Understanding and Combating Video Games Piracy in Brazil – Guest Post

This is a guest post by Vinicius De Nadai Andrade

Piracy is a global problem but why is piracy bigger in some countries than others?

The challenge is to discover the best approach to prevent or somehow circumvent the issue in countries like Brazil. What is clear, is that standard approaches continue to suffer and new models such as Free to play seem to be growing.

Today, the Brazilian video games market is attracting attention from major publishers but also generating some concerns if there is still “money on the table” left for them, because of the high levels of piracy in the country. Today the total Brazilian video games market value is around 420 million dollars , the fourth in the world, imagine it without piracy?

The video game industry in Brazil has two options:

  1. To keep petitioning to the Brazilian government and continue to replicate the model historically used in other countries.
  2. Understand the problem on a deeper level and find a way to get the best from the market (best = more money).

To analyze this problem, I am going to break the piracy issue in Brazil in two different perspectives; economical and cultural.

The Economic Perspective

The biggest game publishers in the world are all based in countries like the United States, Canada, England, France and Japan. These countries share some characteristics that you cannot see in Brazil; they are rich (high per capita income) and the money is to a certain extent more well distributed among its citizens. When analysts estimate the potential market size of video games in Brazil without piracy, they always tend to look only at the per capita income, but they forget that the money is actually concentrated in a very small percentage of the population. They think that if the per capita income in Brazil is 11,000 USD and 40% of the population play games this translates to 40% of the population being able to afford to buy original games at least once a year. But that assumption doesn’t match with reality, because the money is not well distributed.

According to research the richest 10% of the population owns 50% of the income and the 50% poorest owns just 10% of the income..

Income distribution in Brazil

Income distribution in Brazil

Source: http://www.brazilkids.de/novidades3.html (27/01/2013)

Let’s look at these numbers further.

Smoothing the population figure to 200,000,000 (to make it simpler to calculate):

Income per capita of 11,000 USD

The total GDP is: 2,200,000,000,000 (2,2 trillion USD).  Almost perfect calculated.

The poorest 50% of the population have to share 220 billion USD of the GDP in the country, having a per capita income of 2,200 USD a year, and 183.3 USD a month, or 6 USD a day.

Considering that AAA titles for PS3 and XBOX 360 are usually sold by 200 BRA (around 100 USD), most Brazilians cannot afford to by original games at current price levels.

The Cultural Perspective

I want to share with you some of our (yes, I am a Brazilian) cultural ways of thinking (no, I don’t always agree with them), that you can find daily in our country.

Chicken Robbery 

Stealing, like piracy, is a crime in Brazil, but if a poor person is caught by the police for stealing a chicken to eat, and if this goes directly to the front page of our widely read newspapers, many Brazilians might say: “Set him free. The police should arrest our politicians, not someone that was hungry”. This is not to say Brazilian’s do not respect the law, more that attitudes are different and social and economic factors effect perspective on behavior.

Video game piracy suffers from the same viewpoint for everyday Brazilian’s. Many stores and individuals sell pirate products openly. It is generally not seen like they are actually committing a crime, they are either treated as someone without a choice, without the opportunity to get a better job or simply offering good value for customers.

Other Issues

Many see video games pricing in Brazil as abusive. Today the same game is sold by 200 BRA for the PS3 and by 100 BRA if it is for PC. This is already high but also increases the disparity between console and PC by the effective doubling of console game pricing.

With the increasing level of taxes in Brazil (for everything, not just games) people can feel cheated or a lack of return on their daily lives for the prices paid for goods. Many will look for ways to circumvent these taxes.

The Gerson’s Law

Some Brazilians adopt what we call the Gerson’s Law, which is: Take advantage in everything. This is actually a major problem for the country as a whole. Some argue that the big companies will not go bankrupt if they consume pirate goods, if we apply it to this issue. But this law goes a little further. It says that you should be smart or at least smarter than others. If you are naive, that is your problem.

Gersons Law

Source: Brazilian football player Gerson doing a cigar advertising in which he says: “Take advantage in everything”.

For a real world example imagine It’s like being in the middle of Rio de Janeiro speaking on your new iPhone 5 and someone steals it from you. Your friends will say that you were not smart by exposing your cell in the middle of the street, attracting attention. You knew it was dangerous.  Similarly they can say that you are foolish if you respect a queue and wait your turn when you could just push to the front.

This attitude crosses cultural divides of rich and poor, and many will argue that you could have more games (advantage) if you buy or download only pirate games.

Alternative Solutions

As current models have failed to create a mass market in Brazil, let me suggest 3 strategies that may minimize or at least combat piracy in Brazil:

Lower the prices.

The argument is that by lowering prices a larger segment of the population will be able to buy original games, even with lower profit margins the overall profit could be made up by the increase in volume.

Free to play is one example of this strategy at work, though games need not actually be Free as such.

Companies have the cost and profit information necessary to organize this strategy and access the price elasticity of the Brazilian game market. Something that is very easy to do with any economic modeling technique.

video games price reduction

Ubisoft did this in 2012, selling console games by half price (or PC prices)

Even considering the Gerson Law, Brazilians should feel like this offers them an advantage for finding fair prices, buying original games and going to an official store or online retailer do to it, helping the industry and the local economy.

Do not apply the “Games should finance console” model

To lower the game prices, the consoles must be effectively already paid for rather than sold at a loss. This model is not sustainable in a place with high incidence of piracy.

video game value chain

Companies could use the “region” strategy to protect the markets where it works from where it does not. Nintendo is using region strategy for their gamepads.

Open factories and offices in Brazil

When companies open offices and factories in Brazil they could gain the sympathy of the general public like Ubisoft and Microsoft did. With the knowledge that is possible to gain from local operations combined with the tax benefits profits can be increased in the long term.

Microsoft reduced the XBOX 360 prices in Brazil by 40% by opening a factory in the “Free Tax Zone” of Manaus, in the state of Amazonas, attaining in one year an increase of 5.9% in console market share, considering all console generations.

Ubisoft is are very socially active in Brazil with constant updates via twitter and releasing translated games that are “requested” by the public. Through their social networks the receive “free consulting” from their fans every day.

With these 3 strategies and the information that video games companies have about their costs and margins it is possible to build a localized strategy and lower piracy.

A last piece of Brazilian advice: Publishers and manufacturers should not wait for government action or a social/economic change. Brazil is, with the right strategy, already a key market you should be targeting.

About the Author: Vinicius De Nadai Andrade is a Brazilian citizen formerly a Business and performance analyst he is currently studying for his M.B.A. in Milan

Follow him on Twitter @viniciusdna 

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