About used games

With the reveal of the Xbox One and the rumors, reports and vague confirmations since, the subject of used video games has come to the forefront of the discussion and has even become a point of contention between online reviewers who argue that its disappearance will be both good and bad for the consumer.

Seeing as I’m not a reviewer myself, merely a consumer, I decided to do some research on the matter to understand if and how both positions can be true. In so doing I compiled a list of the most pressing questions that are probably on people’s minds and attempted to answer them to the best of my ability. I can only hope you’ll find it useful.

  • Who sets the retail price for video games?

Publishers do.

  • Why does the used games’ market exist?

Because there’s a demand for lower-priced video games, there’s a supply of cheaper, used video games, and there are numerous retailers willing and able to facilitate and benefit from the flow of goods.

  • How do retailers benefit from the used games’ market?

The retailer share from selling new copies of video games is, arguably, not enough to keep them in business. Since the used games’ market is not regulated, all revenue derived from used games’ sales goes to the retailer, neither publishers nor developers get a share of the profits. The profit margins derived from used games’ sales can be more than four times the margins derived from new games’ sales.

  • Can people really sell their video games?

Yes and no. In the U.S. there’s something called the “first-sale doctrine” (“exhaustion of rights” in Europe) which limits the “distribution right” of the copyright owner. Basically, the distribution right says that the copyright owner has an exclusive right “to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” The first-sale doctrine says that the distribution right of the copyright owner ends when the work is lawfully sold or transferred gratuitously. After that, the owner of the material object can dispose of it as he sees fit.

  • So I can sell video games!

For the first-sale doctrine to apply, lawful “ownership” of the copy or phonorecord is required, first-sale doctrine does not apply if the possession of the copy is “by rental, lease, loan, or otherwise without acquiring ownership of it.” Some, if not all, video game publishers claim in their end-user license agreements (the bit no-one reads) that their content is licensed, not sold, and thus the first-sale doctrine does not apply to their works.

  • So I can’t sell video games!

In theory, a properly-worded EULA could be enough to bypass the first-sale doctrine. However, there’s a precedent in Europe that says this is not so. In UsedSoft v Oracle, the European Court of Justice ruled that the sale of a software product, either through a physical support or download, constituted a transfer of ownership in EU law, thus the first-sale doctrine applies (see here; also here). The U.S. might have a different opinion on the subject though.

  • I don’t understand.

Join the club. The problem I see is that the first-sale doctrine is outdated. According to the Wiki, it was first recognized in 1908 and codified in 1976. They never had to deal with used video game sales in 1908! There was no such thing as “digital content” back then. As always, this is a case of technology outpacing legislation and this legal limbo is probably the reason why the used games’ market exists and why publishers such as EA or Microsoft have yet to take retailers like GameStop to court. After all, the verdict is not assured to be in their favor.

  • What have publishers done to combat used game sales?

Many publishers use the online pass system. What the online pass does is restrict access to additional online content or features, such as multiplayer, through a single-use serial number. Online passes are included in new copies of a game, thus encouraging people to buy new. Nonetheless, owners of used copies can still buy online passes and access online content. In this way, publishers can still perceive revenue from used game sales.

Publishers have also attempted to bypass retailers entirely by offering additional content that is distributed solely through the Internet (downloadable content or DLC). Since the content is not tangible it cannot be resold unless the publisher implements a system to allow consumers to do so (I know of no such system). As a result, all revenue derived from DLC goes to the publishers and developers, the retailer doesn’t get a share of the profits. DLC can also be included with new copies of the game to further encourage customers to buy new.

  • If online passes and DLC can be sold multiple times to a single copy, why do publishers want to eliminate the used games’ market?

That’s a very good question. It’s possible they don’t want to eliminate it so much as control it but, at the moment, your guess is as good as mine.

  • What is DRM?

DRM, or Digital Rights Management, is a technology used by content providers to control the use and distribution of digital content after sale. It has been predominantly used in PC gaming to combat piracy. Earlier forms of DRM limited the number of times a game could be installed as well as the number of systems it could be installed on by way of authentication with an online server (SecuROM). Another version of DRM, SafeDisc, aimed to hinder unauthorized disc duplication and imposed no installation restrictions and required no online activation. Nowadays, digital distribution platforms such as Steam or Origin use an online form of this technology that requires an initial online authentication for each new purchase, after which games can be run in offline mode (without being connected to the internet). On the other hand, sites such as GOG.com pride themselves in offering DRM-free games. Currently, console games require no such authentication and the single player content can be accessed without an internet connection for an unlimited amount of time.

  • Can DRM be used to combat used game sales?

DRM hinders the ability of a person to sell or trade a game that they’ve purchased lawfully what could conflict with the first-sale doctrine. Thus, we’re back to the problem of legally determining whether the user is or isn’t the owner of the purchased copy. Until there’s a clear ruling on the subject, both retailers and publishers will continue to do what’s in their best interests.

  • What is always-on DRM?

