guess is that if piracy was stopped the average pirate would behave like an average consumer.
This means that to calculate the worst-case scenario of how much money is lost to piracy, we just need to figure out what percentage of the target market consists of pirates. For example, if 50% of the market is pirates, that means that it's possible that you've lost 50% of your revenue to piracy. So how do we calculate what percentage of the market consists of pirates? Do we just go with 90%?
iPhone game developers have also found that around 80% of their users are running pirated copies of their game (using jailbroken phones)  This immediately struck me as odd -- I suspected that most iPhone users had never even heard of 'jailbreaking'. I did a bit more research and found that my intuition was correct -- only 5% of iPhones in the US are jailbroken.  World-wide, the jailbreak statistics are highest in poor countries -- but, unsurprisingly, iPhones are also much less common there. The highest estimate I've seen is that 10% of worldwide iPhones are jailbroken. Given that there are so few jailbroken phones, how can we explain that 80% of game copies are pirated?
The answer is simple -- the average pirate downloads a lot more games than the average customer buys. This means that even though games see that 80% of their copies are pirated, only 10% of their potential customers are pirates, which means they are losing at most 10% of their sales. If you'd like to see an example with math, read the following paragraph. If word problems make your eyes glaze over, then I advise you to skip it.
Let's consider the following scenario. Because game pirates can get apps for free, they download a couple new games every day -- or about 500 games in a year. On the other hand, normal gamers tend to play the same game for a longer time -- buying an average of 5 games per year. If this seems low to you, then consider that you are also reading a post on an indie game developer blog. You are probably more hardcore than the average gamer. Anyway, given these statistics, if the market consists of 10 million gamers, then there are 500 million pirated game copies, and 90 million purchased game copies, From the perspective of every individual game, 80% of its users are using pirated copies. However, only 10% of the market consists of pirates.
PC game piracy
Does this also apply to PC (Windows/Mac/Linux) gamers? Many PC game developers find that about 90% of their users are running pirated copies -- does this mean that piracy is killing PC games? Let's try our alternative explanation, and see if these statistics are possible even if only 20% of worldwide PC gamers are pirates. The average PC gamer worldwide only buys about three games a year, and plays them for a long time . I buy many more than that, and you probably do too, but again, we are not average gamers! On the other hand, game pirates might download a new game every few days, for a total of about 125 games a year. Given these numbers, games would see 90% piracy rates even though only 20% of gamers are pirates.
Are these numbers accurate? The NPD recently conducted an anonymous survey showing that only 4% of PC gamers in the US admit to pirating games , a number that is comparable to XBox 360 piracy statistics  . However, since piracy is inversely proportionate to per-capita GDP, we can expect piracy rates to increase dramatically in places like Russia, China and India, driving up the world-wide average. Let's say to 20%.
This means that if all pirates would otherwise buy as many games as the average consumer, then game developers would be losing 20% of their revenue to piracy.
But would pirates really buy games?
Anecdotally and from studies by companies like the BSA, it's clear that pirates for the most part have very little income. They are unemployed students, or live in countries with very low per-capita GDP, where the price of a $60 game is more like $1000 (in terms of purchasing power parity and income percentage). When Reflexive games performed a series of experiments with anti-piracy measures, they found that they only made one extra sale for every 1000 pirated copies they blocked . This implies that their 90% piracy statistic caused them to lose less than 1% of their sales.
Why are PC games really losing sales?
While many game developers blame piracy for their decreasing PC game sales, it is clear that this is not the problem -- relatively few gamers are pirates, and those that are would mostly not be able to afford games anyway.
However, it's easier for these developers to point their fingers at pirates than to face the real problem: that their games are not fun on PC. The games in question are usually designed for consoles, with the desktop port as an afterthought. This means they are not fun to play with a mouse and keyboard, and don't work well on PC hardware. Their field of view is designed to be viewed from a distant couch instead of a nearby monitor, and their gameplay is simplified to compensate for this tunnel vision.
Blizzard is one of the most successful game developers in the world, and it develops exclusively for desktop computers. Why do they succeed where everyone else fails? They create games that are designed from the beginning to work well with the mouse and keyboard, and with all kinds of desktop hardware. If developers spent more time improving their PC gaming experience, and less time complaining about piracy, we might see more successful PC games.
With the Humble Indie Bundle promotion we've seen that when we treat gamers as real people instead of criminals, they seem to respond in kind. Anyone can get all five DRM-free games for a single penny, and pirate them as much as they want -- we have no way to find out or stop it. However, in just the first two days, we have over 40,000 contributions with an average of $8 each! Would we have seen this much support if the games were console ports that only worked when connected to a secure online DRM server? We'll never know for sure, but somehow I doubt it.