Following in the footsteps of Wars on Drugs, Poverty, and apparently Terrorism, video game companies desperately fight modders. Online communities of modders search for backdoors through video game consoles to enable user made software called homebrew and pirated video games. Each console generation has dealt with hacks but this generation has had the benefit of online updates. Sony, Microsoft, and Nintendo provide online updates to their respective consoles’ operating systems, sometimes for the sole purpose of closing loopholes found by hackers.

Yesterday, two wins for the hackers reveal just how ineffective the War on Hackers can be. First, a group of hackers released the Pandora’s battery, a hack that resets the Sony PSP to service mode allowing users to reset the OS firmware which has seen several updates made simply for the purpose of preventing hacked firmware. The Pandora battery claims, and could be, a permanent solution enabling homebrew on the PSP, since the hack completely resets the handheld. It is unlikely firmware updates by Sony can prevent this (though I’m certain they will waste tons of resources to try).

Second, another modder group finally found a hack to enable homebrew for Microsoft’s Xbox 360. The hack doesn’t allow users to use the 360’s online features or Xbox Live, but is not less a success for a challenging system.

More so for the PSP than the 360, modders have found a way around the fail safe’s Sony included on the PSP, namely updating firmware online to block hacks and mods. The Pandora battery gives Sony a new challenge, and something Microsoft and Nintendo need to fear. Online updates won’t work. Closed systems don’t work.

It’s the question of you can either fight them or join them. Continuing a losing war, whether on something dangerous like drugs, something tragic like poverty, or something trivial like modders and piracy is silly. It wastes resources in money and manpower that can be better used to develop games, software, and hardware that make products worth buying. Sony, Microsoft, and Nintendo fear these hacks allow for pirated video games and thus lower sales. While no studies have revealed piracy’s effect on video games (a study in the Journal of Political Economy revealed music piracy’s effect on music sales is “not statistically distinguishable from zero”).

Because there is no study on video game piracy or homebrew and video game companies do not reveal how much they spend combating the practice, it’s hard to assess the cost benefit analysis. But I would argue, based on the die-hard modder fan base, video game companies are alienating a huge audience from specialized equipment, information, and software. Homebrew and modding is unlikely to become mainstream, but the loyal few who can make flash games for the PSP or release free XNA games for the Xbox 360 will consider their consoles more valuable as will others who play them. This costs the companies less money but creates more value that can be monetized simply with more console purchases.

It’s of course doubtful video game companies or any media companies will wise up. Sony has said they are interested in allowing homebrew for the PSP but won’t until they can block pirated games as well. Sony also promised to tracking down modders and hackers, encouraging one of the best PSP modders, Dark_Alex, to quit the homebrew scene.

But should these companies not allow modding of their own consoles, the modding community is showing no signs of stopping. And frankly, they’re still winning.