Interesting article on used games.

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Interesting article on used games.

Post by S7 mrmiller on Tue Jun 11, 2013 1:01 am

I read this a while back on Forbes, and I though some of you may find it interesting from the business side of the gaming market, and what makes it work (it has to be profitable, they are not in business to loose money making you happy).

http://www.forbes.com/sites/insertcoin/2013/03/22/would-microsoft-spring-a-trap-card-on-sony-by-blocking-used-game-sales/

Would Microsoft Spring a Trap Card on Sony by Blocking Used Game Sales?

Image via Engadget

New leaks have lead to another round of rampant speculation about whether or not Microsoft will indeed end up restricting or outright eliminating used games on their console. The new evidence suggests that the “Durango,” as it’s currently called, will require an installation of a game to the hard disk and won’t even have optical drive support. Also worrying is an “always connected” descriptor that some are interpreting as evidence for some sort of always on DRM. With Microsoft giving everyone a firm “no comment,” we’re left to speculate that this could be the first console to actually do away with used games, as Sony has stated the PS4 will continue to play them.

I’ve examined the potential ramifications of that in brief, and Jason Evangelho has talked about the precedent for such a thing happening. On my last article on the topic, I received a rather interesting comment from a Rygar9 taking an opposition view, something you don’t see often when bringing up this topic. He’s no industry expert from what I can tell, but the points he brings up I believe are worth discussing. He views a move by Microsoft to kill used games as a bold step that could indeed ensure their victory in the next console generation.

The entirety of his comment is below, and I’ll discuss it after:

“I’m going to have to disagree with you Paul, you’re falling into a common trap.

Your assertion is that “If Microsoft blocks used games, then people who buy used games won’t buy a Microsoft console, and Microsoft will lose”. Which sounds true on the surface, but if you actually break down the issue, you’ll find that in such a scenario Microsoft wins. Big.

First, remember that the sale of a console costs the manufacturer money. Second, recall that the manufacturer and Publisher does not profit from the sale of a used game. Basically, a person who only plays used games costs the manufacturer money for the console, and it’s never recovered, that person is not only not a revenue generator, he’s literally an expense.

So what happens if Microsoft blocks used games?

First, Microsoft doesn’t actually lose money. If the person who only or mostly plays used games doesn’t buy MS’s console, MS doesn’t take a loss on the sale. That event alone improves the profitability of the console.

Second, those people go over to Sony. So instead of both MS and Sony taking a share of a population that causes them to lose money, Sony shoulders the entire burden alone. Sony is left trying to recover the losses from only a portion of their customers, while the other portion never ends up being a revenue generator. The more consoles Sony sells, the more money it loses. Selling 20 million consoles isn’t all that great when only 5 million of them are ever going to generate revenue for you. In contrast, if MS sells 5 million consoles, all 5 million of them will generate revenue and recover the loss of the sale.

Third, Publishers will do to Sony what they do to the PC. Staggered releases and/or barebones releases. If the Publisher sees it can get revenue from 100% of the sales on the 720, and only a percentage on the PS4, they’ll very quickly make sure that the PS4 release is weeks behind the 720′s in order to “Encourage” people to buy it on the 720.

Over a period of a few years, Sony will have massive problems as it shoulders the entire burden of used gamers who never generate revenue, and Publishers who see it as a “Freeloader” platform.

People keep making the mistake of thinking that Microsoft’s making a mistake, when in truth, they’d be making a brilliant move that would end up killing Sony.”

To sum up, his main idea is that by dumping all those gamers who primarily buy used games on Sony, Microsoft wins by having a more profitable console, even if they sell dramatically less units.

He’s right to say that the specific action doesn’t immediately cause Microsoft to lose money (overlooking for the moment theoretical loss of console sales due to consumer anger). Banning used games means that every game purchased on the system would indeed put money into Microsoft’s pocket each and every time. That’s opposed to the sale of a used game which benefits exactly no one financially but Gamestop, making pure profit on it, and the consumer, who gets a cheaper game.

But saying this, it’s important to remember that used game sales often spur new game sales if a player gets into a series they hadn’t played before, and then wants the new copy of the latest game when it’s released. This also negates the idea that people who buy used games ONLY buy used games. I very much doubt that’s the case for anyone other than a fractional percentage of the player base. All those people that bought a PS4 over an Xbox are now going to be purchasing new games for that system in addition to used ones.

I also take issue when he starts saying that Microsoft could sell 5 million consoles and Sony could sell 20 million, and Microsoft would still come out on top because their software sales are more profitable. I think this runs contrary to Microsoft’s not-so-subtle goal to put an Xbox in every living room as a media center, not just a game console. They will not be satisfied if they sell 25% of the consoles of their competitors, even if they have better profit margins on software. They want the Xbox to be a permanent fixture in living rooms, and I don’t know if they should upset their core userbase by eliminating used game sales and driving many of them over to Sony. As I said before, they simply don’t have the exclusive games line-up to get people to stay, and if Sony racks up advantages like A) sticking with a free PSN while XBL still costs $60 a year and B) the ability of the PS4 to play used games while the Durango can’t, that’s going to be a huge feature disparity between the two.

I do think he raises an interesting point about developer and publisher support, however. If my math is right, developers and publishers benefit more from software sales than the console manufacturer, so it very well could be the case that Sony’s PS4 could get second class treatment for continuing to support used games, the bane of many game makers’ existence. I could in fact see Xbox getting preferential treatment because they know that copies sold on the system will directly benefit them, while used copies on the PS4 will not. It would be a gamble to start treating Sony poorly, but the precedent is already there with delayed DLC releases and such. This rift could elevate that to a new level.

It’s not about whether or not banning used games is “right or wrong” from a consumer well-being perspective. Gamers will undoubtedly lose if used game sales are eliminated without a subsequent price drop on new games. Rather, it’s a matter of if this is a long-term strategy that could work in Microsoft’s benefit. I’m deeply skeptical that it would, but it’s certainly interesting to look at both sides of it.

I have some different thoughts now that I know the seemingly full strategies for both companies, and will elaborate on that later. Still, I thought this was an interesting perspective.

~mrmiller

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Re: Interesting article on used games.

Post by Atrum on Tue Jun 11, 2013 1:31 am

Interesting post. I'll writeup my thoughts tomorrow whilst at work. Interested in hearing what you have to say on it miller.

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