Category Archives: Investigative Article

Investigative Article: Used to Digital

You walk into the video game store. The wall is lined with games, with new games on the left and used games on the right. The game you want is five dollars less used, so you buy it, but you arrive home to discover you have to pay ten dollars to play online. So you had to pay 65 dollars total for a game you could have bought $60 new.

There is a tension between consumers and the industry when it comes to used video games. One just has to surf through the comments about the gaming companies and used video games to get a sense of consumer discontent. One commenter, with the username konyaku asked on IGN’s article Own by Pre-Owned “ isn’t that with everything we buy? What if we had to pay $500 each time we bought a second hand car? What if I [bought] a couch from a garage sale but had to a pay a $20 sitting fee? If we bought it, I believe we should be able to do to whatever we want with it, including selling it.”

The law is clear when it comes to the resale of merchandise. The first-sale doctrine of U.S. copyright law states that the ownership of an y item transfers on purchase. That is why rental services such as Blockbuster and Netflicks are able to rent out copies of movie and game disks without having to pay a percentage to companies. It is why people can resell their books and DVD’s on eBay and why companies such as Gamestop can make a huge profit selling used games.

Video games are a 20 billion dollar industry in the United States and a 60 billion dollar industry worldwide. That is larger than the movie industry, which earned about $10 billion domestically in 2010, and about $20 billion worldwide. It is projected that video game sales will hit $70 billion worldwide, by 2015.

But the industry, like many other industries, has struggled in the recession. What had been $22 billion earnings in 2008 has dropped to $18.5 in 2010. Those two years where the first time the gaming industry had had negative growth two years in a row. And the industry was still down in six percent in September, 2011, compared to the year before.

2010 has not been a kind year for the gaming industry. IGN’s article 12 Game Studios that Died in 2011 talks about the gaming studios that had to shut down in 2011. Twelve studios is a large number, and as the article states “on average, one developer shut down per month in 2011 – and that’s worth remembering.”

THE PROBLEM

According to a report by market analysis firm NewZoo, 23 percent of video games sales in the United States are those of used games. This is an industry that has been losing money since 2008. When talking about the PS3 game Heavy Rain, Guillaume de Fondaumiere, co-founder of Quantic Dream stated “my calculation is, as Quantic Dream, I lost between [6 and 10 million dollars] worth of royalties because of second-hand gaming.”

Video game companies see an issue with used games. They see themselves losing money to these games in a time when companies are losing money overall. They believe that they should be receiving at least some money on these used games.

Unlike DVD’s, which also has a number of used sales, video game companies believe they can do something about it. DVD’s come with all their content on their disks; nothing can be restricted. But with the current selling of hard copies of a video game, developers can restrict certain content. Consoles can connect to the internet, and many games have an online component important to players. That ability to access the internet, which DVD’s cannot do, is what allows companies to move towards adding content or taking content away, depending on how you buy.

In May of 2010, Electronic Arts, known for its sports franchises such as Madden, released the details of what they was calling their Online Pass. As statedby EA, the Online Pass contains a code that will give “access to multiplayer online play… user created content, and bonus downloadable content.” Each new game box contains a single Online Pass If a person had bought the game used and the code for the Pass had already been redeemed, then that person could buy an Online Pass for $10.

Andrew Wilson, Senior Vice President of EA Sports, answered questions about the Pass, stating that it was to pay for hosting the online aspect of the game and “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.”

But even though EA’s website states that the Online Pass is “in order to continue to enhance the online experiences that are attracting nearly five million connected game sessions a day”, Dr. Michael Capps, the president of Epic Games said “our primary retailer makes the majority of its money off the secondary sales, and so you’re starting to see games taking proactive steps toward that by… if you buy the retail version you get the unlock code.”

Since EA games released their Online Pass for their sports games, they have expanded it to include popular games such as Medal of Honor, Dead Space 2, and Battlefield 3. Other companies such as THQ, Warner Bros. Interactive Entertainment, Ubisoft, and Sony Computer Entertainment have since included their own 10 dollar online pass in their games.

