Tobold's Blog
Friday, January 04, 2013
The end of second-hand games?

Video games today lose value rapidly. I bought several games at the Steam Christmas sales for half price which had only just come out this autumn, like Borderlands 2 or Dishonored. Of course a part of the reason for such big rebates is just plain marketing. But there is another factor: The sale of used games. People that buy games on release often resell them a month later for half price, when they played the game through. And as a "used game", unlike a "used car", is as good as the original (if not better after the first patches), that supply of half-price used games drives down the price of the original.

While that is good news for people who can wait, it is obviously not so good news to game companies. At best they sell me a game at half the price, at worst they get absolutely nothing while I buy a used game. If only they could stop the sale of second-hand games, they could keep prices high for longer and sell to more people. So it is not really surprising that they are working of ways to achieve exactly that. Sony has a new patent that could prevent the resale of games of some future console.

It works relatively simple: Game discs would come with an RFID chip embedded, and the first time they are played on a console, the console writes its unique ID onto that chip. From then on the game runs only on that console and not any more on any other. Now of course some people would quickly find ways to erase that RFID chip. But at least in the USA that would illegal under the Digital Millenium Copyright Act, which prohibits circumventing any digital rights management systems. You'd be able to buy second-hand games from the boot of a car, but second-hand game shops would have no legal way to exist.

Now this is just at the patent stage yet. It might not yet be a feature of the Playstation 4, but it might come with the Playstation 5. And if Sony does it, Microsoft and Nintendo won't be far behind. As for the PC, well, I already can't sell my used Steam games.

Given that it doesn't stop PC games depreciating, one wonders if it really would prop up game prices after the hype period ends. I am not sure used games have any impact.

If I really want a game I pay full price. If I don't I wait for prices to drop. By postponing the price drop they would merely postpone my purchase. The value of a game in my head is determined by my desire to play it and not my projections of future pricing.

Potential cuts or second hand availability might influence kids with pocket money but most gamers are far older and with large disposable incomes. If they want it they buy it and don't hold off because they think it will drop in value.
I've never been a fan of used have sales and those stream sales seem like a good idea to prevent them in theory (if it wasn't for the fact that used PC games aren't usually sold anyway.

I don't think I'd buy a console game with machine bound DRM though. I don't mind account binding much, but machine binding is too much
The big problem with different kinds of DRM is that the ones that are getting hit are usually the actual customers who paid for it. Not the ones they are trying to prevent from stealing/copying/reselling it.

So if they're locking the game to a specific hardware, and that hardware breaks down and has to be replaced you have to buy a new game? Lovely...
I suspect that long term it would depress the gaming market rather than add more profits to game companies. If people aren't able to sell old games, they might get choosier about what game they want to buy, which will impact game companies' bottom lines.

Imagine if people only picked up the big sports games (like Madden Football) once every three years or so rather than pick up one each year, that would have a big impact on EA's financials.

With no resale value, people would look for things like longevity more. (Imagine people passing on a game such as Arkham Asylum because it doesn't take as many game hours to complete as some other titles.) Of course, some games with inherent unique value such as PvP will last longer, but that might be at the cost of PvE game content.
The big problem with the Steam model is that it allows a company to hold a lot of my property at their whim. Right now because of a dispute with them, they have locked down my account and the only recourse I have is to argue with some low level CS reps on a website. All of the money I spent on games through them is lost with little I can do about it. They even locked a game from installing that I bought a physical copy of at gamestop because it authenticates through them.
That's somewhat clever, from a technical perspective, but RFID chips aren't really to the point where the patent could be reliably implemented. The first time time a batch goes bad from heat, it'd be a hell of a nasty class action lawsuit -- and that's ignoring the potential for sabotage by some pissed-off customer or employee walking down a store hall and breaking tens of thousands of dollars in inventory by spamming a fake (or real) consoleID. Solvable problems, but also problems where they can look solved until disaster strikes.
The secondhand shops could still legally exist. They sell things that are property: the discs.

This method would be a huge problem if a console breaks or needs to be sent in for repairs. Also no bringing a game to a friend's house to play with them.

