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Saturday, February 9, 2013

Sony and Microsoft Don't Want Used Games

Begun, the used game war has.

According to the article above, Microsoft is apparently going to force systems to use a persistent Internet connection in order to block used game sales. Sony is apparently planning on using RFID chips on the discs for the same reason. That leaves the Wii U as the only next-gen console that will allow used game sales.

So why do Sony and Microsoft want to do this? What's the driving force, and will it be a successful strategy? Let's examine it.

"Why are they doing this?"

First, take a look at this. These are the top selling games for the XBox 360 and their publishers.
  1. Kinect Adventures - Microsoft
  2. Call of Duty: Black Ops - Activision
  3. Halo 3 11 million - Microsoft
  4. Call of Duty: Modern Warfare 3 - Activision
  5. Skyrim - Bethesda
  6. Gears of War- Microsoft
  7. Gears of War 2 - Microsoft
  8. Halo: Reach - Microsoft
  9. Grand Theft Auto IV - Rockstar Games
  10. Call of Duty: Modern Warfare 2 - Activision
Now, here are the best selling games for the Playstation 3 and their publishers.
  1. Gran Turismo 5 - Sony
  2. Gran Turismo 5 Prologue - Sony
  3. God of War III - Sony
  4. Call of Duty: Modern Warfare 2 - Activision
  5. Uncharted 3: Drake's Deception -  Sony
  6. Uncharted 2: Among Thieves - Sony
  7. MotorStorm - Sony
  8. Call of Duty: Black Ops - Activision
  9. Metal Gear Solid 4: Guns of the Patriots - Konami
  10. LittleBigPlanet - Sony
Compare this to the best selling games for the Wii and their publishers.
  1. Wii Sports - Nintendo
  2. Mario Kart Wii - Nintendo
  3. Wii Sports Resor - Nintendo
  4. Wii Play - Nintendo
  5. New Super Mario Bros. Wii - Nintendo
  6. Wii Fit - Nintendo
  7. Wii Fit Plus - Nintendo
  8. Super Smash Bros. Brawl - Nintendo
  9. Super Mario Galaxy - Nintendo
  10. Wii Party - Nintendo
All right, so what's the point? Well, Nintendo isn't pushing for this as hard as Sony and Microsoft are. Nintendo makes all of their best-selling games in-house. Five of the top-ten best-selling games on the 360 aren't made by Microsoft, and four of the top-ten best-selling games on the PS3 aren't made by Sony.

The point? Third parties exert a huge influence on Microsoft and Sony. A system is only as good as the games that are on it, and third parties make up a large part of the quality games on both systems.

"So what?"

Sony and Microsoft make money off of the sales of their console, from any in-house games created and sold, and also from the licensing fees generated by developers looking to make games for their console. They also have their own online services (Live for Microsoft, Playstation Plus for Sony) that generate revenue as well.

So why are Sony and Microsoft so hell-bent on stopping used games? Of course, every time a used game is sold, the only one who gets any money from the transaction is the seller, whether that's Gamestop or a private seller. There's also the idea that fewer used games might mean the purchase of more new games. But with the different revenue streams coming in, why would Sony and Microsoft care?

Now let's look at a typical third party, like EA or Activision. How many revenue streams do they have? Well, they make money whenever someone buys one of their games new. They make money from microtransactions within those games, and subscription fees for those games. Everything revolves around their games and getting them in the hands of the users.

You can't always count on users to purchase DLC. Some people won't play a game if there's a subscription fee. And, finally, if someone purchases a game used, the company who made it doesn't get one red cent.

So, let's say that little Johnny Gamer decides to buy the Call of Duty games a few years after they come out. He goes to Gamestop, buys a used copy of Modern Warfare 2 and doesn't buy any DLC. He may play the game for a year or more, and he hasn't paid Activision a thing for the privilege. This is precisely what has companies like Activision and EA so worked up.

"So you're saying this blocking used games is a good solution then?"

Oh, God no. This is like applying makeup with a shotgun: It's overkill for a very small problem that's going to leave someone with their face red.

"Why are you saying this is a small problem? You just laid out the reasons why Activision and EA don't make any money from used games."

In the short term, used games are indeed an issue for them. After all, if someone is buying your game used, that's a game that they're not buying new. However, that logic only works if you're subscribing to the theory that the customer would have bought the game whether or not it was new or used.

