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By Michael Lowell
November 1, 2010
Used Video Games: The New Software Piracy
Note: Edits have been made for readability.
The potential collapse of video game retail and the market for fancy video game consoles is pretty funny. People should have known this was coming.
Too young to remember 1983? When the American video game market passed out in a back alley? Casual gamers played a heavy hand in that. When the quality of the games tanked, they stopped playing them. Move twenty-two years forward. The Nintendo Wii got popular. Casuals came flying back. The rest of the industry commenced a sad march to steal their money. And then? Your mom’s Facebook made friends with a really shitty farm game. It’s just like Aristotle asked: Why pay money for video games when your crops are about to die?
Oh, and that “global economic catastrophe”? That didn’t help much, either. Sixty dollars for a new video game? In this economy? Screw that. Gotta spend money on the essentials. You know, food and IPads. And even worse? Console and hardware sales traditionally taper off in the fifth year of a console’s life cycle. There’s no Playstation 4 in sight. The heads of many publishers and developers are going to roll. But they won’t blame themselves. Shit. The only question is: Who or what will they blame?
[Retailers are] thieves. They’re parasites and thieves. Because they don’t let the publisher participate in the used games business. They take all the money. They take a game from somebody for ten bucks and then turn around and sell it for $30, and they don’t give any of that $20 back to the original copyright holder. Something would be OK, but zero is not OK.
…
I’m not saying they’re doing anything illegal. But just because you can legally steal doesn’t mean it’s not stealing. Gambling is statistically theft – people know they’re going to be stolen from.
InstantAction CEO Louis Castle, Edge Magazine Interview, August 16, 2010*
Used video game sales. Eight-hundred-pound retailers. They are the problem.
You can’t blame Louis Castle for drowning retailers in his vitriol. He’s merely looking to protect his business. He just wants to be compensated for his intellectual property. The same day Castle swore a pox upon brick-and-mortar retail, he announced the beginning of a closed beta for Instant Jam. This browser-based Guitar Hero knock-off uses the music stored on the player’s hard drive. Where “even artists that have refused to [license their music for] Guitar Hero and Rock Band, such as Led Zeppelin, are represented among the initial 2,000 songs.”*
“[J]ust because you can legally steal doesn’t mean it’s not stealing.”
Just like Louis Castle, the video game industry is a giant fucking asshole. And this business has decided used game sales need to die. To argue this? Used video games will become the new software piracy.
What’s that mean, anyway? It means this shades-of-grey debate will become black-and-white bloodsport. The game devs? The game publishers? They’re just looking to provide a service. To please shareholders. You? You will be called a thief. Fanboys? They’ll feel empathy for billion-dollar businesses. And if they can’t cast a brew and convince the public that second-hand sales are a sin, they will attempt to convince the courts.
See, software piracy is the father figure of dead horses. It’s been responsible for the impending death of the software industry since 1980. And unless someone can find a way to control and monopolize software distribution (and convince governments to begin shooting suspected software pirates), software piracy will exist. In a universe where your mom can visit ThePirateBay and watch her favorite shows for free, a lot of people don’t believe her downloading habits constitute a lost sale. And those that think it does can’t agree on a price tag. Nobody can agree what tangible impact software piracy has on sales. But used video game sales? GameStop crunched 2.4 billion dollars worth in 2009.* That’s some bacon right there. What’s the industry thinking? “That could be our money!” Hey, what’s some bad publicity at the chance to pilfer a lucrative side-market?
So it bears asking: How did used games steal software piracy’s crown as the king of the bogeymen? All you need to do is follow the history of the medium. Follow the the twenty-plus-year history of second-hand retail. Follow its integration into the de-facto choice for American video game retail. Follow the game industry’s talking heads as they scrambled to profit from the dirty secret. And understand where it could (and probably will) lead.
Let’s talk story time.
—
Remember when numerous video game retail chains openly competed for your money? It’s true! Years back, there was more than the option of which GameStop you would like to visit! And some of the biggest retailers of the early 1990s built their empires around used video game sales. That’s correct: The history of used video games began long before the outrage.
