Valve's Steam platform has certainly been one highlight on competing with piracy here at Techdirt. As something of the iTunes of PC gaming, it provides a wonderful example of how a great platform and added value can give those who could otherwise be pirates a real reason to part with their gaming dollar. This isn't to say that the platform hasn't been associated with some issues, but Valve seems to be among those folks that get it right more often than they get it wrong.

Still, we won't shy away from pointing out where those problems exist. Neither will German consumer associations, apparently, as one has now sued Valve over the right for Steam users to resell the games they purchase on the platform. The Federation of German Consumer Organizations (VZVB) is going to court, stating that Steam users who have purchased games, own those games, and should be able to do with them as they please, including reselling them. Often times Steam users are limited in this regard due to the way downloads are associated with specific accounts, rendering any online component unplayable. Carola Elbrecht, project manager for VZVB's consumer rights in the digital world is leading the charge.

Because Valve forbids its users to sell or transfer their accounts to another person, the exchange of games that can only be played online is impossible, she said. This means that a Steam user only partially owns games, Elbrecht said. "If I pay the full price for a game, then why am I not allowed to do with it what I want," she added.

This obviously isn't a new question for us here at Techdirt. It's been a point of logical frustration for consumers that content producers often seem to want their output treated like property when it suits them, but as a service or license when it does not. This leads to, at the very least, the appearance of double-dipping on the part of content producers. For gamers, where used games are such an intregal part of the marketplace, the frustration often boils over. In my estimation, it's quite difficult to draw up a logical proof for limiting the rights to a product for the consumer while strengthening the rights for the producer. Such an arrangement is simply too one-sided in who is giving up whose rights.

Some may note that this isn't the first time VZVB has sued Valve over similar grounds. In 2010, a court ruled against them over whether or not refusing to allow Steam users to transfer their user accounts violated German law. The times, as they say, appear to be a-changin'.

The Court of Justice of the European Union (CJEU), however, ruled in July that the trading of "used" software licenses is legal and that the author of such software cannot oppose any resale. While the CJEU's case is not exactly the same as the current litigation against Valve, the VZVB reckons that the ruling gives sufficient basis for a new lawsuit, Elbrecht said. She expected the litigation to go on for years, and it will probably end up at the federal court again, she said.

At worst, the new ruling opens the door for this suit and perhaps sets a bit of a legal baseline in how to view these types of restrictions. It likely isn't any kind of slam-dunk case and there's no assurance any ruling will even go VZVB's way, but there's something else to consider: Valve has an extremely unsympathetic stance on their hands. While complex legalities and backdoor TOS language may rule the day in court, it likely won't in the court of public opinion. Sticking to their guns on something like this is a wonderful way for Steam to lose, er, steam in gaining a faithful fanbase.

We spend an awful lot of time talking about the economics of digital information, and how it challenges economics that are solely focused on "scarcity." And we've written plenty about how Valve Software has taken a really data-driven approach to its offerings -- often going against "conventional" thinking, but having the data (and revenue) to back up those decisions. So it's neat to see that the company has hired economist Yanis Varoufakis to be its "economist-in-residence" where he'll be exploring the data and sharing some of his findings with the world on a new Valve blog (which doesn't appear to have a Twitter feed... though hopefully they'll fix that). I tend to think it's a good thing when smart companies recognize how they can use real economics (and smart economists) to help them do cool things, so I'm looking forward to what Varoufakis has to say...

One of the more bizarre things that we see in the debate over "piracy" is that when we ask people what's more important -- stopping piracy or making more money -- there are some who actually argue that stopping piracy is more important. I have to admit that I can't get my head around this concept, but apparently it extends even beyond the issue of "piracy" to the issue of pricing as well. vegetaman points us to an absolutely bizarre interview with the head of EA's Origin platform, David DeMartini, in which he's asked by GamesIndustry.biz how he feels about Valve's regular deep discounting of games, something we've discussed at length before. DeMartini is not impressed, claiming that it cheapens your intellectual property:

We won't be doing that. Obviously they think it's the right thing to do after a certain amount of time. I just think it cheapens your intellectual property. I know both sides of it, I understand it. If you want to sell a whole bunch of units, that is certainly a way to do that, to sell a whole bunch of stuff at a low price. The gamemakers work incredibly hard to make this intellectual property, and we're not trying to be Target. We're trying to be Nordstrom. When I say that, I mean good value - we're trying to give you a fair price point, and occasionally there will be things that are on sale you could look for a discount, just don't look for 75 percent off going-out-of-business sales.

