Will EA Ever Learn?

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Electronic Arts (Nasdaq: ERTS  ) is no stranger to intellectual property fumbles. What's worse, the company isn't learning much from its mistakes.

Three years ago, its much-touted and heavily marketed release of Spore was marred by an overly heavy-handed copy-protection policy. The Digital Rights Management, or DRM, scheme gave users the right to install their legally purchased copies a maximum of three times, causing a public hue and cry. What's more, pirates cracked and released a protection-free version before the game even hit retail shelves.

In short, pirates got a more functional game, could play it before more scrupulous customers, and generally got the better end of the stick.

Last week, EA was at it again: Dragon Age: Origins launched with a DRM scheme that required the game to contact a central server before it could be played -- and the servers collapsed on the first weekend. Legal owners of this highly anticipated game were unable to play it, and once again, the pirates had been slaying dragons for a week already.

I hear echoes of Sony (NYSE: SNE  ) essentially infecting your PC with a virus when you try to play the CDs you bought. Apple (Nasdaq: AAPL  ) saw DRM issues holding back the music industry and finally convinced studios to let it sell DRM-free tracks; the rest is fantastically successful history.

Netflix (Nasdaq: NFLX  ) found an acceptable middle road between experience-killing overload and no DRM at all: those movie streams are protected and locked into your Netflix subscription, but it just works. Sure, you can go to some dodgy file-sharing service and find copies of Shutter Island or Toy Story 3 -- but why bother when Netflix makes it just as easy (or even easier) to find them in its streaming catalog?

It. Just. Works.

Those Netflix streams are even better than watching a DVD in many ways. Like illegal downloads or the DVD you buy in Chinatown or on Biscayne Boulevard, they are devoid of annoying copyright notices or distracting trailers. Unlike the non-kosher stuff, you get professional video and audio quality, no crying babies on the soundtrack, no shadows moving across the screen, and no fear of the FBI breaking down your door. It's the best of both worlds.

Would it be impossible for EA, Activision Blizzard (Nasdaq: ATVI  ) , Take-Two Software (Nasdaq: TTWO  ) , and other game developers to emulate that model, instead of Sony's? I don't think so.

Research -- and common sense -- shows that stricter regulation and tougher DRM measures don't actually increase copyright protection. Instead, they raise the risk of "diminishing younger generations' respect for the rule of law."

No DRM system is foolproof, and the pirates will eventually get what they want. But as long as you make the legal experience comparable to piracy in most respects and better in others, piracy will be limited to die-hard fanatics of the skull and crossbones. DRM is fine as long as it's done with a light touch -- just enough to make casual piracy difficult. Wouldn't that be a less counterproductive way of attacking the problem?

You can follow this struggle between traditional tactics and new publishing models in glorious high definition. Add a few key players to your Foolish watchlist, and you won't miss a beat:

Take-Two Interactive Software is a Motley Fool Rule Breakers recommendation. Apple, Activision Blizzard, and Netflix are Motley Fool Stock Advisor picks. Alpha Newsletter Account, LLC has bought puts on Netflix. Motley Fool Options has recommended a bull call spread position on Apple. Motley Fool Options has recommended a synthetic long position on Activision Blizzard. The Fool owns shares of Activision Blizzard, Apple, and Take-Two Interactive Software. Alpha Newsletter Account, LLC owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Anders Bylund owns shares of Netflix but holds no other position in any of the companies discussed here. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 18, 2011, at 5:52 PM, etjester wrote:

    "Last week, EA was at it again: Dragon Age: Origins launched with a DRM scheme that required the game to contact a central server before it could be played -- and the servers collapsed on the first weekend. Legal owners of this highly anticipated game were unable to play it, and once again, the pirates had been slaying dragons for a week already."

    This paragraph is misleading. Dragon Age: Origins was released a year and a half ago. Moreover, the game does not require a connection to a server for the game to be played -- it requires a connection to a server to authenticate all downloadable content, because DLC is tied to each user's EA account. Players could still play the game, just without the DLC.

    It is true that pirates were unaffected by this issue, but the notion that they had been playing "for a week already" makes no sense in the context of a game that was released in 2009 with regards to a server problem in 2011.

  • Report this Comment On April 19, 2011, at 2:22 AM, punyhuman wrote:

    Valve Corporation has had a mostly unobtrusive, Netflix-like DRM solution since 2003: the Steam platform.

  • Report this Comment On April 19, 2011, at 7:15 AM, adamlogan313 wrote:

    I second what punyhuman said. Best for EA or any other game developers to put them on Steam.

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