The paper trail begins in 1988 with the ambitions of Minnesota resident David Pomije. To this point in his young life, the free market hadn’t been too kind to him. His successful resale of Commodore computers yielded a second venture that would fail and be liquidated. So what next? Nintendo’s business strategies granted him an opening. The Japanese game giant has an impressive history of shorting product supply to tease consumers and build interest in their products. 1988 was no different. At the time, Nintendo was the console gaming universe. For parents looking to please their kids, it didn’t matter if the game was any good. It mattered if it was a Nintendo product. If it was, mom or dad bought it. So Pomije took a loan to purchase and resell 1,100 units of the Nintendo Entertainment System. Many of them came with games. Left with over a thousand video game cartridges, he parlayed the software into a supply chain for video game rental stores. Funco was born.*
Solid venture? Certainly. But it wasn’t sustainable. Come 1989, there wasn’t much of a rental market for Pomije’s now-dated video games. The man began to solicit for input from those already in the video game resale business, a platoon of entrepreneurs who pushed their goods through magazine and newspaper advertisements. Pomije’s conclusion? He had experience with mail-order. He could do it. He could do it better.*
David Pomije wasn’t the first man to sell a used video game, but he was the first to turn it into a mass-market business venture. It proved so popular that Pomije’s neighbors started calling the cops on him, as children were visiting the house around the clock to get some of that sweet video game candy. In 1990, Pomije moved the operations to a warehouse. That same year, he opened the first two FuncoLand video game retail stores. Fronting used video games as the company’s selling point, the first two stores combined for 200,000 dollars in sales during their first year. By 1992, Pomije had ten stores and needed the capital to continue expanding. He took the company public. FuncoLand was booming.*
It’s not hard to understand why the business took off. Adjusting for inflation, the modern price point of sixty dollars had nothing on the early-to-mid 1990s. You probably don’t remember it because mom was making the purchases. No clear alternative to cartridges existed. Those pieces of plastic weren’t cheap. In the early years of the Super Nintendo life cycle, most games went for fifty to sixty dollars. But if you were aiming for a thirty-two-megabit gaming event? Your Super Metroid? Your Chrono Trigger? You could expect to pay as much as eighty dollars. There was no set price point. The retailer charged what they thought would sell. Thus, the market for price relief was almost too obvious. Newspapers concurred.
One important aspect of buying games for consumers has been the price. Two years ago when consumers wanted to buy a game they were stuck with that game whether they were finished with it or not at a price usually around $40-$60. Today, a game owner can trade in a game and buy a new or used game for between $20 or $45.
Roger Webster, manager of Games to Go at 4399 First Avenue S.E., said the need for used games stores was overwhelming.
“Everybody sells new games all over the place, but there’s not a whole lot of people that sell used games,” said Webster. “People were tired of paying the price of a new game which is sometimes as high as $70.”
Marion Times, December 9, 1993.
Win-win for consumers. Consumers got the games they wanted for cheap. They could trade in the games they no longer wanted. Retailers got to swim in cash. With new video games, retailers earned a fee for stocking and selling the product. But if you’re buying old video games and marking up the price, you pocket the difference. Pomije knew it was lucrative and so did his company. They knew where the money was. Their 1994 holiday ads showed it.
(How much has retail changed? Look at the bottom of the ad: “All products listed are previously played and include a 90 day replacement warranty.” Today, GameStop won’t give you a refund on the Xbox if it explodes at your birthday party. At least not until you get the blood off the console.)
It’s important to remember that FuncoLand was in no way “one used game retailer to rule them all”. Canadian retailer Microplay Video Games would make used games the focal point of their business operations. Both Electronics Boutique and Babbage’s (one of the two companies that would merge and become GameStop) would make used games a part of their in-store catalogues. By the mid-1990s, most major video game retailers in North America were employing used games as a means to attract customers and pay the bills. Funco took some scrapes during the middle of the decade as used game retailers waged a pricing war with the mega-marts. But the fiscal year of 1997 proved a panacea for FuncoLand. The company would post 120 million dollars in net sales.* So far, so good.