Except that totally ignores the reality of the situation and suggests big trouble for the way EA does business. As Valve has made clear, when it does those deep discounts, the increase in sales greatly surpasses the revenue made prior to those discounts. That's not a "going out of business" sale. It's a "let's make a hell of a lot more money" sale.

I'm honestly at a complete loss here. DeMartini literally seems to be claiming that making less money is a better business strategy because it doesn't "cheapen your intellectual property." Apparently the man is entirely unfamiliar with price elasticity, and how lowering your price can lead to more revenue (something which most people think is a good thing). So here's a case where we aren't even talking about "piracy," but instead DeMartini's assessment of what games must be priced at -- and against what the market says is the profit maximizing price. In what world is it a smart business strategy to keep prices high if it's guaranteed to make you less money... all because you want some perceived "value" to be higher, even if fewer people want to buy it?

Recently, Mike wrote about the importance of externalities and spillovers in economics, and the fact that it's often best to allow other people to capture pieces of the value you create and build on top of it. Not only does this benefit the economy as a whole, it benefits the originator, because some of the additional value that people create feeds back to them.

In the video game world, a great example of this is when companies open their games up to mods, so users can tweak them or build entirely new games on top of the same basic engine. Valve's Counter-Strike series grew from a fan-made mod for Half-Life, which was so popular it has been credited with keeping Half-Life on gamers' radars for years longer than it would have been otherwise, leading Valve to hire the creators and turn it into its own game, which remains one of the company's most successful titles. This week another example bubbled up on Reddit, in the form of a captioned screenshot of the Steam store titled "Dear developers, this is why you should make your games moddable":

The game ARMA II: Combined Operations was on track to be another mostly-forgotten game, still enjoyed by a small group of fans with few other prospects. Then, two years after its release, and without getting any kind of promotional sale price, it started selling like crazy and surged to the front page of the Steam leaderboards. Why? Another team of developers One of the company's developers released the alpha of a project he'd been working on independently: Day Z, a zombie-survival game built as an ARMA II mod. Fans have been clamoring for a particular type of zombie game for a while now (and Cracked's Robert Brockway pitched a similar idea recently) and the description of Day Z sounds like it fits the bill—so when the free alpha of the mod was released, lots of people bought a copy of ARMA II so they could give it a try. The developer was expecting it to be a hit within the existing fan community, but he had no idea that it would cross over into the mainstream.

In this situation, everybody wins. Gamers get a new game, ARMA II gets renewed sales, Day Z gets to exist (without the need to build a brand new engine). The sales boost to the original might be temporary, or it might spark new interest in the game and revive it entirely, or it might inspire newer and even more popular mods, or... well, there are a lot of possibilities, none of them bad. All because the ARMA II creators had the foresight to let people add value to what they created.

Update: A commenter pointed out that Day Z is the independent project of one of the developers working on ARMA 3. Post has been updated to reflect that fact.

We recently wrote about Paulo Coelho convincing his publisher, Harper Collins, to run an experiment, in which they offered up nearly all of his ebooks for just $0.99 (the one exception being his most famous book, The Alchemist). In the comments, we had an interesting discussion, in which someone suggested that even dropping the price by 90% would mean it was unlikely that he got 10x more sales to make up the difference. Others pointed to similar experiments -- such as those by Valve, in which dropping prices by large amounts increased sales by much, much larger percentages.

Paulo himself contacted us to share some of the initial results -- pointing out that, according to Amazon, the sales of a bunch of his books increased between about 4,000% and 6,500%. Yes, that's multi-thousands of percent increases. I would think that more than made up for the difference in price... While the screenshot just shows the top books, he noted that a similar pattern was seen on basically all of his books.

