I’ve been thinking a lot about video game piracy and that time United Airlines beat up a guy. I’m guessing the connection isn’t that obvious, so let me explain.
Piracy as low-cost competition
There’s an argument that I take pretty seriously that runs something like this: Companies have mostly won the battle against piracy in the last few years by offering better customer service. The Forbes article I linked gave the recent high-profile release of Orange Is The New Black on torrent sites as an example. Sure, after it was released, you could get OItNB for free through the torrent sites. But it’d be annoying. Take it away, Forbes article:
If you wanted to download this leak now you have to:
- Endure 720p quality episodes with some audio errors and color-correction issue
- Use a torrent site/client, the likes of which are often rife with viruses
- Risk a letter from your ISP given the hugely high-profile nature of this leak
- Download what appears to be only the first 10 episodes of the 13 episode season
In contrast, if you just wait a few weeks, Netflix will offer the full season instantly in 4K HDR, readily available on any device you own that has a Netflix app (which is probably all of them).
Sure, Netflix can’t compete on price, but it can win hands down on service. And thus many, many people will choose to pay for Netflix even though they could get this show for free. The same article added that Gabe Newell has made this point in the video game context:
The most-referenced quote about online piracy comes from Valve’s Gabe Newell, who said “Piracy is a service problem.” He created Steam, the online portal for PC games, and while it didn’t outright eliminate game piracy, it made many games so cheap and easy to access, piracy often seemed like the worse alternative.
So, if this argument is right (and I tend to think it is), piracy has basically served as low-cost, low-quality competition. By providing better customer service, paid content providers (Netflix/Steam) are able to make money selling a premium product that outcompetes the free alternative for many customers.
Does this mean piracy was good?
So hold up—does this mean that piracy had a good effect on the video game industry (/whatever Netflix is)? I think maybe, yeah.
Let’s take Netflix as an example. Netflix has some original content—more and more, these days—but it’s highly reliant on third-party content too. In a world without piracy, content providers would have a lot of leverage over Netflix. Sure, they can sell to Netflix, but they can also just sell DVDs, and they’d know that anyone who likes their show/movie/whatever has no option whatsoever but to buy their DVDs. This would make turning Netflix down a lot more appealing—which gives them a bunch more room to ask for more money. (In negotiation lingo, their BATNA was a lot higher, which gives them more leverage.)
But with piracy, they didn’t have the option to sell DVDs to nearly as many people. Remember, we’re theorizing that Netflix can outcompete piracy because it’s more convenient. But DVDs? Those are less convenient than piracy (what, drive to a store like a neanderthal?) and more expensive. Sure, that leaves the content producers with you and me—audience members too ethical to pirate their content when it’s available to buy. But it loses them a big chunk of the market that would pay for content delivered in convenient form from Netflix but who wouldn’t pay absent that convenience.
Thus, it’s plausible that Netflix was only able to get content producers on board because those producers knew that the alternative to producing a premium-convenience product was to have a much bigger piracy problem.
And the same argument applies just as much to Steam—maybe even more so. If giant publishers thought that they could get people to buy copies directly from them, they doubtless would have done so. Steam probably got a few (ok, a lot) more people to buy the game who would have gone without entirely, but I think it’s plausible that converting pirates to paying customers was a huge part of the draw for the publishers of the world getting onboard with Steam.
So maybe, just maybe, by offering a low (zero) cost alternative, piracy pushed Hollywood and the video game industry into embracing the premium convenience product in a way they wouldn’t have without piracy.
I think you mentioned something about airlines?
Ok, fine, I’m mostly onboard with the argument above. But when the whole United thing happened, I also saw a bunch of arguments that I found convincing—but that made almost the opposite point.
A number of commentators pointed out that—though United clearly screwed up—the climate that leads to airlines overbooking their flights and generally having awful customer service is a product of the intense price-competition airlines face.
I assume that like most companies, United Continental Holdings Inc. cares about its passengers, at least to the extent of keeping them from switching to another airline. They don’t oversell flights because they don’t care; they oversell flights because we want them to. … Major airlines and startups have experimented with better service—more legroom and wider seats, more amenities. This meant carrying fewer passengers. It turned out people wouldn’t consistently pay those higher prices; despite heavily advertising their better amenities, the airlines in question generally ended up going out of business, or switching to the “cattle class” service we all know and hate. The market has spoken pretty loudly; it’s just that we don’t like what it’s saying.
In other words, airlines have tried to offer a premium service, but whenever they try, they go out of business. If airlines try to sell tickets at anything other than the lowest possible price, then that just won’t fly. That seems about right to me.
Let’s pause for a moment, though, to dwell on just how weird this is next to what we said about Netflix and Steam above. We said that Netflix can outcompete piracy—which is free—by offering a more convenient product. We said that Steam can get people to pay ten, twenty, sixty dollars for video games that they could get for free by offering a bit easier of an experience. And yet airlines can’t get people to pay more to avoid the overcrowding and sundry indignities of modern air travel? What’s up with that?
If, based on the airline example, you’d told me that video games came out the other way, I’d be prepared to believe you. (Assuming I didn’t know better, I mean). If you’d told me that, just an airline will go bankrupt selling a more pleasant experience, Steam would go out of business, I would have agreed. If airlines can’t get people to pay more for something they can get for a bit cheaper, why could Steam get people to pay more for something they could get for free?
I’ve given it some thought, and I think I have the answer—along with a few tempting-but-wrong answers I’ve discarded along the way. And next time, I’ll tell you what I think that answer is.