And to this point, not a single objection to used video game sales had been raised. By anybody. As it concerns American publishers, it’s rather easy to understand why: The console market was still dominated by the Japanese. American developers were carving their meal ticket on personal computers. Their pressing issue was software piracy. And in the pursuit of slaying that beast, game manufacturers gravitated towards competitive online multiplayer. Sure, you could still play offline. Computer games still had compelling single-player components. But most of the major online gaming services would require a product key. And there was no guarantee that buying a used copy of Starcraft yielded you full ownership of that product key. For most American developers, used games had already been busted. And with the exception of Steam digital resale policies, used computer games are still busted.
Yeah, this took care of things pretty quickly.
But the Japanese? During the 1980s, they successfully banned video game rental in their home country. In June of 1998, the Japanese video game industry decided used games had to go. Capcom, Konami, Namco, Sony, and Square filed a joint suit in Japanese court to prohibit the resale of video games within the country.* The argument was simple: Under the Copyright Act of Japan, video games are “movies”. And under Japanese law, movie companies are allowed to control the distribution of their works. Therefore, fuck used game sales.
You actually have to give the Japanese game makers some credit. The publishers of Final Fantasy and Metal Gear Solid conceded their products were movies long before their customers did. But even in the universe of Japanese copyright law, “games are movies” was a pretty ridiculous argument. After four years of fighting legal battles, the publishers lost.* In the years following, it’s been a contentious issue. In 2006, Japanese law “made it illegal for a business to sell any console that plugs directly into a power outlet but does not carry a “PSE” stamp certifying that it meets current safety standards.”* In other words, “you can’t sell used consoles”. Retailers got around that. But if you wake up in the morning and find Japan has banned the resale of video games, you shouldn’t be surprised.
Of course, that occurred in Japan. Who cares about Japan? What have they done for video games? Focus, people. Focus. What was FuncoLand up to? Still doing quite well. In November of ’98, the company opened their three-hundredeth store.* And the times were changing. In an American market quickly becoming “consume or be consumed”, FuncoLand was too big to ignore and too small to save itself. And by “save itself”, I mean “save itself for a buyout that’s appealing to the shareholders”.
By 2000, a merger was inevitable. After rejecting an offer from Electronics Boutique, FuncoLand was purchased by bookseller Barnes and Noble.* Sound crazy? The plan was to assimilate the FuncoLand store locations under a Barnes and Noble subsidiary by the name of GameStop. Pretty sure you guys know how this one turned out.
Most of the FuncoLand stores would be chewed up and rebranded under the GameStop label. Not much else would change. Just like FuncoLand, the GameStop business model was built around second-hand sales. The difference? Most FuncoLand software was reasonably priced. GameStop chose to invoke the power of the free market. GameStop became the manifestation of “that one store” in most Japanese Role-Playing Games. You know the one. The one that buys your items for a quarter of market value and marks them ten-fold. Consumers didn’t care. For them, it wasn’t about the audacity of paying forty-five dollars for a used video game. It was the satisfaction of saving five dollars off the new game asking price.
Did American publishers care yet? Nope. GameStop wasn’t the Wal-Mart of video game retail quite yet. Trade-ins put more money into the hands of the gamer. And that money went towards new games. If publishers weren’t speaking against used game sales, they were speaking in favor of them.
In 2002, syndicated newspaper columnist and radio guest Linda Cobb was prompted by a reader on the question of where to find a copy of Lode Runner for the Nintendo Entertainment System. Tactfully ignoring that the Nintendo port of Lode Runner was a terrible video game, Linda provided her advice.
Because [Nintendo doesn't] make new games for [the system] anymore, you’re going to need to go with a pre-owned version. Nintendo suggests a store called Gamestop.
…
When I checked their Web site [sic] (www. gamestop.com), they did have Lode Runner for the NES. It costs $4.99 plus shipping and handling.
Frederick News-Post, December 1, 2002
That same year, Sega “vice president of strategic planning and corporate affairs” Charles Bellfield stated he had no problem with it. According to him, developers and publishers thought it was a great thing.
“Obviously, there isn’t significant cannibalization going on at the moment, because otherwise we would see that in our numbers,” he said. “I think it gets consumers in the market. You may experience a different range of content, which makes you go out and buy new product.”
The Frederick News-Post (from The Dallas Morning News), December 16, 2002.