One hopes that this will send book publishers running to their nearest economics text or professor, so that they can be taught about price elasticity, and why lowering prices can often make you more money.

We've talked plenty of times about unique business models and experiments by Valve Software. it's latest experiment sounds particularly interesting, if perhaps difficult to pull off well. It appears that the company wants to try to charge jerks more -- but let likable people play free (story found via Slashdot). The specifics are a bit vague, but the plan is for the game DOTA 2. Valve's Gabe Newell has hinted at this:

"The issue that we're struggling with quite a bit is something I've kind of talked about before, which is how do you properly value people's contributions to a community?” he said, reflecting on a discussion he had with Develop last year.

Last year Newell told Develop that “the games industry has this broken model, which is one price for everyone. That’s actually a bug, and it’s something that we want to solve through our philosophy of how we create entertainment products".

[....]

“An example is – and this is something as an industry we should be doing better – is charging customers based on how much fun they are to play with.

“So, in practice, a really likable person in our community should get Dota 2 for free, because of past behaviour in Team Fortress 2. Now, a real jerk that annoys everyone, they can still play, but a game is full price and they have to pay an extra hundred dollars if they want voice.”

And the latest news is that they are going beyond this crazy idea into seeing what's actually possible:

“We're trying to figure out ways so that people who are more valuable to everybody else [are] recognized and accommodated. We all know people where if they're playing we want to play, and there are other people where if they're playing we would [rather] be on the other side of the planet.

"It's just a question of coming up with mechanisms that recognize and reward people who are doing things that are valuable to other groups of people."

I'm curious as to how exactly this would work. I think there are lots of community-based properties would love to be able to charge trolls more. However, this could be really, really difficult to work in practice, and create some problems, depending on what the overall goals are. It would be nice, of course, if you could come up with a perfect system to get rid of trolls, but distinguishing true trolls can often be much more difficult in practice than in theory.

We have often questioned the intentions of those who try to fight and stop piracy at all costs. We have even raised the question in the past, "Which is more important, stopping piracy or increasing sales?" We are not alone in asking this question either. Some within the entertainment industry are asking it as well.

TtfnJohn sent along the February edition of Stardock Magazine in which Stardock's CEO Brad Wardell asks that very question of other game developers:

When Stardock was running Impulse, we got to hear a lot from companies regarding to their feelings towards software piracy. In many cases, it was clear that the motivation to stop piracy was less about maximizing sales and more about preventing people who didn't pay for the game from playing it. I felt this was misguided.

When I see our games pirated, it definitely annoys me. I put a lot of myself into our software and seeing someone "stealing" it is upsetting. But at the same time, the response to piracy should be, to paraphrase The Godfather, "Just business". Simply put, the goal should be to maximize sales, not worry about people who wouldn't buy your game in the first place. I've said this in the past but until we were digitally distributing third party games, I didn't realize how prevalent the "stop those pirates" philosophy was.

Brad certainly understands what the answer to that question is. He continues by explaining that there are two types of pirates, those that just want free stuff no matter what and underserved customers. Just as we have explained numerous times, it is pointless and counter productive to go after the former type of pirate. It is far more rewarding to actually serve those customers that are more than willing to give you money.

Just as we have seen Valve grow in markets around the world by serving those underserved customers, other game developers, as well as other content creators, can make more money and grow in their respective industries by doing the same. So stop wasting time and money fighting a losing battle. Take that time, effort and money and put it where it really matters, providing the best possible service for your customers as possible.

We've writen about Valve's approach to the market many times before. The company believes strongly that "piracy" is a service problem not a legal problem. It knows that it can easily compete with piracy by offering a better service, something that it regularly succeeds in doing. However, On The Media calls our attention to an absolutely fantastic case study found on Gamasutra, not (directly) about how Valve competed with infringement, but how it turned Team Fortress 2 from a fee-based game to a free-to-play game and increased revenue twelve-fold.

Of course, over the years, we've covered other online games going from fee-based to free and making more money for it, inspiring more and more other games to do the same. But what's most interesting here is the level of detail. In the case of TF2, it's clearly not about "give it away and pray," but a careful strategy that really does seem focused on connecting with fans and being awesome while giving fans a good reason to buy.

