Copy protection for CD becomes 'the norm'
The software industry loses billions of dollars every year due to software piracy. The need to effectively combat this with copy protection systems is becoming increasingly urgent. BY SINEAD MORIARTY
"It is high time that the games and business software publishers started properly protecting all their products and thereby reduce piracy levels and increase profit margins," says Steve Connolly, managing director of Connolly Associates and manager of the ELSPA 'Safe Hands Best Practice' supplier team. "There is currently a major problem which publishers are loath to recognise in terms of their software being freely available without charge."
"I have some doubts personally as to whether some of these companies are prepared to look at the problem. It is important for these companies to see piracy not as a distant thing that happens in Bulgaria and Taiwan where millions of pirate copies are being produced, but to face up to the fact that when the smaller local copying of even three to four copies is magnified, it becomes a significant factor.
"The games industry is being forced to recognise the problem of piracy, because the cost of developing their product is escalating at a rate of knots. The managing directors of publishing companies have a number of responsibilities to the shareholders. It is very difficult for them to stand in front of the shareholders and say 'you have entrusted me to spend a million pounds on publishing something and I didn't take fundamental and basic care of your products, by protecting them as best I can.'"
There are two ways of doing this - by using reliable accredited suppliers and encryption protection. Within the market place there are relatively few products to chose from, so it shouldn't be too difficult.
Benefits of copy protection
"The main benefit of copy protection is making it difficult to copy CD-ROMs on CD-R," says Oliver Gubela, at Bertelsmann.
Tim Heath of Macrovision believes that, "For replicators, it will become increasingly difficult to maintain or attract new business if they don't have a copy protection system. Certainly in the entertainment arena, most games publishers these days insist on having a form of copy protection. In some countries, in particular Germany, the retail trade won't buy a product unless it is copy protected. In Europe, copy protection is a significant issue and as far as I am aware, many of the retailers in the UK insist on it.
"We certainly find that the replicators coming to us tell us that without a protection system, their business cannot thrive."
Toby Gawin, C-Dilla adds, "It allows the publisher to make more revenue per CD-ROM/DVD ." Reinhard Blaukovitsch of Sony DADC agrees with this and notes that several publishers recently admitted that profits had increased significantly since they had installed copy protection systems.
"The real benefits of copy protection is to secure the investment," says Scandiplan's Jorgen Espensen, "so that our customers can go to every CD-ROM plant with an encrypted CD made by us or made in-house."
Dr Michael Kefalopous, general manager of MLS Laserlock sees the main benefit as being financial, "The main benefit of copy protection is increased sales - with copy protection you are going to have more legitimate sales and therefore a bigger turnover and more profits."
"The real benefits of copy protection from a manufacturer's view point is wanting to retain a good relationship with his publisher," says Steve McEwen, Pan Technology. "By taking a responsible approach to providing choice of copy protection, the manufacturer can help by assessing and recommending which copy protection to put onto that publisher's software."
"It has now become such a policy issue with publishers that its very important for the manufacturer to show that he is knowledgeable and has established copy protection as one of his range of services to the customer."
The installation process
The majority of copy protection developers are claiming that installing a system in-house is extremely easy and effortless for manufacturers.
Gubela says, "The ease of installing a copy protection system in-house depends on the system. Usually it just requires training the staff and the integration of software applications."
"We use many forms of copy protection, LaserLock, DiscGuard, SafeDisc and ProtectCD, so the customer has a choice. Our approach here is to offer what best meets our customers' needs."
The licensing implications of setting up copy protection depend on the system and its contractual agreement.
Heath claims it is an effortless process, "It is not difficult to set up our copy protection in-house. SafeDisc works in conjunction with DCA's mastering equipment. I believe that 65% to 70% of mastering facilities have DCA equipment, so most companies would only need to invest in the upgrade.
"We recommend that discs are carefully checked after manufacturing, if the replicator sends us discs to check just to make sure they are doing everything correctly we will check them.
"The licensing agreement is straight-forward - the replicators come to us and once we have checked that they are reputable, then we will provide the license. We pay a small service fee to replicators for using SafeDisc - it basically covers the cost of them putting together a monthly report on how many discs they have manufactured that carry the SafeDisc technology. We in turn bill the publishers for the discs that have been replicated, charging them a royalty per disc."
Espensen explains that Scandiplan's copy protection is so easy to use that it can be set up via the Internet. "We can deliver an in-house CD-Cops application so the software house can make the protection. Normally when we agree with a company to make copy protection for their CDs, we send them the CD-Cops application via the Internet. They can then download the application. If they don't think they have the time to do this, we can send them the protected files from here, so they can implement them in their installation script.