(I know you want to ask it: “Sega and Nintendo speaking out in favor of used games? I thought you said Japanese publishers hated them!?” Sega and Nintendo didn’t put their name forward in the 1998 fight against used sales. Not surprising. Both of those companies had a second revenue stream in 1998. They were both selling hardware. Nintendo still is. Keep that in mind.)
Nobody cared if GameStop execs were doing backflips into the money bin. The truth is, most of the video game industry was. The Sony Playstation tapped adult markets the Sega Genesis could only scratch. The American video game market grew thirty percent from 2000 to 2004. And it wasn’t Japanese companies selling the games. For the first time since the early 1980s, North Americans were calling the shots in the North American market. The hardware? Sure, the Japanese still dominated. But Microsoft’s Xbox became the first major American foray into game consoles since the Atari 5200. And it was the only American console since the Atari 2600 that was successful enough to survive a second round, to get a follow-up. This in an industry that had rarely proven there was room for three competing video game consoles. Mario ceded the crown of “Biggest Gaming Event of the American Year” to both the Grand Theft Auto and Halo franchises. Even an impenetrable rhythm game market dominated by Japanese publisher Konami began to show cracks, as developer Harmonix unveiled surprise hit Guitar Hero in 2005.
Source: The Electronic Software Association’s 2008 “Essential Facts” Guide, data
acquired from The NPD Group.* (Note: This is software sales. No hardware involved.)
American developers were banking. So what the hell did they care if GameStop reported a sixty-seven percent increase in sales for the 2005 fiscal year?* Who cared if GameStop slayed Electronics Boutique and merged with the company that same year? Who cared if nearly every major retailer in the United States now operated under GameStop corporate? They were just one of many companies making money in the video game industry that was doing really well for themselves.
Leave it to Nintendo to fuck all of that up.
2006. Dismissed by industry critics as a company behind the times, Nintendo was in deep shit. The strong-first party support and kid-friendly gaming that powered Nintendo hardware for the last twenty years? The Nintendo GameCube fought the Xbox for table scraps as Sony’s Playstation 2 achieved the most dominant market share in the modern history of the business. Mario was old news. Shooting hookers is what all the cool kids were doing. So what did Nintendo choose to do? They didn’t change a damn thing. Strong first-party support. Kid-friendly gaming. Only this time, the gaming peripherals were also designed to appeal to parents. And damn, did Nintendo roar right back.
The Nintendo Wii stole both headlines and the money of soccer moms who would typically spend their disposable income on their kid’s infatuation with Grand Theft Auto. And the North American publishers that made in-roads? 2006 kicked the ever-loving shit out of them. French-Canadian publisher Ubisoft watched their year-to-year earnings stagnate.* Activision’s year-to-year operating profits declined 170 million dollars.* Electronic Arts? At the time, the number one third-party publisher in the world? 2005′s net income of 500 million dollars was slashed in half. * In the win-now world of the American stock market, that is cause for panic. (The video game industry would know this. The Crash of 1983 was preceded by Atari’s 1982 fourth quarter earnings. Atari higher-ups expected a fifty-percent sales increase over the fourth quarter of 1981. On December 7th of 1982, they revised. Ten-to-fifteen percent increase. The stock price of parent company Warner Communications dropped thirty-three percent in twenty-four hours.*)
How about GameStop, the lone wolf in the world of American video game retail? Let’s just put it this way: I would have enjoyed being at the year-end corporate party. Would have had a pretty rocking night with the ice sculpture. Why? It was probably made out of cocaine.
Over all, GameStop appears on track to generate about $3 billion in revenue this year. Of that, it looks like $800 million to $1 billion will come from the sale of used software, hardware and accessories. Just how profitable that segment is has only recently become clear to investors.
The quarter that ended in October was the most recent with GameStop results and was the first in which the company broke out results for its used segment. They were eye-popping. Used products made up almost 32 percent of the company’s total retail sales and almost 44 percent of gross profit. Even more impressive, while GameStop’s gross profit margin on new hardware sales in the quarter was less than 11 percent, and on new software less than 25 percent, the company generated a whopping 45 percent profit margin in its used segment.
New York Times, February 2, 2006.*
In that same news article, Times writer Seth Schiessel prodded Take-Two spokesman Jim Ankner on how the video game industry felt about the “new-found success” of GameStop. Standard answer, right? Used games put more money in the market, right?