With five other major companies adopting a system similar to EA’s Online Pass, it does not seem to be going away any time soon. But that does not address the perceived issue that drives consumers to buy pre-owned games. “I understand why players do this,” stated Oliver, “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.”

Dr. Capps also agreed, stating “I’ve always said that games are probably too expensive, so there’s probably a right level here to find. We need to discuss this all together and try to find a way to reconcile consumer expectations, retail expectations and also the expectations of the publisher and the developers to make this business a worthwhile business.” Those in the video game industry are not ignorant to the reasons behind consumer actions. But money lost to pre-owned games is not going to be fixed by dropping the price of new games, not because it would not work, but because it will not happen. With the increase in digital content, that is where the industry’s solution to the pre-owned market will come.

THE FIX

A pass included in video games appears to be here to stay. But that does not mean that it must be the type of online pass that has angered consumers. Jim Sterling, who hosts a weekly video column on the escapistmagazine.com called Jimquisition, devoted a 3 part video series about used game. The final episode on October 3rd, 2011 addressed possible solutions for used games. Playing off the online pass model, he looked at an offline pass implemented in Rage, which gave what he considered extra, nonessential content to those who bought the game new. He saw the offline pass as rewarding players who bought the game new; instead of the online pass punishing players by making them pay extra for what many gamers see as essential content – playing online.

So far consumers view efforts by companies to fight used games as punishing them for doing something that is completely legal. Besides attempting to shift the passes into a more positive light, industries can also include pre-order bonuses with their games, to reward players for both buying new and being loyal to that company or franchise. This is the second solution that Sterling address in his video. He makes the point that bonuses should not be essential to the game, but an added benefit for buying new. Pre-order bonuses have been around for longer than EA’s Online Pass, but whenever the talk of used games is brought up, the pass is used as an example of how the industry is trying to fight the pre-owned market, instead of the bonuses that are meant to reward buyers of new games.

Giving consumers incentives to keep games instead of selling them will also stall the pre-owned market. At the opposite end is the trading in of games, which is where the inventory for the pre-owned market comes from. The attempt to convince consumers to keep their games is not as obvious as the attempt to have them buy new, and more centered around giving consumers more. While the obvious idea is for a company to create a game that is good enough that the gamer wishes to keep it without anything new, most games are not up to that caliber, instead introduce new content. Downloadable content (DLC), which can be either free or for a small price, adds extra content to a game, often through new areas to explore or new maps for multiplayer. The knowledge that there will be new content even months after a game’s release could keep the consumer from trading in the game and keep the game out of the pre-own market. It is a way of rewarding the player, and is not viewed as a tool against used games as the Online Pass is.

The Xbox 360 has the Xbox Marketplace, the PS3 has the Playstation Store, and the Wii has WiiWare. All three allow players to purchase arcade games and extra content. Even Nintendo’s 3DS, a handheld gaming device, allows the player to purchase content online. Elder Scrolls V: Skyrim, one of the highest rated and highest grossing games of 2011, has already announced that new downloadable content will be available to players. Battlefield 3 and Gears of War 3 offer DLC with new additions to the game to keep players interested months after the release. Even Gamestop, the largest business dedicated to only selling games, and which earns most of its revenue from used games, has had a digital store.

Interpret LLC released a report in 2009 detailing the impact of used game sales on the video game industry. Their conclusion was that digital content was the solution for video game companies. The study looked at the habits of gamers and saw that people who played online spent more time with a game than those who did not. And that people who more often bought used played online game content than those who did not.

It showed that there is a market online for people who buy games used. And that companies’ efforts to keep people interested in their games has worked. “[T]he mere availability of downloadable content,” the study concluded, “actually makes the used game industry less viable.

While the shifting strategy of the industry to get consumers to buy new will change the pre-owned market, the evolving landscape of the way video games are sold will have a great impact on used games. Digital selling of games, which would not allow for trading in games the way it has been traditionally done, would extremely limit the used gaming market. Currently digital games are seen most heavily on the PC market, but with extra content and smaller, arcade games already being sold through downloading on to the console, and it will not be long until full priced console games are sold digitally.