Once again, it is a 'solution' that won't stop the resale or piracy, but will reduce the value for the customers.
The back and forth in this arena will probably continue.

I think that "always on" will be another significant battleground. E.g. genres that traditionally are not always on may be AO since subscriptions/accounts have better actual and legal protection than the alternatives.

It is interesting that a "hot" ( It would be much easier to get funding for an iPhone/iPad project than a AAA MMO) market has the best DRM (Apple iTunes)
"If only they could stop the sale of second-hand games, they could keep prices high for longer and sell to more people."
Keep prices higher? Sure. Sell to more people? No reason at all to assume that.
Steam at least allows you to install all your stuff on a new computer, when you upgrade. (Or even another computer, as long as you don't play them simultaneously)

Given how many consoles I've had die on me, games being locked to the first console they were played on would be a deal-breaker, plain and simple.
The proposed system would prevent you from taking the disc over to a friends house not to mention the many other problems others have mentioned. I expect they have the good sense to realize they would be dooming their console to irrelevancy if they tried such a heavy handed scheme.

Personally I guess I don't get why they don't just go straight up Steam for the next generation of console; you have to be online to buy it; you download it and the only way to transfer it is to give your account to someone else. The answer to the used game problem is staring them right in the face, and it's a big ass hard drive.

And of course price discrimination through short sales is a great way to generate revenue. You dip low for a while to get the price conscious while heading back up for those who really want the game. Great way to maximize revenue, and not necessarily a response to used games, which is one problem the PC gaming industry doesn't have to worry about.
The reason why they are not going down a 100% download/Steam style route for the next generation of consoles is not in my opinion because gamers don't have a web connection. Lets be honest - anyone with the money to buy the consoles and games will have a web connection. If you can't afford a connection you are of no value to them as a customer anyway.

Rather it is because those connections can be too slow or have data caps that are expensive when breached.

Having "a connection" allows a player to have a Steam/Xbox Live style account even if your connection isn't up to downloading content.

So I'd guess that the disk would merely be an alternative delivery method to the download. The chip would link that disk to your account. At a future date you could install from the disk or even download the game onto any console that was connected to the web and logged in with your account.

Of course the disk would become locked out to any console that didn't have your account on it and logged in.

As suspicious as I am of their intentions I don't believe they would put you in a situation where you couldn't use the disk on another console owned by you. They are not daft enough to face the double negative publicity from a hardware failure leading to lost games.

Where as by highlighting that this is no different to what Steam users have happily accepted for years they can divert a lot of bad publicity whilst killing off used games.
Well Woody that's a good point, but there are two things I'd like to point out:

The additional income from charging $60 a game without an intermediary retailer who wants to clear at least 15 bucks is pretty serious. Sony/Microsoft could run their own app stores, and get even more money. More than enough money to negotiate with all the major ISP's to avoid any complications regarding that; say a bulk monthly payment for the ISP to treat all bandwidth coming from their store as a nullity as far as the consumers go. Maybe they can't do this with net neutrality or something, but it would be about giving priority to their traffic, it would just ensure that clients didn't have to worry about it.

This model makes sense even IF the industry weren't losing kazzillions of dollars because of second hand games, which is rather difficult to believe given that the video game industry is apparently bigger than movies, and movies had their biggest year ever!

One might think that all the money saved by buying second hand games ends up getting plowed into the new titles each particular gamer cares (I'll buy X-Com for $50, Assassin's Creed better have a steep discount) about and that in the end all this second hand gaming really only makes the hobby more rewarding an enjoyable for gamers and ultimately is good for everyone since people are willing to put more money into a hobby if that money will bring more fun, but hey, I'm just rambling at this point. It's not like the automotive industry has thrived on used cars encouraging first time purchasers with the promise of residual value, or cheap used cars getting people into the whole car ownership thing in the first place, or profits from used cars sustaining the retail places that would die if they had to rely on profits from the sale of new cars.

And cars last a lot longer than interest in any particular video game title.