“We would prefer that retailers only sold new games,” he said, “but we’ve learned to make peace with it.”
Peace, indeed. The war would soon be on.
—
In 2000, Sony patented a technology that would allow a device to read a disc and then erase a licensing code from it, locking recognition and use of the media to that device. Essentially, it would take the world of computer software product keys and dumb it down for console gamers. Nothing came of the patent. In 2006, this by-product of the Japanese used video game war spawned rumors that the technology would be incorporated into the Playstation 3.* Sony had to actively denounce the rumors as rumors. In May of the same year, it was reported that Sony was planning to integrate a video game licensing system into the products and was informing retailers the second-hand sale of Playstation 3 titles would become illegal…or at least the Sony legal team was prepared to argue that.* That was also debunked. But it made great headlines in a consumer market that watched Sony struggle to control the distribution of their products. After all, the company was only a couple years removed from the embarrassment of watching their multi-million-dollar key2audio copy-protection system destroyed by the felt tip of a magic marker.*
Despite internal concerns in many companies, the road to defeating used video games was preempted by the most successful financial year in the history of the medium. Total sales in the American market tallied 17.9 billion dollars, a spectacular forty-three percent increase over the record set just the year prior.* And Nintendo wasn’t the only one printing money. Both the Call of Duty and Guitar Hero franchises had breakout years. Halo 3 convinced people to buy an Xbox 360. Sony was recovering from their disastrous launch of the Playstation 3. In this climate, nobody could do any wrong.
Video Game Industry, 2007 (Artist’s Rendering)
That didn’t last long. In September of 2008, the world economic system nearly collapsed. With more people concerned about losing their house than corpsehumping their friends, sales leveled off in 2008 and 2009. Video game journalists read into the steady sales numbers and labeled video games as “recession-proof”. Wasn’t a bad call. When economic times are bad, people like staying home. You don’t use as much gasoline walking around the house. Games seemed like a winner. And they were. Just not at new game prices. The sales of used games soared.
The money was there. It just wasn’t going to the game-makers. Economics broke the industry’s back. It was time to get on message. So begins the Fuck Used Games Cycle, the story of how the industry decided they were going to win the war against used video games.
The first phase? Invoke the wonderful world of passive-aggressive communication. “We’re not saying you shouldn’t purchase used video games, but.” They weren’t going to say it was your fault. Or punish you for it. Hey, free market, consumer’s choice, etc. The game industry just wanted you to think about their serious problem.
July of 2008. Frontier Developments founder David Braben used the Develop conference in England to chat about the game selection in one shop owned by British game retailer GameStation.
“More than half their floor area is dedicated to pre-owned and that is something as an industry we don’t see… those same retailers are only carrying new copies of games from the past few months – if it’s a game that’s been out for two months and you want to buy one from a shop not Amazon and you don’t want pre-owned, it’s very hard…[t]his is essentially rental, and it’s not tolerated by other industries… Why can we not introduce special ‘for rental’ copies?”*
Three months later, Epic Games designer Cliff Bleszinski was far more blunt: Used game sales were a “huge issue”.
“We don’t make any money when someone rents it, and we don’t make any money when someone buys it used – way more than twice as many people played Gears than bought it.”*
The implication? In Cliffy B’s perfect society, everybody who played Gears of War would have paid for it. (This is the same man who believes Unreal Tournament 3 tanked at retail because of software piracy. Yeah. I paid fifty dollars for that game and Cliffy B is claiming people stole from him.)
March of 2009. David Jaffe went on the record and stated it wasn’t something the consumer should think about. That it was an issue that publishers and retail had to work out.* That same month, Reggie Fils-Aime (American figurehead for a Nintendo that, seven years ago, recommended Linda Cobb’s readers make a trip to GameStop) told Venture Beat that his company did not “believe used games are in the best interest of the consumer”, and to “[d]escribe another form of entertainment that has a vibrant used goods market.”* In his defense, he may have been speaking to American schoolchildren, appealing to their belief that books can’t possibly be entertaining.