Steam is currently the most popular service to buy PC games digitally. The company allows you to buy games directly over the internet onto your PC. Often games can be found for cheaper than buying a hard copy, due to the deals and markdowns Steam usually offers. There are plenty of gamers that know that they can wait a month or two after a game’s release and find it mark downed on Steam.  And digital copies of a game drastically reduce the used game market.

Unlike physical copies of DVD’s and game disks, the first-sale doctrine does not protect digital copies of merchandise. It is why Netflix users recently saw an increase in their month fees and separate DVD and steaming plan. Although Netflix eventually dropped that price due to loss of subscriptions, they had to do the price hike in the first place due to the increased usage of their streaming service. Unlike DVD rentals, Netflix has to pay a fee for each program streamed. It is also why Netflix’s streaming service is more limited than their DVD service, because television companies have to agree to allow their programs to be streamed.

“One of the greatest things about digital distribution is what it does to reduce the used game market,” stated Obsidian Entertainment’s veteran RPG designer Chris Avellone, “I hope digital distribution stabs the used game market in the heart.”

If games were to go completely digital then there would be no used games because games could not be resold. It is the best solution that companies have for the used game market, and they are already half way there with the content they already sell online.

But that is not the only change that could affect used games sales. Parcel Gamer, which would be similar to Netflix, would allow gamers to buy used games and trade in old ones by shipping them to the site. But unlike Gamestop, the current powerhouse in used game sales, participating companies would get 10 percent of the sales generated by Parcel Gamer.

And it is good for gamers too, as new games would likely be bought for $10 more and sold for $5 less than Gamestop. Another bonus is that people who use Parcel Gamer would receive the Online Pass free with no extra cost.

“The ParcelGamer model will extend the life and future of physical game media and the culture surrounding it,” the website promises to gamers. The company sees that publishers are moving towards digital copies to combat used games and is trying to keep physical copies in existence.

“Parcel Gamer wants to build solid retailer-publisher relationships, which can be drawn upon to continue improving our service and the industry benefits it creates,” the website tells gaming companies.  Getting companies to agree to the system will be the hardest hurdle Parcel Gamer must pass. When games could eventually go completely digital, there is little reason for companies to agree to receiving 10% of used game sales. That 10% is around $3 – $5 dollars, Parcel Gamer states, which is less than companies earn now for each online pass for each used game that has one.

While such as system such as Parcel Gamer might not be completely viable now, the possibility is there for companies to begin to earn some percentage of used game sales. Even though many consumers to not like the belief that video game companies towards used games, the movement towards compensation for such sales is here to stay.

THE CONSUMER

More often than not, the consumer will express frustration with companies’ attempts to discourage them from buying used games. The consumer opinions discussed come from either the comments section of gaming articles discussing the used game industry, or forum posts created with the purpose of polling gamers’ opinions.

“As a gamer, I would buy and play a significant less amount of video games if they all became digital,” wrote one gamer with the username Fish613, in response to IGN’s article discussing the financial side of digital game and the used game market, “the gaming industry would destroy itself if they became all digital. That would mean they would have to stop selling collector’s editions.”

A collector’s edition of a game contains the game, but with added bonus material that often includes art books, books talking about the making of the game, a CD of the game soundtrack, figurines, and extra content. This content is almost never offered in any other way. It shows the way gamers feel about the physical copies of their games. It is the way book lovers feel about books on a Kindle, for them there is something so special about a physical copy that a digital copy would actually discourage them from buying the game.

“The days when you could buy a game and own it for the rest of your life are gone,” stated a gamer with the username Fragems-tk on the same article, “now you have to worry about keeping an internet connection and praying your digital download service never goes belly up.”

His thoughts are similar; there is something nostalgic about being able to own all of a game on a disk. Some gamers lament the change, but know that digital content will not be going away soon, because they know that companies see so many opportunities with it.

One gamer in response to one of the forum posts put up replied, “despite what the big companies want you to believe, used games don’t hurt the sales as much as we think… with the recent introduction of DLC companies can still find ways to make money off of games even after the initial purchase.” He also mentioned the fact that gamers often trade in their games so that they can buy new ones. This is another common viewpoint, with the belief that without the pre-owned market people would not have as much money to buy games new.

