Argh, Matey!

by Rich Redman

As I write this, we're preparing our first product, Swords of Our Fathers, for sale next week. I keep thinking about a message board thread that someone began on the Wizards of the Coast site that encouraged people to pirate game products by downloading them as free PDFs from various websites. His reasoning was that piracy lowered prices, and that more people downloading game products would force the big corporations that produce them to lower their prices…just like the music industry. The day I started writing this, the Seattle Post-Intelligencer ran a story on the music industry case he referred to, and that was the last straw. There are so many things wrong with this thinking that I wrote this opinion piece to get it out of my system and relieve my headache.

I know this is supposed to be an opinion piece, so I hope you'll forgive me if I start off with facts. To begin with, the music industry did not lower compact disc prices very much at all. In fact, I can't even tell yet that prices came down. Piracy had nothing to do with it, though those who don't follow the news (it was page-one stuff in the Seattle newspapers) might think so. What really happened was a class action lawsuit that accused companies in the music industry of price fixing. Price fixing is a form of monopoly and is illegal in many places, including the United States. A federal judge decided that music companies had agreed to artificially set, or "fix," the prices of compact discs. Participants in the class action lawsuit can get some money back (if you bought a music CD between January 1, 1995 and December 22, 2000, you can go to www.musiccdsettlement.com and claim your piece of the pie, but you must do so before March 3, 2003). Piracy had nothing to do with recent changes in music CD prices.

Now let's examine the idea that piracy, or bootlegging, can lower prices. Our company is in the business of putting out game products as PDF files. The costs associated with making those files include paying an artist, an editor, a layout person, and sometimes a cartographer. If we sell 1,000 copies at $5 each, we make $4,000 (because our distributor keeps 20%) which goes to paying those other people. Whatever is left gets split evenly between JD, me, Marc, and Stan!

Suppose we had shareholders, in other words let me take a giant leap away from facts to hypothesis. We would give those shareholders quarterly financial statements telling how much we sold of each product, our costs, our profit, and our estimates for the next quarter. If we had shareholders, we'd want to keep them happy. In our case, most of our shareholders would be you folks reading this (our fans), our families, and our friends. We would want to keep you happy because of your relationships with us. In the case of bigger companies, like Hasbro, it's important to keep shareholders happy or they'll sell their shares to someone else. Selling stock drives the price of each share down. When stock values go down, it's harder for the issuing company to get financing for things like additional equipment, larger facilities, and so on. In addition, dropping stock prices can lead to hostile takeovers by other companies.

So if sales start to slip a few months down the road because someone posts our files to a pirate website, we would still need to keep our shareholders happy by sticking close to our quarterly estimates. We could try charging less for our products. There are always people who will buy something if the price is only low enough. What no business knows is how big or small that market is. It might not be big enough, in this case, for us to sell enough copies to make up the loss.

Remember, in this hypothetical situation we are still selling some books, just not as many. If we raised prices on our books, we would lose some customers no matter how little we raised the price. However, we could experiment and balance the loss of customers with the increase in price until we were on target to make our profitability goals. That is the "point of elasticity," where you lose so many customers that you can't make up the loss in revenue by raising prices any amount. So as long as the price of our books stayed below the point of elasticity, we could make up for the drop in number of sales by charging more for each sale. Remember that point! Companies, whether four guys who meet weekly in JD's apartment or a big international corporation like Hasbro, can make up for a drop in sales volume, say a drop caused by piracy, by raising prices to just below the point of elasticity. Hasbro may not notice a significant loss to pirates, but Hasbro has the #1 and #3 role-playing products in the business and isn't satisfied with their profit margins already. Now, that's really just my opinion. If I were CEO of some big corporation, my choice would be between the uncertain benefit of lowering our prices and the almost certain benefit of raising them. The choice seems obvious to me. It's just my opinion, but piracy usually raises prices.

Back to facts: We are not a big, faceless, corporation. We are four guys trying to pay our bills and stay in a business that we love. Heck, our faces are on this site! Some guy pirating our material doesn't steal from Hasbro or Wizards of the Coast, it steals directly from us and directly hinders our ability to maintain this website and to keep putting out products. It keeps us from paying the editors, artists, cartographers, and layout people who make our text look good. Monte Cook made a similar point on his website. Pirating Malhavoc Press products takes food out of the mouths of Monte and his wife, and of everyone who works with them. For obvious reasons, we think piracy is wrong.

The role-playing game business is tiny compared to the automobile industry and so many others. In my opinion, piracy will kill it. If no one can make a living from designing games, all we're left with (and I mean "we," because all of us buy games, too) is amateurs working nights in their home offices. That kind of product is already causing a glut in the d20 market. I'm sure everyone reading this knows the kind of things I'm talking about. You can help avoid this. If you find material that a company sells available for free on some other website, do two things: Tell the company that produces the product (for instance, us), and tell the webmaster of the site where it's available for free. Lots of Internet service providers (ISPs) have Terms of Service (TOS) sections in their contracts that forbid posting copyrighted material, so alerting them that a customer broke that part of the contract can close that person's account. Most websites will remove copyrighted material if alerted, and no one has to call a lawyer. In the United States, laws about the Internet are the province of the Federal Communications Commission (FCC), and no web host wants the FCC knocking at its door.

Don't get me wrong, I'm not completely naïve. We'll never "stamp out" piracy. The simple truth is that some people will never pay for anything if they can avoid it. Their computers are stuffed with warez, their shelves are lined with bootlegged CDs, and books that have the front cover torn off. Many others will never knowingly acquire or possess anything unlicensed, pirated, or bootlegged. The only people we can affect are the ones in between, the ones who will buy if the price is low enough and will support pirates and bootleggers when the price isn't.

That seems like an awfully long-winded way of saying that, in my opinion, piracy is wrong. In the end, that is my opinion. A federal court case changed the behavior of the music industry, not pirates. Piracy usually raises prices. The music industry, the publishing industry, and the software industry have yet to bow to pirates' demands. A small company, or a niche market like role-playing games, cannot withstand piracy and stay in business.

Thanks for listening.

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