The result of these soundbytes? GameStop certainly didn’t give a damn. In 2009, forty-one percent of all money spent at GameStop was spent on new video games. Those sales accounted for twenty-one percent of GameStop’s gross profits. The twenty-six percent of all money spent by customers on used video games? Forty-six percent of gross profits. And in their annual report, GameStop noted that they would “continue to expand the selection and availability of used video game products in our stores.”*
And if GameStop didn’t give a damn, you’d better believe consumers didn’t, either. Why would they? David Jaffe was correct. What benefit does a new game offer the consumer? The disc or cartridge in the box doesn’t care whether it’s coming straight from a processing plant or making its fourth trip through a GameStop. The disc isn’t designed to discriminate.
That could be amended. The second phase? Revoke the rights of used game owners. “Please stop buying used games!” wasn’t working. But “Please buy more new games? We’ll put sugar on top?”
Pre-order bonuses were nothing new. GameStop had been doing them since the Playstation 2 days. The internet made it easier. We now tout virtual goods. Putting cash up-front to buy Left 4 Dead 2 on launch day? Get an “exclusive in-game American baseball bat”. With virtual goods, the developer has nothing to lose. You don’t need to worry about anticipating supply. All the developer needs to make sure is that the servers are working properly.
The problem? Look at Army of Two. That pre-order promotion gave exclusive access to the “Extraction” multi-player mode for the first thirty days after its launch. Look at Grand Theft Auto: Chinatown Wars. Pre-order the game? You got free in-game cash and weapons. With patience, the player got access to the perks in both games.
My rendering of what a hypothetical “GameStop pre-order commercial” may look like.
Good capitalism is about what the consumer does not own. Giving the player early access to something they’ll earn anyway won’t work. Revoking functionality once considered integral? That can do it.
Enter February of 2010. Sony announced that in order to play SOCOM Fireteam Bravo 3 for the Playstation Portable, the game would come with a voucher redeemable to unlock the multiplayer component on that device.* In a world where everybody uses the voucher, a world where this game will eventually make it to resale? The next consumer would have to purchase a new voucher. And that would cost the player twenty dollars. Pretty simple: If you’re not going to buy new games, we’re going to design them so “buying new” is the only realistic option.
Three months following, Electronic Arts emulated the Sony approach. The company revealed they were planning an online pass program that would be packaged with their 2010 lineup of sports games.* “Project Ten Dollar”. Ten dollars, online access. If the game is used, pay up. According to E.A., it was about compensating the creator for their services.
In order to continue to enhance the online experiences that are attracting nearly five million connected game sessions a day, again, we think it’s fair to get paid for the services we provide and to reserve these online services for people who pay EA to access them.
- E.A. Sports Online Pass F.A.Q., originally published May 10, 2010*
(Author’s Note, added November 3rd: As far as the “they need to pay bandwidth bills” argument, it’s bull. The majority of console games use peer-to-peer hosting technology. This means the service acts as an arbiter. It directs traffic. Your internet connection does all of the heavy lifting. That’s how Battle.net sustained has sustained millions of users free of charge for nearly fifteen years. That’s how the Playstation 3 features free online play. That’s why paying for Xbox Live is a scam.)
Also in May, THQ announced a similar system would be required to access the multiplayer mode in UFC Undisputed 2010.* Unfortunately, the company hasn’t made a game worth buying in the last four years, so nobody has been able to check on whether this is actually true. In August, Sony dabbled with the idea of introducing their online system for all first-party Sony games.* And then in September, Electronic Arts Chief Financial Officier Eric Brown argued there had been no “significant pushback from the user” on Project Ten Dollar.* He was right. It worked beautifully. As of November of 2010, the sales of Madden NFL 11 are currently down more than half compared to the previous installment. *
“Removing online play” didn’t sell additional units. Shocking, I know. If you know anything about American politics, you know the problem. Having the debate in a sensible or subtle manner is the worst way to get your point across. Not in an America where political spin has rendered the country’s figureheads Josef Stalin and Adolf Hitler. So “Hey, I heard Cliffy B doesn’t care for used game sales” ? “Hey, I heard this new game needs a code for online play”? No dice. That won’t win a battle of talking points. Developers had to scream louder. No more passive-aggressive. Time to victimize used game sales.