He is also one of the gamers who will buy all of his games new, and although he stated he did not have an issue with used games, he did have an issue with the Online Pass for reasons beyond having to pay to play online. He sees the inconvenience of having to put in the code, wanting to let a friend borrow a game, and people not having access to the internet as the biggest drawbacks of the Online Pass.

This consumer viewpoint that the companies are not taking the right approach when it comes to the pre-owned market is a large one. As the consumer they see themselves being hurt for conducting a practice they have viewed as completely legitimate for a number of years. There is also the growing view that companies are greedy and that is why they have the Online Passes and other ways to earn money from the used game buyers.

While there are certainly consumers that understand the video game companies’ economic problems and agree that they should be allowed to take these measures, the most outspoken of gamers are always the ones against the changes the companies are making.

With the progressions of technology and the movement towards more digital and online content, there might not even be a large used game market in ten years. With more people getting their PC games directly over the internet, it does not seem like until console game publishers make such a leap as well. Just watch and see how the video game market keeps on changing.

Further reading: The articles linked in here will provide even more information on the subject, if one is so inclined.  

Excerpt 1

Okay, here’s the excerpt that I said I would post today. It’s the first part of the article, which focuses on the industry point of view.

Since EA games released their Online Pass for their sports games, they have expanded it to include popular series such as Medal of Honor, Dead Space 2, and Battlefield 3. Other companies such as THQ, Warner Bros. Interactive Entertainment, Ubisoft, and Sony Computer Entertainment have since included their own 10 dollar online pass in their games. Even though EA’s website states that the Online Pass is “in order to continue to enhance the online experiences that are attracting nearly five million connected game sessions a day”, Dr. Michael Capps, the president of Epic Games said “our primary retailer makes the majority of its money off the secondary sales, and so you’re starting to see games taking proactive steps toward that by… if you buy the retail version you get the unlock code.”

According to a report by market analysis firm NewZoo, 23 percent of video games sales in the United States are those of used games. This in an industry that was down six percent in 2010, and was recently down six percent September of 2011, compared to the same month last year. When talking about the PS3 game Heavy Rain, Guillaume de Fondaumiere, co-founder of Quantic Dream stated “my calculation is, as Quantic Dream, I lost between €5 and €10 million worth of royalties because of second-hand gaming.”

With the number of companies that have adopted a system similar to EA’s Online Pass, it does not seem to be going away any time soon. But that does not address the perceived issue that drives consumers to buy pre-owned games. “I understand why players do this,” stated Oliver, “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.”

Dr. Capps also agreed, stating “I’ve always said that games are probably too expensive, so there’s probably a right level here to find. We need to discuss this all together and try to find a way to reconcile consumer expectations, retail expectations and also the expectations of the publisher and the developers to make this business a worthwhile business.” Those in the video game industry are not ignorant to the reasons behind consumer actions. But money lost to pre-owned games is not going to be fixed by dropping the price of new games, not because it would not work, but because it will not happen. With the increase in digital and downloadable content, that is where the industry’s solution to the pre-owned market will come from.

 

More Research

I’ve gathered a number of opinions and articles about my topic, and have decided to share them all in one post. I’ve been trying to look into the percentage of games sold which, which I’ve found differing data on. That’s the first group of links I’m posting below:

http://www.theesa.com/facts/index.asp

http://www.gamasutra.com/view/news/28350/Study_Used_Games_Online_Make_Up_46_Percent_Of_US_Gamers_Budget.php

http://www.joystiq.com/2011/11/07/report-used-and-digital-sales-make-up-35-of-total-console-spen/

Two of those links give studies that bundle used games and digital gaming together, which grabs my interest, because I would see them as two entirely different things.