Just did a little math:

Assume gamer X can afford to spend $720 a year on video games, and that he buys only buys new games for $65 (including tax).

That means he can buy 11 games a year, generating gross sales of $660 dollars.

If he takes those 11 games and resells them for $30 each, he can buy another 5 new games a year.

So with the help of Gamestop he just bought 16 games, and his $720 budget generated $1150 in revenue for new games.

Now lets imagine a second gamer, with a budget of $360 a year. He only buys used games for $40 (including tax). He can buy 9 games at that price. If we assume he would have otherwise bought all new $65 games, he would only be able to spend $325 of his budget.

If there were no used market, the new game market would see $985 in activity. With a used market it sees $1150 in activity.

Used game sales might actually help the game developers. It's a fallacy to assume that every used game sale is a lost new game sale. Perhaps people can't afford it, or simply aren't interested enough in the game to pay $65 (which is why they waited in the first place).

Especially with budget constrained individuals, the used game market may well prop up new games sales by allowing people to roll their old investments into new games by essentially taking the money of people who aren't interested in new games and handing it to the game developer anyway.

Maybe used games don't hit new full price games.

Maybe they hit discounted new games later on?

If we are not sure about a game we wait and buy it in the steam sale. Or on consoles we wait until it comes out as a platinum/classic edition.

Used games are threatening that market.

Would you wait to get an item in a Steam sale if you could get the game used for the sale price a week or two after release....?

I guess Sony and MS would like to stamp out used games so that they can replicate the success of Steam sales.
Well, you're kind of making my point.

For me, I wanted X-Com enough to pay full price so I can have it immediately. I wouldn't do that for the new Call of Duty. I would wait for a Steam sale or whatever, because I'm not willing to spend $60 on it. The used market is for people who aren't willing to pay full price for a given title. So they aren't really losing many sales, and since a good portion of the used market ends up in the pockets of the people who will pay $60, it's not all that bad for game developers.

Also, the used game market would encourage me to spend $60 on a new game, because I know that I can get $30 back when I'm done with it. It means I'm not actually spending $60. It would therefore encourage me to buy new games that I wouldn't otherwise purchase. Meanwhile there are lot of other people who would purchase COD and never buy XCOM at any price.

And the end of the day the used market is no different than used cars or used anything else. To the degree it hurts the industry it's because they aren't making a product worth keeping (by, say, charging $60 for a product with 6 hours of actual play time). If the resale value of their product drops like a stone, it's probably because the product wasn't that great. See the relative resale value of Toyota Camrys and Chrysler Sebrings.

The same logic you are using would apply to movies; does the knowledge that eventually the movie will be released on TV or on DVD, and could easily be rented for much less than the cost of going to the movies reduce first run ticket sales? Probably a bit. But there's more money to be made catering to people who want to see the movie, but who are willing to wait to save some money. The used market reflects more the game industry's obstinate refusal to acknowledge that most of their products don't have a very long shelf life than anything else. Since the used market doesn't exist on Steam, they have to have Steam sales to maximize revenue by replicating the used market's price discrimination.

Ultimately I don't know if the used market is hurting the industry, but like any other real world economics problem it's a hell of a lot more complicated than it looks. If I were a game developer I would be pretty cautious about disrupting a system that is resulting in several billion dollars a year in growth. The current system would look to me to encourage the impatient gamers to spent lots of money on new games, and the patient gamers to financially support the habits of the gotta-have-it-now crowd, and leaving all gamers happy. That is not a bad thing. If it felt it was hurting sales, I would ask myself why my product is so disposable and uninteresting that people aren't willing to pay the price I think it's worth.
I unterstand why companies don't want second-hand games to be sold - just to maximize their own profit. But the game industry is not just there companies, the gamers should be the most important people.
"Personally I guess I don't get why they don't just go straight up Steam for the next generation of console; you have to be online to buy it; you download it and the only way to transfer it is to give your account to someone else. The answer to the used game problem is staring them right in the face, and it's a big ass hard drive."

Sony and Valve are competitors, and Valve is working on a Linux-based console with Steam to be released in 2013. This is due to Microsoft Windows 8.