Always-on DRM, also known as persistent online authentication, requires a user to remain connected to a server, usually through an internet connection, to access a particular content. As an example, the retail PC version of Assassin’s Creed II initially required users to remain connected to the internet while playing and any progress after the last checkpoint would be lost if the connection was interrupted. The DRM protection has since been modified by Ubisoft so that users can play the game offline. On September 2012 Ubisoft announced it would no longer support always-on DRM and would instead require a one-time online activation (see here).

  • Does the Xbox One have always-on DRM?

No. However, it doesn’t have a one-time online activation DRM either. Users accessing their game library on their primary consoles have up to 24 hours to play a game offline, after which they are required to “check in” with the server in order to  “verify if system, application or game updates are needed and to see if you have acquired new games, or resold, traded in, or given your game to a friend” (see here). If said users are accessing their library from a different console they have up to 1 hour to play a game offline before online authentication is required.

  • Does the PS4 have always-on DRM?

There is no official confirmation from Sony either way. We’ll have to wait for E3.

  • But the Xbox One will still allow me to trade my games!

Read the fine print: “Publishers can enable you to trade in your games at participating retailers.” The keywords are “can” and “participating retailers.” Currently, it is the retailers who allow you to trade in your games by buying them from you in exchange for cash or store credit. Consumers can even cut out the middleman and sale directly through eBay or craigslist! The Xbox One is designed to transfer this power to the publishers who don’t have to enable you to trade in your games (can, not will) and, furthermore, they dictate where you can trade them (at participating retailers).

  • But aren’t retailers doing this already?

Yes! But the key differences are that there are many more retailers than there are publishers, and that we already know the ground rules for the current used games’ market. Neither Microsoft nor third-party publishers have a clear idea on the specifics of their used games’ market model and if they do, they aren’t telling.

  • If the current used games’ market is eliminated, won’t that encourage sales like Steam?

The supposition being that Steam sales are directly linked to the fact that there’s not a used games’ market for the PC, not in the way there’s one for console gaming at any rate. And therein lies the problem: there’s no evidence that there’s a direct correlation between the two. We don’t really know why Steam has such discounted sales or even how (beyond the fact that the publisher must have agreed to it).

Electronic Arts has criticized Valve for offering games at hugely discounted prices arguing it cheapened intellectual property (see here), yet I’ve seen some EA titles on Steam sales (in fact, I bought the entire Kingdoms of Amalur collection at 50% discount). Furthermore, I recently bought Mirror’s Edge on Origin for 4.95 Euro (yes, the Origin Store still hasn’t fixed this) and have just verified that the same title is on the Xbox Marketplace for $14.99! I realize this is probably an unfair comparison since there are platform royalties involved but surely not 45% of the retail price! Aren’t they cheapening the Mirror’s Edge IP by selling it at a 57% discount? (and I’m betting that price is probably $4.99 on Origin US, making it a 67% discount!).

GOG has also criticized Steam sales arguing that it sends the wrong message to the public that the discounted game isn’t really worth very much in the first place. Instead, publishers and distributors should aim to offer better value with their games (see here). Can’t really fault them, although they are a subsidiary for CD Projekt Red, whose popular title The Witcher 2 has also been spotted in Steam sales.

Jim Sterling, in his “When The Starscreams Kill Used Games” video, recently argued that the reason for Steam sales is probably a very old one: competition. I quote, “Steam has competition from Good Old Games, Green Man Gaming, Amazon, Origin, and Desura, game devs self-publish, sell direct from their sites or host them on browser platforms.” He notes, however, that this is just a guess at best. As with our original supposition, there’s no concrete evidence (though I’m inclined to agree).

  • Okay, but if the publisher sets the retail price, can’t they simply lower the price of the game on sites such as the Xbox Marketplace in order to compete with used game sales?

Well, if Steam is able to offer such discounts, even accounting for their royalties, I’d imagine the answer is “yes.” After all, Steam has to negotiate with the publisher whether they want to include a particular title in a Steam sale, at what price and for how long. Surely publishers could work out something similar with Microsoft?

The fact is that I’ve seen examples where the Xbox Marketplace actually competes with Steam in new game sales. For instance, Call of Duty: Black Ops is currently $49.99 on the Xbox Marketplace and $59.99 on Steam. The Elder Scrolls V: Skyrim is at $29.99 on either site. Perhaps we’ll never see the kind of discounts Steam has out of a publisher’s desire not to “cheapen” an IP.

At the time of my writing this, Tomb Raider, a relatively recent release by Square Enix is $29.99 on the Xbox Marketplace, $44.99 pre-owned on GameStop, and $49.99 on Steam. While these opportunities seem to be few and far between (certainly nowhere near as often as Steam sales), they do exist.

  • So maybe publishers can compete with used game sales after all!

But that’s the question, isn’t it? If the competition were removed, would publishers feel the need to offer lower-priced games?

