When I was a kid, I loved the old black and white monster movies Universal Studios produced in the 1930s. In particular, I was a fan of James Whale’s 1931 classic, Frankenstein, starring Boris Karloff as the iconic monster. At the end of the film, the villagers of the town that the monster terrorized took up torches and pitchforks in a blood lust furor to exact revenge against the creature.
This week on Game Debate, Valve and Microsoft were monsters, and many of my fellow members were angry, pitchfork-wielding villagers out for blood...
First was the news that Valve was under fire for not allowing Steam members to trade games among themselves. Then came word that it was a distinct possibility Microsoft would prohibit the use of pre-owned games on the upcoming Xbox 720.
Threats were made. Bile was spewed. Angry promises of never buying another Xbox product were bandied about.
I do not blame anyone for taking this news with anything other than genuine disgust. I even found this information distasteful, from a public relations standpoint. However, what I did NOT find this information to be was anything other than surprising.
While piracy is a gigantic problem for game publishers, the used game market is a huge money pit, as well. A publisher will spend tens of millions of dollars bringing a high quality game to market, only to see many of the title’s players purchasing used copies. A game can only be brand new once, and the publisher only sees profit from the first sale. That one single copy of Black Ops II or Assassin’s Creed III may change hands three or four more times in its lifecycle, and the publisher sees no profit from those additional sales. The production and distribution costs to the publisher to bring that single copy of the game to the marketplace stays fixed no matter how many times the game changes hands, with no profit to them.
From an economic perspective, an individual video game title has an “elastic” demand curve based on its price. The demand for this game will change as the price changes, and this is usually an inverse relationship: demand increases as the price drops. Goods producers need to find that just-right price that satisfies demand and maximizes profit. The used game market kicks the practicality of this theory, as Cartman would say, “squah in the nuts.”
The argument may be made by some that the price of a new game is too high, which spurs the continuation of the used game market. I cannot say if this is true, as I am not privy to the closed-door financial analyses of game publishers. What I do know is the cost of developing games is increasing, and it will continue to increase as more powerful hardware hits the street. Allow me to offer some perspective. Think back to a typical Super NES game. It was sprite-based, 2D, and had a large amount of recycled art assets. The playable character jumped, fired some kind of weapon, and maybe sprinted. Now, think about Grand Theft Auto IV. It’s a game with a massive 3-dimensional playable map filled with thousands of NPCs and vehicles, each with an AI script. There are hundreds of small streets, alleys, tunnels, and corners of the game world, and each of those need to be individually created and dressed; the same goes for all the interior areas of the game. Further, the entire world is governed by a complex physics system, which affects every polygonal object in the game, aside from buildings. Oh, and I completely forgot about the game’s multiplayer component, which is an investment in itself to develop, test, and balance. It takes hundreds of people working hundreds of thousands of man-hours, and operating on an army of expensive PCs and servers to bring this game to the marketplace. Rockstar games invested about $100 million to develop GTA4. It is no surprise, then, that they wish to earn back that investment, and then some.
The simple fact of the matter is the way video games are delivered to your PC, console, handheld device, etc. is about to change. Game publishers want desperately to stomp the used game market into a bloody pulp. As technology becomes more complex and as more of these delivery devices are networked, it allows publishers the freedom to manipulate the system in their favor. Console makers and game publishers are looking for as much control as possible over what you play, how you play, and when you play it. Many industry insiders predict the era of the PS4 and Xbox 720 will be the last generation a video game console has a ROM drive included. Ten years from now, you will likely be playing your PS5 and Xbox 1440 completely on the Cloud. No DVDs, no Blu-rays, no HDDs; the box you buy will be nothing but a media server connected to a 4k HDTV.
Not only does this scenario mean the end of the used game market (and I promise you, this is inevitable), but it also means the end of the boxed game market. Retail chains like GameStop will be nothing but a footnote in the annals of video game history. Here is some friendly investment advice: if you own shares of GameStop, sell them as fast as you can.
However, all is not doom and gloom ahead. While there is a certain segment of the market that loves to have a boxed copy of a video game, I prefer the space savings and convenience of digital distribution. So do tens of millions of other gamers, judging by Steam’s subscription rate. There is a definite advantage to having a collection of hundreds of games living on a virtual shelf, instead of taking up space on a very real shelf in my 1,250 sq-ft home.
The bigger issue in this debate, however, is cost to consumer. If used games are no longer an option, gamers will need to spend more money to feed the beast, so to speak.
Or, will they?
Think about it: games always experience price reductions, whether by temporary sales or in permanent price cuts due to the title’s age. I guarantee you this will continue to happen in the age of digital distribution. Companies will always be motivated to push certain products a little harder during sales lulls, especially during summer months, or in face of a competing product. Economic market forces will always exist in a capitalistic society.
Further food for thought: technology companies tend to operate with a philosophy of best industry practices. Tech company “B” looking to break into a market tech company “A” has already had success with will almost always mimic the best practices (e.g., the keys to success) of its predecessor/competition. In other words, if Microsoft sets up an exclusive digital distribution system for the Xbox, it is going to investigate, and likely somewhat mimic, what Valve has done with Steam to make it so successful. One of the biggest drivers of Steam’s success is its sales, especially its seasonal sales. If, for example, the Assassin’s Creed franchise is on sale for 50% off on Steam, there is no logical reason Microsoft would not follow suit and offer the same sale on Xbox LIVE. This might even be at the request of Ubisoft; the publisher may direct a distribution-wide sale across all platforms. Microsoft will be competing directly with Valve, and they are going to engage in their own strategies to cultivate a larger market share.
After the dust clears, the gamer will still be able to afford to play the games he or she desires. Video game publishers are not so brain dead as to price themselves out of the marketplace. Once again, I say economic market forces will prevail. Without the used game market around to cloud price elasticity, I think consumers will be satisfied in how future game pricing plays out. The bottom line is game publishers want us – NEED us – to buy their products, because without us, they would not exist. What we all must keep in mind is over the next decade our beloved industry will undergo the biggest paradigm shift it has ever experienced. We simply need to be patient until the repercussions of all these changes settle and we have a truly clear picture of how things will play out in the coming decades.