#positive externalities

Ok, so there’s a bunch of assertions here that I feel like I should address before getting to your question.

DRM does more to annoy/turn off actual paying gamers than deter piracy.

I think you’re taking too narrow a view of what DRM is in general. Most publishers have switched from using their own DRM to utilizing broader DRM systems which not only serve to curtail piracy, but also provide a better value proposition to the player. Steam, Origin, XBox Live, Playstation Network, Battle.net, etc. are all effectively massive distributed DRM systems. You cannot play pirated games on those networks. People love Steam. Millions use PSN and XBL. Even Origin has been getting a lot of positive responses (following a shaky first few years), especially in the fields of customer service. People don’t mind these services because they provide benefits in the DRM value proposition - curating games and DLC, cloud saves, online friends lists and chat, regulating cheating, patching, achievement tracking, and so on are benefits players get. In exchange for all of these positive features, players must buy the game instead of pirating it.

Even if DRM measures are successful and prevent a game from being hacked, it seems like it does nothing to convert pirates to paying customers.

Except it does. DRM isn’t intended to stop people who wouldn’t have bought the game anyway from pirating it. DRM is like most security systems - it exists to stop those who do it because it’s easy and convenient. Most players won’t want to jump through a bunch of hoops to install the game and collect a bunch of cracked patches while wading through virus- and malware-infested websites while risking nastygrams from their ISPs to get a game that they can’t play online or get achievements or DLC for, not when they can just log onto Steam, download the entire game with all of its patches, and then start playing with their friends who already have the game. The more dedicated pirates will still jump through all of those hoops to get the game for “free”, but most of players don’t anymore - it just isn’t worth the effort to them.

Is there really a financial gain to be had from DRM, or is it just sunken cost?

I’d say it’s working. One of the other benefits to having a DRM system like Origin or Steam is that publishers can also sell games digitally and pocket the ~20% cut that physical retailers usually take from game sales, and that’s a pretty hefty financial incentive.

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