Thursday, August 23, 2012
Why companies aren't selling videogames any more
Rohan is musing about a Penny Arcade comic on Free2Play models, where the punchline is "I think I liked it better when companies sold videogames". But that is the one-sided point of view from the gamer's side. Interestingly it is easy enough to imagine a game company CEO stating exactly the same: "I think I liked it better when customers bought videogames". The simple fact is that the business model in which companies sold videogames to customers was undermined by people who were neither the companies nor the customers. And that to a point where the revenue from selling videogames didn't cover the cost of making them any more. Given the choice between stopping to make videogames or finding a different business model, the companies fortunately went for the latter.
The factors that killed the "selling videogames" model were the following:
- Piracy: Ubisoft CEO Yves Guillemot recently said: “It’s around a 93 to 95 per cent piracy rate, so it ends up at about the same percentage as free-to-play”. The business of selling videogames can only exist if people actually buy them instead of stealing them.
- Resales: If I buy a used car, I get a car that is not quite as good as a new one. If I buy a used videogame, I get the same pristine play experience for less money. In most places the law decided to treat those two cases the same, insisting on a customers right to resell games. Third party companies jumped in, buying and selling used games, making the business of selling new videogames less profitable.
Item shops are a rather curious intermediate step between buying a good and buying a service. Buyers tend to think of them as buying a good, as in "I bought a mount in WoW". But legally they are only buying a service, as in "you pay for the right to use this mount in WoW". The day the law changes and decides that players have property rights over the virtual items they buy, item shops are going to disappear, being replaced by more obvious "renting" agreements.
The Internet is not the most logical place. Every news of how some game studio went broke or laid off game developers is greeted with a gnashing of teeth. But at the same time people argue loudly for piracy, against copy-protection, for sharing, copying, reselling games, against game companies making profits. Apparently most people can't understand how the two sides are connected, how game developers can't be paid if game companies aren't profitable. If the business of simply selling videogames is dying, it is as much the fault of the players who refused to pay for the games they played as it is the fault of game companies. Ultimately we'll all end up renting videogames, or parts of videogames like virtual items, because that is the only way how game companies can technically and legally assure they get money for their product and pay the people who make the games.