How Much Will Game Theft Harm Microsoft's Xbox 360?

Nov.17.08 | About: Microsoft Corporation (MSFT)

Gaming is growing massively and will soon be bigger than television and film combined. This is because gaming has the technical advantages of interactivity, connectivity and non linearity. No other entertainment medium can compete with these. These 3 technical advantages have the added benefit of making anti piracy measures relatively easy to implement. In fact, the main role of a game console is to act as an anti piracy dongle.

This anti piracy advantage is a great bonus for the games industry. The music and film industries are suffering horribly from thieves, precisely because their products are impossible to protect. However the game industry is extremely complacent precisely because of these technical advantages. So everybody does far less than they should and could to prevent piracy. And with our guard down it is very easy to experience a disaster. This happened with home computer gaming and PS1 gaming. It is happening right now with PC, PSP and DS gaming.

And now the Microsoft (NASDAQ:MSFT) Xbox 360 could be heading for this same disaster. Basically it has become very easy and very common to chip the console to bypass the copy protection. And most customers would rather steal games than help to pay for their development.

Microsoft’s only recourse is to close the Xbox Live accounts when they detect a chipped deck playing a pirated game. This is circumvented to a large degree by having two decks. One chipped for playing stolen games and one not chipped for using Live. An extra deck only costs as much as three games.

But how bothered are Microsoft? Free, stolen games will make the Xbox even more desirable over its competitors and so will give Microsoft a great USP in the console war. Also Microsoft are almost certainly making a profit on every console sold, even at the new low price points. It is such an elegant hardware design. And then the company has all that regular monthly income from Live.

The real losers are the publishers. And via them, the developers. If a game platform is pirated excessively then publishers can vote with their feet. There are plenty of other platforms they can spend their time and money working on. This is what they have done with the PC and PSP. And the stupid game thieves end up with no games being made for them to steal.

So the danger for Microsoft is that publishers abandon its platform. It no longer works as an anti piracy dongle. This was part of the downfall of the Dreamcast. In fact the bigger problem is publishers deserting the whole console business model. There are areas of gaming that are growing much faster and which are pirate proof, offering far better prospects. In fact, a lot of the console game business looks like people doing it just because they are in the habit of doing it. You can all name publishers doing this.

One thing is for sure, Microsoft must really get its whole anti piracy strategy a lot better for the upcoming Xbox 720. It would be sad if the billions it has invested in console gaming became a dead end.

Disclosure: None