Let's go back to little Johnny Gamer. He's not sure if he's going to enjoy playing Modern Warfare 3, although he's interested. Instead of buying Modern Warfare 3, he has purchased a used copy of MW2 instead. If he finds that he likes it, he;s far more likely to buy a new copy of a different game in the series. If he doesn't like it, he hasn't wasted $60.

As the above example shows, Activision made no money from the used copy of Modern Warfare 2, but they are now far closer to making money from a new sale of Modern Warfare 3 or any future games in the series that Johnny Gamer has purchased. Yes, in the short term, they didn't make money directly, but in the long term they have possibly gained a customer.

"Yes, but only possibly."

Correct. But, here's the question: Is the average consumer going to drop $60 on something that is not a known commodity?

If I've never played an Elder Scrolls game, but people are telling me that Skyrim is great, am I going to rush out and buy Skyrim for $60? Maybe. Maybe not. More than likely I won't, because I don't know what I'm buying. Will I drop $40 on it? Maybe. I'm more likely to, anyway, because I know more about what I'm buying.

It's the same reason that game companies make demos of their games. It's a little more work, but it enables the player to find out what the game is like first, then decide if they want it.

"What about services like Steam? There are no used games on Steam, and yet it's thriving."

Correct. Steam also offers deep discounts and free weekends. They'll sell $60 games for $30, give away copies of Portal, and have massive sales that make wallets weep because the deals are just that good.

Do you foresee Sony or Microsoft doing that? Remember, they're locking out used games solely to increase profit. Would they offer their games for cheap if that's their goal? It's unlikely.

"Well, what about-"

And imagine when little Johnny Gamer buys a PS4, buys a game he doesn't like and tries to trade it in. "Sorry, kid, no trade-ins on PS4 games." How is that going to play out?

"Well, maybe-"

And let's say that Microsoft or Sony charge an activation fee for used games. How is that going to work? You're going to pay $30 for a used game, then pay another $5 just for the privilege of being able to play it on your system? Good luck explaining that to the average consumer without having them slam the game down on the counter and storm off.

"OK, then how would you fix this problem?"

You have two options. One would be to offer this sort of system while offering the deep, deep discounts that Steam offers. It's worked really well for Valve.

So, do you think Microsoft and Sony are going to be willing to offer those discounts? Sony might. Microsoft still sells their Office program for $150, at least. Granted, it’s a different division of the company that set that pricing, but the corporate culture is tough to break.

The other option is what Nintendo is doing with their Club Nintendo program. When you buy a new game from Nintendo, you can get points on your Club Nintendo account, which you can redeem for special gifts or even free games. It’s not the most robust system, but it works. Whenever I buy a Nintendo game, I buy new instead of used precisely so I can get points on Club Nintendo. Square Enix does a similar system, and it seems to have worked out for them so far too. With that system, you’re rewarding people for buying new games, while not punishing people for buying used.

Yet, that requires having some trust and faith in your audience. By blocking used games entirely, Sony and Microsoft are demonstrating that they have none.

“What could happen if Sony and Microsoft do this?”

Used games make more money than new games for companies like Gamestop and Best Buy. It's simple economics.

Gamestop is already angry over this development. Millions of gamers go to Gamestop and listen to the advice of the people behind the counter, even though they don’t always know what they’re talking about. The reps mostly get their directives from corporate, which determines what the Gamestop reps say and do.

Used games are a large, large piece of their revenue. Their shelf space is mostly devoted to it. If Nintendo is the only company that allows used games, how much shelf space will Sony and Microsoft get? How much will Nintendo get?

Best Buy is dipping their toes into the used game arena. Already, they have lots of shelf space reserved specifically for used games, so what are they going to put there instead? How about the used games from a company that’s not blocking off used games?

If all goes the way it appears to be going, Sony and Microsoft will be handing this generation over to Nintendo easily. They won’t have shelf space in the most prime locations, they won’t have gamers on their side and they won’t succeed.

Sounds like a plan to me!

_______

There are times when gaming companies will do things that are not in the consumer’s best interest. Think of systems like the PSPGo, or releasing a competing online store just to get that sweet, sweet gaming cash that Steam rakes in, or nickel-and-diming customers with immersion-breaking DLC. When they do these things, they usually get swatted down by the consumers who see right through it.

Here’s hoping that consumers rebel against this arrangement by Sony and Microsoft. If they don’t, we could be on the cusp of another devastating industry-wide crash. Fingers crossed.