Phase three? Stop stealing from us, you cock! Back in September of 2009, Silicon Knights founder Dennis Dyack touted cloud computing as a panacea for video game developers, mentioning that it would stymie both piracy and used game sales.* But as far as I can gather, Louis Castle was the first person to outright claim that used games and retailers were inflicting domestic violence on developers.
I have no love at all for the Wal-Marts and GameStops of the world – they’ve abused the industry horribly with selling used games, and rentals. There’s no love lost there at all. They’re all desperately trying to figure out where to go next too, but at the end of the day they’ve killed the distribution method.
They’ve put our entire industry in jeopardy by taking all of the money out of the system – between them and the pirates it’s really a tough way to go.
- Louis Castle, interview with GamesIndustry.Biz, April 14, 2010*
In May of 2010, Blitz Games co-found Andrew Oliver chose not to blame any lack of success on a development history spanning Spongebob Squarepants, iCarly, Bratz, and The Biggest Loser. He placed the blame elsewhere.
“Arguably the bigger problem on consoles now is the trading in of games,” he tells Develop.
“I understand why players do this, games are expensive and after a few weeks of playing you’ve either beaten it, or got bored of it so trading it back in to help pay for the next seems sensible when people are short of cash.”*
It’s not hard to understand why there would be this sort of animosity for used games. Before the internet hit it big, software piracy relied on counterfeiting. That counterfeiting usually led to an exchange of cash. And even in the early days of the ‘net, rogue software distributors would ask to be “compensated for their bandwidth costs”. I’d presume even the most jaded fan of file-sharing would draw the line at selling counterfeited goods. But in the world where BitTorrent dominates the file-sharing process? There isn’t a lot of people making money off of the downloads. Now look at used game sales. Damn. There’s money being exchanged every single time. What’s worse? “No exchange of money”? Or “Money was exchanged”?
So you can sense how giddy THQ CEO Brian Farrell felt when he caught used game purchasers red-handed. The online pass packaged with UFC Undisputed 2010 allowed the publisher to get a feel for how many times their games were changing hands. He finally proved how many people were committing the crime of buying his games used.
“What we saw when we did the online charge for the second purchaser of UFC was we found a pretty good attach rate – it [author's emphasis added] confirmed our suspicion that there are a lot of people participating in used games,” he said.
“It is one of those things of how much money could you have made if it wasn’t for piracy or used games? It’s a tough question because you don’t know.”
- THQ Chief Brian Farrell, September 17, 2010*
I can’t imagine why someone would prefer to buy UFC Undisputed 2010 used. You know, a product portraying the exploits of a combat sport that barely changes on a year-to-year basis. A game twelve months removed from its predecessor. But it will keep the argument churning. You can expect this phase of the debate to continue for another couple of months. Maybe even the next couple of years. It will be just enough to stir the pot and get consumers talking about it. But if this billion-dollar industry can’t win on those talking points, how can they get the respect they deserve?
A potential fourth phase: Protect us, United States government!
In 2005, EBay auctioneer Timothy Vernor purchased a used copy of AutoCAD at a garage sale and proceeded to sell it through EBay’s online service. Developer Autodesk didn’t care much for that. A pretty hefty pissing match eventually turned into a legal battle. Vernor argued he was entitled to the first-sale doctrine, the apparatus that allows for the existence of a second-hand market. Autodesk said that didn’t matter. The company wrote an End User License Agreement. That document stated the software was licensed, not sold. No resale can legally occur. When the previous owner upgraded his copy of Autodesk to a newer version, he was supposed to eliminate all copies of the older version.
1996′s ProCD, Inc. v. Zeidenberg affirmed the legal validity of shrink-wrap EULAs, those installation screens where you sell your soul and all future children to the company. But Vernor never agreed to the licensing agreement. He was simply selling some piece of software he found at a garage sale. The district court agreed. Vernor won. Autodesk appealed, and the Ninth Circuit Court of Appeals overruled. According to the Ninth Circuit, it didn’t matter whether Vernor “agreed” or not. The EULA was the rules laid out by the company for how to use the product. So currently, in America, End User License Agreements are currently as valid as the contents within.*
Don’t argue with my Battle.net forum alter-egos. You forfeited the right to do that
when you clicked the EULA embedded in the link to this web site.