Next, here are some links to the general state of the video game industry, starting with the most recent:

http://venturebeat.com/2011/10/13/video-game-sales-drop-6-percent-in-september/

http://www.cnbc.com/id/41062675/Video_Game_Sales_Drop_6_in_2010_Second_Year_of_Declines

http://www.wallstreetandtech.com/articles/221700056

Even though I was searching about the company profits, I still found other articles that are going to be really useful for me. One of the best one’s was about an interview by executive vice-president Mike Mauler of Gamestop. Gamestop is the biggest video  game store and earns much of its profits from used gaming. So to find an interview with his take on the issue was very useful:

http://www.next-gen.biz/news/gamestop-pre-owned-benefits-publishers

Then there were the more general pieces. The first one listed is a report on the impact of used video games on the industry. The second is about about a new company called PostalGamer, which would work  Netflix and give participating companies “a 10 percent cut of sales generated by their titles from their catalogs.” The last two articles are more pieces on views and analysis of the used gaming industry.

http://interpretllc.com/_downloads/impact_of_used_game_sales_on_the_industry.pdf

http://www.wired.com/gamelife/2011/08/postal-gamer-used-games/

http://badgerherald.com/artsetc/2011/08/31/pre-used_market_poac.php

http://www.wired.com/gamelife/2010/08/used-games/

The last article I leave you with is from 2002, when Amazon was first starting to allow people to sell used books online. It was some of the little information I could find about book authors/publisher being angry with used book sales, but there was not much beyond that point. Nor could I really find anything about dvd used sales.

http://news.cnet.com/Group-blasts-Amazons-used-book-sales/2100-1017_3-880022.html

That was something I had been curious about, why did used video games matter when I had not heard much about issues with used book or used dvd sales.

Those are the links I have for you, and tomorrow I should be putting up a small excerpt of the article I have so far.

 

Industry Viewpoint

I’ve been doing some more research this week, particularly into the industry perspective. I know that it would be hard to have my own conversation with the industry, but there is enough already said out there that it is obvious as to how industry leaders feel about used gaming. I’ve including two interviews/statements by those in the industry about used gaming.

Here’s a quote 0f the older one, of Epic Games president Dr. Michael Capps from 2008:

“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 of War 2] than bought it…”

Second part of interview

Article taking out bits relevant to used gaming

So obviously, as my other research as shown, and the basis of my interest as shown, the industry has a problem with used games. The good? interesting? thing about these different comments/interviews is that it shows that it is most of the industry, not just a small section that feels like this.

He also briefly address digital downloading by mention Steam, which is something I want to address in my article as well.

And then there’s the second statement, by Blitz Games Studios’ co-founder Andrew Oliver. This came out around the same time EA games announced there $10 fee to play their sports games online if they have been bought used. That has been one of the biggest ways companies had tried so far to combat used gaming, so it is a situation that is definitely going to be brought up in my article.

Gathering More Articles

So far, I’ve been working on gathering more articles that have already been written on the topic.

This video shows one person’s perspective on how to fix the issue of used games, which is definitely up the alley of what I would like to explore in this article.

Here is a recent article from about 7 days ago, talking about the percentage of used sales makes up the gaming market. I must say that I was surprised while reading this article. I did think that the percentage would be higher.

One line from this article interests me. The beginning of the article talks about how copyright law makes selling used games completely legal. Plus he discusses solutions that companies have tried.

Here’s a final article that I have found so far.

All these articles tell me what I’ve already known I need to research in – the profits of the video game companies. So that is the next direction that my research will take, and probably what my next update will be about.

Brainstorming

When we were asked to brainstorm what to write for our investigative article, I admit I was at a loss. I was not sure what I wanted to look in to, so I thought about past articles I had read and had interested me. I finally, after a lot of thinking, returned to these two articles by The Real Cost of the Used Market and Owned by Pre-Owned by Ign.com writers. I have had a growing interest in trying to learn about industries such as gaming and television, so the idea of digging in to know more about the used game industry intrigued me. I had read the first article back when it was first published, and the concepts brought up in that article had been in the back of my mind since then.

The idea that there was something to explore was cemented after speaking with my brother, who is an active gamer himself. We spoke briefly, more of a way of fishing into what I was thinking, and I plan to speak to him more formally, but his negative opinions of the gaming companies told me there was a culture or a feeling I needed to explore. It was these two instances that lead me down the path of what I am writing now.