For example, the team at Valve connected with fans in a really cool way. It put out "teaser trailers" with product updates, and then scoured feedback to come up with ideas that fans might like in the game:

[Valve's Joe] Ludwig showed TF2's Sniper-focused update as an example. Each content update started with a teaser trailer that hinted at several possible new items or features, and Valve developers would monitor the community reaction in the forums to determine which aspects caught the players' attention. "We found people in the forums talking about how cool it would be if the Pyro could light the sniper's arrows on fire. To be honest, we hadn't considered it, but we were able to implement it by the time the update shipped," Ludwig said.

In another instance, players picked up on a blueprint displayed in passing within the teaser trailer for the Engineer-focused update of a mechanical hand item. Ludwig explained that "[The players] didn't realize it, but they were indirectly voting on the content of the update. When the update shipped, it included that robot hand."

Separately, Valve was very careful and deliberate about how they "went free" and moved to offering in-game purchases. Recognizing that there's an unfortunate incentive to then make in-game purchases make the actual gameplay worse (such as by making it "pay to win") the team made very strategic choices about how they would have in-game purchases, such that they were never required to play the game how you wanted:

Once Valve rolled out the in-game item system, it needed to get the players used to the idea of paying for them. "This wasn't a change we made lightly, but it was something we had to do to get our game into the free-to-play business model," Ludwig said.

"They had never paid for an item in TF2 at any point in the past, and we weren't sure how willing they'd be to pay now."

Ludwig outlined the players' possible objections to the item store, the first of which was TF2 turning into a "pay-to-win" game:

"We dealt with the pay to win concern in a few ways. The first was to make items involve tradeoffs, so there's no clear winner between two items. But by far the biggest thing we did to change this perception was to make all the items that change the game free. You can get them from item drops, or from the crafting system. It might be a little easier to buy them in the store, but you can get them without paying. The only items we sell exclusive to the store are cosmetic or items optional to gameplay."

In other words, this was entirely designed around the idea of giving people a good reason to buy rather than a negative reason that makes them feel forced to buy. Too many companies (hello most newspaper paywalls!) seem to think that "forcing" people to pay is a "reason to buy." It's not. It may get some people to pay, but it pisses off lots of people. Valve carefully structured its business model here to make people want to buy.

But the real key here is just how much this effort increased revenue. Many people have assumed that taking a fee-based game and going free-to-play is really an "end of life" strategy to try to squeeze the last remnants of revenue out of a game, but Valve is showing it's not that at all. It was a strategic choice to maximize revenue. This is the same point we've made for well over a decade in talking about how to use free as a part of a business model to increase your market. When properly applied (which is not just "give it away and pray"), free becomes a revenue multiplier, and Valve's example of TF2 is really a perfect case study of how to do it right.

Thanksgiving week was not a good week for Ubisoft Shanghai creative director Stanislas Mettra. When asked if a PC version of the game I Am Alive would be coming, he responded that it wouldn't because of piracy.

It's hard because there's so much piracy and so few people are paying for PC games that we have to precisely weigh it up against the cost of making it. Perhaps it will only take 12 guys three months to port the game to PC, it's not a massive cost but it's still a cost. If only 50,000 people buy the game then it's not worth it.

This statement and one about PC gamers "bitching" got the gaming press and PC gamers all riled up. Very soon the news was everywhere that Ubisoft, the company pushing always on DRM and complaining about piracy on the PC at every turn, was at it again. This bad publicity led to Mettra backtracking on his comments.

What I meant is that the pc version did not happen yet [sic]. But we are still working to see the feasibility of it, which is not necessarily simple. I gave some examples to illustrate the problematic [sic], but obviously it is not in my hands and not my part to talk about this.

Although he attempts to avoid the topic of piracy specifically in his retraction, he still leaves the reader with the same message, PC gaming is a losing venture. Is this in the Ubisoft training material or something? Are they trained to believe that the PC is rife with piracy and that it should be treated with the utmost contempt and caution? It wasn't that long ago that other Ubisoft developers were complaining about the same thing.