So who does it affect? We’ve been long comfortable with the idea that it’s difficult to resell a computer game. But console games? Perhaps you should look at the back of the box. All I needed to do was look at my copy of Rock Band 3. “Licensed for distribution in North America on the Playstation®3 computer entertainment system.” Licensed. Licensed and not sold. No, purchase is not yours. Should publishers use the courts to settle the issue of used games, there’s a very good chance they will win.
The lone obstacle is whether major publishers are willing to back GameStop into a corner. They sell a lot of games. Used and new. That’s 6,500 GameStop stores that pepper the globe. Unless, of course, GameStop wants to “settle”. You know, cut a deal. A percentage of the profits from used game sales. You know, as a means to protect the GameStop business model.
Shit, at least the mafia admitted they were organized crime.
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If the pay-to-own video game industry collapses in the next five years, do you know why it will be? It will be a combination of terrible business practices, out-of-control game development budgets, year-to-year sequels that are designed to be consumed like dish detergent, a total misunderstanding of the casual gaming demographic, and the use of motion controls and three-dimensional displays as a step sideways and not forward. It will not be because of used games.
They know it. And that’s why they’re after used video games. When your business model is collapsing, you control distribution. Whether it offers a better product or not, you control distribution.
In the face of declining music industry profits, the Recording Industry Association of America has pushed for mandatory FM radios in cell phones* and sues the hell out of people who download their music for free through the internet. They do this to control distribution. Comcast, Time Warner, AT&T? They oppose net neutrality. They want a world where internet service provides can set up tiered pricing plans and turn that series of tubes into cable television. Where you pay an additional five dollars for the privilege of accessing YouTube. Comcast, Time Warner, and AT&T want to control distribution.
Why does Microsoft respond to the most financially successful period in the history of computer gaming (the late nineties) by releasing a video game console? Because the personal computer is an open-source platform. Anybody can make a game for the personal computer. At the turn of the century, “creating a closed-source platform and convincing people to make games for that platform” seemed like the only way Microsoft could charge companies for distribution and licensing fees on a Microsoft operating platform. And I’m sure Bill Gates spent the years after Steam’s release jamming an icepick into his eyeballs. By the time Microsoft responded to Valve’s wunderkind with Games For Windows, the product felt so irrelevant and poorly designed that it had a “Bush Did 9/11″ feel to it, as if it was deliberately designed to distance people from computer games and towards their Xbox 360. Microsoft created the Xbox as a means to control distribution.
Why would Activision CEO Bobby Kotick state that he is interested in developing versions of Guitar Hero where the software does not require a gaming console?* Where the software and the hardware come as a single package? To circumvent the distribution policies of a Microsoft or a Sony. Where Activision has to pay a fee to those companies every time a copy of Guitar Hero is sold on either one of those platforms. Activision wants to design their games so they can circumvent the distribution process. Activision wants to control distribution.
Why did Blizzard Entertainment code Starcraft II without any offline functionality? (“Connect to the server and tell the server you want to play offline” does not count.) It wasn’t piracy. People will get around that eventually. It was to make sure that the South Koreans and Western tournament organizers cannot create televised Starcraft tournaments and play the game without paying licensing fees. Blizzard wants to control distribution.
Why do companies fling themselves at an unproven startup like OnLive? In a market that is already saturated with the means for playing the software? Because it would give developers and publishers peace of mind. A fourteen-year-old prodigy couldn’t hop on the internet and charter for assistance in how to unlock and distribute the data on his copy of Call of Duty 9. Because there would be no copy. In a world where OnLive is the only dominant gaming platform, that kid wouldn’t have an easy means of getting access to the data. The companies who support OnLive want to control distribution.
Controlling used game sales is a means of controlling distribution. And like all of the actions above, none necessarily provide for a better product. Hell, it hasn’t been established that they provide for a more profitable product. If those decisions had transformed video games into the Silicon Valley Casino, we would not be talking about controlling the distribution of used video games. And controlling the distribution of video games will not make for a better or more profitable product.
But we’ll see. If publishers are successful in banning the resale of used video games (or getting a cut of the profits), then I guess the Internet Nerd Rage Bible demands I have to get back at them. Those games beholden to a sixty-dollar price point? I guess I’ll have to start downloading them off of the internet.
You know, software piracy. The old “used video games”.