"The licensing implications of setting up our copy protection, include a registration fee $2000, a license fee 0.5% of the retail price minimum $0.30 and consultancy, if needed, is $125."
Kefalopous believes that customers generally want a complete service, "It is very easy to set up copy protection in-house. We work closely with Sonopress and OMP, so the customer can either go directly to Sonopress or come to us and we can organise everything. We look after all the details in close co-operation with the customer. The customer has to send us the executable files, we then lock these and we lasermark the CDs and send these to be glass-mastered and then the customer receives the stampers for protection.
"Our customers are either publishing companies, developers or CD producers. Our licensing agreement in straightforward, firstly you have to apply to us and give us all the technical information about the CD and the second step is to send us the gold CD in order for us to do the pre-mastering. Once this is done we send the CD to glass mastering and then the customer receives the stampers.
"All prospective customers have to prove their legitimacy by producing contracts to prove they have the rights of the titles.
But to be honest, if someone wants to adopt copy protection I don't think they are going to have pirated goods, not in my experience anyway."
McEwen claims an installation period of only a couple of hours. "It takes about two hours to install the software and this includes training with mastering engineers. We provide support after the installation takes place, but it is pretty straightforward.
"We have a licensing agreement with all manufacturers. We like to make sure that they have some accreditation for security control. We are also very concerned about what we call 'the back door' - copying from that gold disc before we can Copylok it. We therefore provide to both the publisher and the manufacturer a product called Betalok. It is a mastering tool that is used by the publisher or the mastering department to make sure that they can test out the application. We also check that they have some accreditation from ELSPA, or IRMA before we begin discussions. In the last few months we have turned away two companies that we weren't sure about."
Connolly does not see the process as being quite so simple and believes that many of the copy protection developers are being too greedy. " I believe that the process of acquiring is so complex that it deters many companies from going into it. Its not the technical side that is complicated it's the financial structure of the deal - the initial set up costs, the royalty payments, the ongoing license fees... Somewhere along the line people need to be less greedy and look at it in terms of developing a relationship with a publisher which is going to last a long time, and develop a product that they want - i.e. more profit on the bottom line.
"You have encryption companies that have tremendous start-up costs - the development of the software is a very expensive process - but what some of them are trying to do is claw back money very quickly. What they should be doing is taking a longer term view and meeting the publishers half way.
"They are licensing the product to a CD replicator - some are paying $50,000 for the rights to copy discs. So you have a choice to make - lets say you decide to use one particular system you next have to find a replicator who is able to take masters with that software and create the product. Now, this may mean that you have to go away from your choice of replicator because they don't have that particular system. That's an issue in itself; the choice, which should be an open choice, becomes a very restricted choice.
"I think that Pan Technology has taken a rather enlightened view with their new product. They have given an independent mastering service called Independent Masters, the right to manufacture masters to supply to any replicator. Likewise any replicator using Sonic Solutions or Mediamorphics can have his software free of charge so you go straight to them and have your discs made, so it gives a really wide choice."
Why is copy protection being offered now?
Everyone agrees that introducing copy protection onto games and business software is financially beneficial, as legitimate sales will rise when piracy drops and also that it is a good marketing ploy to keep competition at bay.
Blaukovitsch believes that publishers are becoming much more aware of piracy and therefore realise that they need to take action.
"Replicators now have to offer copy protection. It is simply requested from all clients, a must in the portfolio." says Gubela.
"Copy protection is beneficial for the publishers as it generates more sales. It also attracts more business for publishers. Replicators need to give a high degree of support to the customer. To offer high valued protection systems is an asset in the market, a very important one actually."
Heath agrees that replicators are offering copy protection because of customer demand. "It is also beneficial in some respects because if they don't have the technology, the likelihood is that they will lose the business to another replicator.'
Gawin, reckons it is financially beneficial to all concerned, "The more CD ROMs sold, the more revenue to the publisher. The more revenue to the replicator, the more money for development of the next CD-ROM at the publisher and the end-user gets the genuine product."
Kefalopous believes that people today are much more informed about copy protection. "People are more sensible about losing sales - in the last year we have seen a lot of magazine articles and discussions about CD-ROM piracy. People are now much more aware of the money they are losing so they are ready to produce with a copy protection system and they are prepared to accept the small additional cost it entails.
"But by using copy protection systems companies are increasing sales. Recently a customer from Belgium visited me. He has locked his first title with LaserLock and many of his customers have called him and complained about the copy protection. They were angry because they couldn't copy the CD-ROMs. But he is happy because he has increased his sales by more than 20%."