There's a few very good reasons why one shouldn't get involved in Sony software or Sony products: and to name a few examples.

As we adopt DRM, the old method (say, a CD, with only a serial required and no online requirement) is being phased out. DRM is all about control. Not YOUR control, the control of the publishers. Steam appears to me as the least evil one so I agree with you.

Unfortunately, it doesn't appear possible to "unbind" a license and no European (AFAIK) has had the balls to sue a corporation such as Valve or Sony to force such unbinding (as in attempting to exercise one's first sale doctrine).
@ 4c22cb52-3723-11e0-95c0-000bcdcb2996

You're assuming that people are willing to buy games at full price, which is (I'm sorry to say) a fallacy.

When someone can buy X-COM 1 month after launch for 20-30$, why would he even pay 60$, especially if his funds are limited? Most people I know have reservations paying a monthly sub for an MMO, so a 720$ annual budget just for games seems ridicoulous.

Also your movie theater-DVD example is flawed. What you pay for in the theater is a vastly improved version of the same movie you buy on DVD (huge screen, surround systems, 3D visuals etc). That used game you buy is (maybe) lacking a multiplayer option, but if all you're interested in is the single player then you just bought a perfect copy of the game.

For the developers themselves, when you buy a used game you might as well have pirated it, since they will not see a dime from the purchase.
A lot of people buy games at full price, I'm not sure how this is a fallacy. AAA titles routinely sell tens or hundreds of thousands, if not millions, in their first month. This would be at full price.

The standard model for most games, in fact, is that they sell the majority at full price, in the first few months.

Obviously not everyone is willing to spend this, and this is why sales exist. Valve has discussed how sales generate more profit, and do not cannibalize normal product movement.
Well Chris you're making my point.

Some people are willing to pay $60 to have the game now. Others who are less excitable are willing to wait to save cash. This is why price discrimination (i.e. sales) are good--- it maximizes revenue for the game developer.

If I bought X-Com for $60, played it, and then sold it to you for $30, we both paid $30 for the game. So the used market would encourage the cash-conscious to go ahead and pay $60, because your real price is $30 and you get to enjoy the game now. So the used market can encourage first time purchases even of titles the gamer isn't sure he is really willing to drop $60 on. It's an insurance policy against the game being lame, which is a major hazard of video game purchasing.

If I bought X-Com for $60, played it, and then sold it to you for $30, we both paid $30 for the game.

In that situation Firaxis only gets $60. Now imagine game companies had a technical way to prevent sales of used games: You still buy XCOM for $60. The price-concious other player waits for a Steam sale and buys it half a year later for $30. Firaxis gets $90 instead of $60, and can make more great games. Everybody is happy.
Unless of course I wouldn't have bought X-Com if I couldn't sell it back (this doesn't work for X-Com, but let's not be pedantic). Then X-Com gets $30 bucks from the later guy instead of 60.

I'm sure there are some transactions that might end up with less net revenue to the game developer because of used games. I'm also sure there are transactions that end up with more net revenue because of used games. And then of course there's the benefit of a healthy gaming market that satisfies customers--- it's a rather ethereal benefit but it's part of why the games industry is growing by billions a year. So on the whole I don't really think used games are nearly as bad as some make it out to be. It's just the greedy fallacy that each used sale is a lost new sale. It's a bit more complicated than that and deserves some attention from an economist.

Used books, CDs, cars, garage sales, and all that--- every industry that makes non-perishable goods has to deal with a used market. Even if these markets hurt the industry, they simply don't have the right to shut them down. If your product is getting dumped on the market almost immediately, the problem is the product, not being able to sell used property. If the game has 6 hours of playtime, maybe it's not worth 60. And since there's apparently so many people who want to pay $30 for it, why not cut out the middleman and just charge $30 for it?

Cause the damage the used market is causing isn't enough to justify dropping the price even in light of the huge increase in sales.

That right there tells you this is mostly whining from the same paranoid and grasping minds that thought the VCR was a dire threat to TV industry.
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