Yes, I know how open source models work to generate revenue and earn money. I was employed by Mozilla for almost 5 years, so I clearly understand how open source companies make money, and it's not by consumption of the software. What they aren't is compensation for consumption. Have you ever wondered why there hasn't been a blockbuster, AAA open source game despite the fact that many other sectors are dominated by open source?
It probably has a great deal to do with the fact that entertainment is largely based on deriving value directly from the consumption. There are still ancillary revenue sources (merchandising, movie deals, etc) that can generate alternate revenue streams, but the bottom line, without generating compensation directly from consumption, not from alternate revenue streams, making a game would not be profitable.
entertainment is largely based on deriving value directly from the consumption
This sounds like a failure of business model rather than an intractable problem. Okay, a hypothetical:
Pretend for a moment that you write an open source game, distributing the source on Github or similar, but you also sell a complete packaged copy for real money on places like Steam and GOG. Do you think that the presence of the source-based copy will impact one iota the sales on the storefronts?
Before answering, consider that it takes less skill and less sophistication to download from a torrent site and apply a crack than it does to set up a build environment.
I don't think it does. And I think this is a normative assumption (can't sell open source!) about the industry that's been accepted without any real supporting facts.
Not really, the business model is highly successful, even in the face of rampant piracy. The free software movement might consider it a failing of the business model, but unwinding that would mean applying the free ideology to all aspects of copyright and trademark, and not just the free software movement.
Moving past that, your hypothetical has some deeply flawed considerations.
First, you cite an open source game, not a free game. It is easy to sell open source software that is not free, and this is a well established fact (look at the id Software comments below). Also consider Oracle, which sells a large number of open source products, as does Google, and to a lesser extent Microsoft. Their open source offerings are offered under free licenses, but are backed and protected by extensive IP, including trademarks and patents, which essentially makes the products non-free.
Second, setting up a build environment and building the software is more technically challenging than pirating a copy, however, much like pirating a copy, that technical cost only needs to be paid by a single user who is motivated to share the software. I submit the entire history of the software protection mechanism / cracking scene arms race as evidence that such a cost will readily be paid.
Third, shifting the discussion back to free software, the sale of open source software is usually predicated on a license that prevents other sellers of the same software from competing on the consumption of that software - whether it is a trademark, or proprietary bits that are compiled, or hardware that requires that packages be digitally signed, or any other number of constraints. This even applies to GPL software - the original owner of the GPL content can sell a copy of the code under a different license, however anyone who forks or extends the GPL licensed code is obligated to propagate that license forward, which severely hinders a competitors ability to sell the software.
For software to meet the constraints of being free according to the FSF/GPL, these restrictions cannot substantially exist as the licenses provided allow a user to remove the technical constraints, or replace the trademarked content. It is certainly possible to release the software for free and retain control of the trademarked/copyrighted elements (for example, Quake 3, Doom 3, etc).
Do note that the companies that have released their game engines as free software have typically done so as a marketing move to allow developers and engineers to learn from their code / build on their code, and still offer commercial licenses - again, ancillary to the core release of the game. These releases rarely coincide with the release of the game since, again, the primary gain is capturing revenue from the initial consumption of novel content. I am not arguing that Free Software is bad, I am simply saying that the expectation that all software must be free is an untenable position given the cost (and associated risk) of developing some classes of software.
That's a feature, not a bug :)
But I'm getting a bit confused, here. We're talking about feasibility of license selection, right? If you use some third party proprietary blob like, say, the Unity engine for your game, why is it against license to still release your code for the game under a Free license (as the author, that's the limit of what you can do anyways), and just make the enduser aware that they'll need the same tools to actually make use of it? At the end of the day, you've released your code and given a third party all they need to build on it.
I'm trying to think of the worst case scenario for the exception you described. Let's say.. a Unity game (proprietary blob) running under iOS (requires codesigning) with someone else's IP (copyrighted assets licensed by a third party)
I still don't see what would prevent this game from being released under a free license (if not the GPL) in this scenario. The first two problems don't preclude releasing your code, and the last is solved by either getting permission from the rightsholder, or by including standin assets to replace the copyrighted ones (ala many a Quake/Doom mod back in the day).
Also, as I understand it, the GPL is not the only Free license. A compatible license is one that respects the 4.5 freedoms, and this would include the BSD/MITs of the world which are used, in part, because some developers don't like the must-propagate provisions of the GPL.
the primary gain is capturing revenue from the initial consumption of novel content.
Releasing the code does not prevent this in any meaningful way for one, and for two, even if it did, piracy would be a much bigger issue.