At first glance, this story probably will inspire a lot of "duh, so what" responses. After all, modchips are used to do lots of things to your Xbox console, nearly all of which Microsoft doesn't want you to do.

They can let you play illegally copied games. They can let you modify your Xbox in ways that permit cheating on Xbox Live (although for the most part it can't stop them from detecting you). It can also let you run unrelated software on your Xbox, such as the Linux operating system, turning it into a codec-agnostic media player or even a budget PC. Neither of those things generate additional post-sale revenue to Microsoft, and some even make the company look bad (hee, hee! Linux on an Xbox!) or could draw the ire of organizations like the RIAA towards Microsoft if they are seen as contributing to infringement by, say, supporting codecs like DivX which are alleged to be used primarily for pirating video.

So what's not surprising is Ozymandias' latest blog entry where he details the reasons why Xbox owners might mod their box and the reasons why he can't "condone" it. He completely bypasses the cheating issue and never once mentions Xbox Live, so I'll also leave that mostly out of this. He does propose three reasons why he can imagine someone might mod an Xbox:

• the ability to copy and play pirated games
• the ability to play import games
• the ability to add new functionality (such as running homebrew software)

Nobody reasonable is going to argue that easy access to pirated games is bad for Microsoft, bad for the platform, and bad for deveopers. No one is going to expect Microsoft to condone using a modchip for this purpose.

Where this goes wrong is when Ozymandias decides he needs to pile on the piracy issue and make a lot of the same bogus generalizations that have been thrown around for the better part of two and a half decades now.

Click "read more" below for the entire article.

Pirated Games

[...] at the end of the day every game not legally purchased is simply stealing money from the creators. Some people attempt to justify piracy by pointing to the perceived high price of their hobby and/or games, but the argument just doesn’t hold up. You don’t steal a Ferrari that you’d love to drive simply because you can’t afford it, right? Same thing.

Sometimes I think if I see this argument just once more, I'll scream. Piracy is copyright infringement. It breaks the license on your software. It is illegal just about everywhere, and in the classic I-learned-it-on-the-playground sense, it is simply wrong. People worked hard to make those games, and other people worked hard for the money they used to buy it. It is in no sense fair or right to gain access to that material without compensating those who created it. However, it is not theft. Intellectual property and physical property may be equivalent, but they are not the same thing.

Every game not legally purchased is an act just as wrong as stealing money from the creators, but it is not stealing because that's a word that means something different. To risk exaggeration, you might as well say that pirating games is like murdering the developers. It isn't, because after you pirate a game, the developers are still alive, which sort of contradicts the meaning of murder. By the same token, when you copy a game, the original still exists, which requires a similar and related, but still definitely distinguishable, word that is not "steal".

That's the logical and legal portion addressed.

Now let's tackle the economics.

To say that every pirated game is a financial loss to the publishers is, at best, disingenuous. There is no way to positively show that each and every person who pirated a piece of software, if said piracy were to be made technically impossible, would have been willing or able to purchase it legitimately. Some would simply have chosen not to. Some would have been unable to. The reduction in the number of users for the software cannot be quantified as income to the company.

For an extreme example, I'll look beyond games to more expensive software. Near where I live, illegally copied software is sold out in the open, even some pretty sophisticated stuff, like Oracle 8i, which sells for a few dollars. However, not one copy of it sold from that source could ever have generated any income for Oracle. The product is simply so expensive that legitimate sale of it to any of the clients who purchased the pirate version is completely unthinkable.

For a consumer gaming title, the reality is somewhere in the middle. Certainly there are some of those who pirate games who would buy at least some of them from legitimate sources if piracy were made impossible. However, copy protection methods themselves are expensive to develop, update, and deploy. There is a spot somewhere on the curve between no copy protection and the most advanced and expensive copy protection available where the amount invested in copy protection is higher than the amount of revenue recovered by discouraging piracy at the expense of legitimate sales.

Another thing that is almost never considered is that there are price points at which piracy disappears because there is simply no advantage in it; it doesn't offer enough cost savings to the end-user to justify the risks inherent in an illegitimate transaction (possibly inferior quality, no technical support) and doesn't offer those producing the pirated work enough margin to justify their efforts (bandwidth, time, and duplication media). The further the price of a legitimate good is from the "price" of pirated goods the more opportunity exists for piracy.

This is not intended to say that Xbox games should cost $5 instead of $50. However, aside from the moral and philosophical arguments about right and wrong, a high level of piracy indicates a large segment of the market that believes the price for your legitimate product is too high. Rather than investing in technical methods of preventing such piracy, it might be wiser to pass savings on to the legitimate customers you do have and attempt to increase sales. As the vast majority of the cost behind the sale of a game is in the development and the promotion (not strictly per-unit costs) as opposed to manufacturing and packaging (strictly per-unit costs) there are easily points at which a less expensive game could sell more units and be more profitable than a more expensive game. Higher game prices for "next generation" consoles are less an indication of increasing development costs than they are an expression of risk aversion when it comes to software development. In the console business, the risk is currently being front-loaded on the hardware, where the manufacturer heavily subsidizes the new units in order to build an installed base with which to woo top-notch developers.

Next time I'll look at Ozymandias' reasons for saying modding is not legitimate for running homebrew software.