Currently, there’s only one digital distribution platform for Xbox 360 games, the Xbox Marketplace, and one digital distribution platform for PS3 games, the PlayStation Network; and while most third-party titles can be found on either site, exclusives are restricted to one or the other. Thus, currently, both sites are monopolies as far as console exclusives are concerned.

With the Xbox One, the used games’ market is removed from the equation as far as X1 titles are concerned. However, many, if not most, third-party publishers will publish titles for both the Xbox One and the PS4 (bar third-party exclusives, naturally). I have to wonder then, if the PS4 doesn’t implement a similar system to the Xbox One’s insofar used games are concerned, how do publishers intend to compete with the PS4 used games’ market?

The optimist in me would argue that the PS4 used games’ market would be enough to keep the Xbox Marketplace in check as far as pricing is concerned. The realist in me, however, foresees many dreadful scenarios. First, if publishers see the X1 as the way to eliminate used games, wouldn’t they encourage the PS4 to have a similar system? And if Sony were to take the high road (okay, whether it’s high or low is probably debatable) and insist on allowing the used sales’ market to exist, wouldn’t publishers simply stop developing for the PS4? Because if a console doesn’t have games, why would anyone buy it?

  • But even if the used games’ market is removed, wouldn’t console games have to compete with PC games?

If they don’t feel the need to compete nowadays, why would they feel the need to compete in the future? Third-party publishers don’t need to compete with the PC, or the Xbox 360, or the PS3 because they aren’t tied to a single platform, they can easily develop for all. They aren’t tied to a single distribution channel, they have multiple ones. However, they’ll most likely develop for whatever platform best accommodates their needs.

The only publishers that are obliged to compete are Microsoft and Sony because they need to promote their respective consoles. The manner in which they’ve chosen to do so is by having exclusive titles or franchises, such as Halo, Gears of War, Uncharted, Journey, etc.

  • But then aren’t exclusives bad for consumers?

Yes, yes they are! Because by tying a particular title to a given platform the consumer is unable to choose, and that is always bad for consumers.

  • But publishers have a right to develop exclusives!

Yes, they do! And consumers have the right, and perhaps even the moral obligation, not to buy said exclusives. Because when you buy an exclusive title you’re really telling the publisher that you won’t mind that your ability to choose has been compromised provided you like the product being offered. Unfortunately, I must admit game reviewers (and even consumers) play their part in this. Take “The Last of Us,” a PS3 exclusive title that is garnering praise from nearly every video game reviewer. Now say you have an Xbox 360; can you honestly tell me that 10s and 100s all across the board aren’t subtly persuading you to buy the game and, as a result, buy the console?

Now imagine “The Last of Us” were an Xbox One exclusive and you have a PS4 or maybe you still have a current-gen console. Aren’t those reviews encouraging you to buy the Xbox One to try out the game, despite any misgivings you might have about the console itself? After all, if reviewers who oppose the console still buy it and play its exclusives, why shouldn’t you?

  • But reviewers must review all titles, it’s their job!

No, they don’t. Reviewers can choose not to review certain titles if they feel there are higher ethical considerations at play. After all, there is such a thing as professional ethics. If an engineer is asked to certify the safety of a project that he considers unsafe, he shouldn’t certify it no matter who’s doing the asking.

  • You’re overreacting, it’s only video games.

You either have professional ethics or you don’t.

  • What does all this mean for the used games’ market?

For better or worse, I think TotalBiscuit is right in his “Used Games” video when he says that the used games’ market will eventually disappear. It may not happen with the next generation of consoles but it will happen eventually as we move further and further into the age of digital distribution. It has already virtually vanished from PC gaming and this hasn’t negatively impacted the consumer. However, bear in mind the differences:

– There are currently few console manufacturers (Microsoft, Sony, Nintendo) whereas there are multiple sources for gaming desktops and laptops;

– The console manufacturers also control the distribution channels for digital console games whereas retailers and publishers alike vie for your money on the internet.

  • So… should I buy a PS4 then?

Even if I knew everything we still need to know about the PS4, I wouldn’t feel comfortable answering that question. What’s important is that you, the consumer, are completely informed about all your choices and their respective pros and cons. I’ve talked at length about the Xbox One because I think we know more about that console than we do the PS4, at least presently.

I would please ask you not to base your purchasing decision around each console’s exclusives, at least not to the detriment of ignoring the potential (or actual) pitfalls of each system. And remember that you always have a choice. If you feel the consoles are too restrictive, you don’t have to buy them. Indeed, other developers are entering the market with products such as the Ouya or the fabled Steam Box.

If you feel triple-A titles are too expensive, you don’t have to buy them, certainly not on day one. You can wait for sales, buy older titles, or buy Indie games, which still offer plenty of value at a lower price. You even have kickstarters where you get to support the developer and bypass both publisher and retailer.

And if none of the options available agree with you, always remember these three magical words, “No, thank you.” Because, when all is said and done, you don’t have to buy anything at all. And if more people were to realize this, then perhaps the video game industry as a whole would be better for it.

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