I would be happy to leave this discussion at that if it weren't for the comments from a few other developers that same week on the very same topic. While Mettra believes the problem lies with piracy and the lack of paying customers on the PC, these other developers came to a very different conclusion. First we have Devolver CFO Fork Parker speaking about the PC version of Serious Sam 3:

Piracy is a problem and there is no denying that but the success of games like Skyrim and our own Serious Sam 3 on PC illustrates that there is clearly a market willing to pay for PC games, It's on the developers and publishers to put something out on the market that's worth paying for in the first place. Those that place the blame on the consumer need to rethink the quality of their products and the frequency in which they shovel out derivative titles each year.

The other side of the equation is the distribution model. In games, we have amazing PC digital download services like Steam, Get Games and Direct2Drive doing the same thing for games that iTunes did for music. Offer the consumer a variety of great digital content at a reasonable price and the majority will happily pay for the games that suit their tastes.

Here is a developer who recognizes that the market for PC games is ripe for the taking. Gamers are willing to buy quality product. If the game fails to turn a profit it is not the fault of the gamer or the pirates, it is the fault of the developer and publisher. If they take advantage of the services that PC gamers use to distribute their games, they will see a return on that investment.

Next we have Valve's CEO, Gabe Newell, speaking on the subject once again.

We think there is a fundamental misconception about piracy. Piracy is almost always a service problem and not a pricing problem. For example, if a pirate offers a product anywhere in the world, 24/7, purchasable from the convenience of your personal computer, and the legal provider says the product is region-locked, will come to your country three months after the U.S. release and can only be purchased at a brick and mortar store, then the pirate's service is more valuable.

Most DRM solutions diminish the value of the product by either directly restricting a customer's use or by creating uncertainty.

I know we quote Newell a lot when the topic of game piracy comes up, but his comments are always relevant. He is a man who gets it. He has learned that the battle with piracy cannot be won through the use of DRM, region restrictions or any other restriction that you can throw at the customer. This is something that Ubisoft has continually failed to learn. If you want to succeed in PC gaming, you need to bring the games to where the customers are, make them available and restrict them as little as possible. When you do that, honest customers will support you.

Really Ubisoft, this is getting old. I feel like a parent scolding his child for the 20th time about hitting his sister. You think the child gets it after the first time and that the second time is an honest mistake. But, when the child continues to hit his sister, you need to take drastic disciplinary action. What will it take to get the message through to those in charge at Ubisoft? Gamers want your games and will buy them, but you have to provide the service they want. That is the only way you will succeed.

Bill Bliss was the first of a whole bunch of you to write in with a version on the story of how Valve has continued to show how to compete with free. This alone, isn't new. We've been covering these kinds of stories concerning Valve and its CEO, Gabe Newell, for years. There's a lot in this latest talk by Newell that repeats what he's said for years, but there are also some new experiments in there as well. Such as the following:

Newell: The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates. For example, Russia. You say, oh, we’re going to enter Russia, people say, you’re doomed, they’ll pirate everything in Russia. Russia now outside of Germany is our largest continental European market.

Ed Fries: That’s incredible. That’s in dollars?

Newell: That’s in dollars, yes. Whenever I talk about how much money we make it’s always dollar-denominated. All of our products are sold in local currency. But the point was, the people who are telling you that Russians pirate everything are the people who wait six months to localize their product into Russia. … So that, as far as we’re concerned, is asked and answered. It doesn’t take much in terms of providing a better service to make pirates a non-issue.

Now that's doubly interesting, because at the same time as we got this story, we also got another submission (anonymously) about how Russia has finally started cracking down on infringement by arresting a Russian couple who was caught distributing movies online. Assuming they're guilty, they certainly don't deserve any sympathy, but it does seem intriguing to see these two stories juxtaposed.

The entertainment industry has been pushing hard for Russia to crack down on infringement, insisting that there's no way they can make money in the Russian market. And yet, Valve is proving that's false. It's just that these other companies are incompetent, don't know how to adapt, and don't know how to provide a good service. If you do that, you can make a ton of money even if the products are available in unauthorized ways.