Connolly believes that it is vital to bring the software encryption houses, the manufacturers and the publishers together and set up a code of ethical practice, which all developing companies can sign up to. "At the moment, under the ELSPA scheme, I pick up where the product leaves the software manufacturer, before it hits the retail sites, its all the added-value stuff. Its all very well plugging gaps in piracy at that end, but what happens if somebody in the developer's office is stealing the stuff before it even leaves. I am now looking at a way to bring together software encryption houses, manufacturers and publishers under a common scheme. There is a lot of interest in this at the moment."
However, it is not proving to be as easy as he had hoped, "I find it extremely frustrating that IRMA failed to respond to our inquiries. The IRMA scheme is very much a self-policing scheme which is fine, but in some respects it has no value because it is being policed by the people on who it is being imposed, so you can do what you like with it. What we would like to see happening is that IRMA and ELSPA and similar organisations in Europe, get together and say 'look here is an ethical stance'
"ELSPA is looking at the practical side of things, whereas IRMA is looking at the philosophical side. The potential is there, the two sides have a lot of synergy, if you put them together you'd have a very potent scheme.
"Current members include Nimbus, Distronics, Sony DADC, DOCdata and Universal.People are very keen to join the scheme because in Europe at the moment there is no practical scheme which tells a publisher 'look this company actually cares about your product and will do something to negate the chances of piracy whilst your data is on their site'. Although ELSPA set this up, companies outside ELSPA benefit as well because if they use an ELSPA approved company, they know that they will get the benefit of those criteria."
Connolly also believes that governments should come on board with tax breaks for companies using copy protection. He explains that it is a win-win situation for all involved.
"If governments said any publisher who publishes software that is encrypted gets a tax break. Then the tax revenues generated by the additional sales of the encrypted product would more than compensate for the cost allowances that are being made on the fiscal regime."
Connolly goes on to quote from the recently released Peat Marwick document published by the BSA which says that the packaged software industry generated $ 15 billion in tax revenues throughout Western Europe in 1996, and that is expected to rise to $ 21.8 billion by 2001.
"Our study and industry experience indicate that even small percentage reductions in software piracy can lead to dramatic increase in packaged software sales and consequent growth in jobs and tax revenues," says Connolly.
Is copy protection becoming 'the norm' for replicators?
Gubela believes that this totally depends on the market segments a company is aiming at. "Regarding entertainment, games, business software and other sophisticated titles, protection is the norm. In other areas like cover mounts, it is not often requested and or not possible," says Gubela.
"It is impossible for me to predict what percentage of CD-ROM or DVD-ROM will be copy protected in five years. I couldn't even guess at a number."
Blaukovitsch on the other hand believes that copy protection for quality products will be at 100% within five years. "For expensive software like games and educational material, I believe that within five years 100% of publishers will install copy protecting onto their products. For the lower end of the market, however, cover mounts, demo discs and promotional material, I don't think publishers will bother with protection as they would be happy for people to duplicate the material and give it to their friends. The product is free anyway, so the more people that see it, the better. It's free publicity."
Heath predicts that up to 85% of full-price discs in the games market will be copy protected within the next few years. "This is definitely the most exposed market as the games are expensive and the target market is not necessarily affluent, so corners will be cut to obtain the games at a lower price."
"I think copy protection has to become the 'norm' very soon because the pressure is on. It is no good companies whinging that profits are down because they've been pirated, which has been a very easy cop-out in the past, because now when someone stands up in the shareholders meeting and says 'why didn't you protect it?', the only answer is that 'we didn't want to spend the money'," says Connolly."
Gawin believes that the Internet has played a big part in making copy protection 'the norm'. "The market and Internet have changed the dynamics of copying and distribution worldwide. I believe that in under three years all new releases will be released with copy protection as publishers wake up to falling revenues due to casual and professional copying. This will not apply to 'back-catalogue' titles or compilations that are already released without any protection.
Copy protection appears to be working and to be accepted by publishers as a 'necessary evil' that will increase profits, keep shareholders happy and drag down piracy rates.
Piracy has not gone away and is not likely to do so for a long time. However, making it difficult, frustrating and time-consuming for both the casual pirate and the professional hacker, will help minimise the problem. None of the copy protection developers is claiming to have the ultimate hacker-resistant protection system. They all admit to having to update the systems on a regular basis, but they are getting more adept at producing systems that can out-smart the hackers for longer periods of time....who knows maybe someday....
Connolly concludes, "My view is that any publisher who does not use some form of encryption whatever it is, is totally remiss and lacking in concern for his product and his shareholders and will not survive."