Analyst and Publisher Assumptions About Used Game Sales May be Flawed But Not Completely so
Early in my career I was employed by a firm that sold counselling and therapy services to corporations to supplement extended benefits plans for their employees. In my role as an Account Manager I was responsible for maintaining the relationship with the corporate client as well as renegotiating contracts with said organizations. One day after I was in the job for about a year, the President of the firm called the Account Managers into his very tastefully decorated corner office with floor to ceiling windows and a panoramic view of the city. He was visibly agitated, and went on to brief us on how we were going to have to renegotiate existing contracts to include significant cost increases for all of our corporate clients.
We were flabbergasted to say the least. Marketing had been instructing us to highlight the relatively low costs associated with our services when compared to productivity loss from mental health issues. Basically we now had to approach clients we had known for a while and say, ‘œoooops, we messed up with our pricing formulas and now you need to pay us more.’
Some of us tried to argue that we were going to lose clients and revenue, to say nothing of any potential litigation around opening up existing contracts. The President was not prepared to hear anything of it, and in fact seemed most frustrated when he showed us his research that suggested how much money he was potentially losing. He referred to the firm as his ‘œbaby’ and genuinely seemed quite emotional about this entire issue.
My point in this preamble is to highlight the resolve corporations have when they feel that they are losing revenue to an addressable issue. After several awkward meetings with clients over a period of months, the dust settled and to be honest, while we lost some corporate clients, we kept many, and at the end of the fiscal year, the benefits of the move clearly outweighed the discomfort of the process. Which brings me to EA’s latest volley in their war on used game sales.
Sam Jordan recently posted here about EA’s plan to include a voucher or code with sales of their sports franchises that will be redeemable only once. Anyone purchasing used copies of Tiger Woods, Madden, or Fifa in the next year will have to pay an extra ten dollars(USD) to access online play. Judging from the comments and reactions here at Nukezilla as well as elsewhere, many in the gaming communities are not pleased with this development. The arguments against are very familiar and can be summarised as; EA is sorely mistaken and will ultimately lose revenue with this development. While I too am not pleased with the path that EA has chosen, I suspect that they will actually increase their profits, though not the extent they think they will.
Blitz games Co-Founder, Andrew Oliver, in an interview with Develop Online stated that ‘œthe bigger problem on consoles now is the trading in of games’ going on to say that his research suggests that ‘œpublisher and developer royalties are effectively quartered’ by the used game market. Mr. Oliver graciously concedes the benefits of used game sales to the consumer who is strapped for cash but I think anyone who has to work for a living would be hard pressed to argue with that figure. Even if publishers collect on a fraction of that lost earning, that’s still an increase for them.
The question here ultimately boils down to whether EA is going to get 75% more money from many of us in the upcoming years. To this I respond, not very likely. EA may effectively curtail a large segment of used game purchases of their titles; however, an increase like this one is hard to imagine. Also let’s be clear, this is a first step, EA is going to eventually use this approach with all of their games. Furthermore, when this does result in healthier spreadsheets, I think that many other publishers are going to follow suit.
When one considers the significance of paid downloadable content (DLC) in current game development plans, combined with this step, I think that the used game market is going to be hard pressed to maintain their current profit margins. Their problem is simple, the people that develop, produce, and publish what used game retailers need, absolutely hates them and will likely never stop until that system has been near abolished. From the developer and publisher’s standpoint, Gamestop and other such retailers are effectively stealing from them, and yes I can guarantee that the publishers see these products as their ‘œbabies’.
There is much more that needs to unfold as far as I’m concerned before the epitaph on used games retailers is finally written. There are gaps in EA’s reasoning that may eventually bite them in the ass. For example, not even the hardest of the hardcore gamers are going to keep investing in annual iterations on certain franchises with this system in place. As Sam accurately points out ‘œafter I[sic] spend £300 on a console, £40 on Xbox Live and then £20-£30 on a pre-owned title, I’m expected to shell out another few quid to play online’ is not a winning plan for EA.
If Sam or his mates invest in Fifa 10, are they likely to pick up Fifa 11, or Fifa World Cup if it means an extra expense and they can’t trade in their old version of the game? No way. EA needs to be very careful here, especially with their annualized sports franchises to not completely exterminate the used game market. I refuse to believe that even the most affluent of gamers are going to sit on five or six copies of Madden or Fifa when they could have sold them towards the purchase of new games.
Wiith Xbox Live currently charging for online play, is EA’s step not a breach of contract to millions of Xbox Live Gold members who, as far as they are concerned, have already paid for the privelage of accessing all of the multiplayer features on the disc? Sony has been leaking rumours and hints over the last six months about a move to a premium paid service on the Playstation Network (PSN). Even Nintendo are going to have to look at a paid service if their sales continue to fall steadily and are forced into another price drop. Consumers who have to pay to access online play are not going to be pleased with having to pay again if they try to save a few bucks on a used title.
At the end of the day, EA’s move to include a voucher with sales of their sports titles that enables online competitive play is going to make them more money. A little more anyway. However, I struggle with the figures that are bandied about that EA and other publishers hope to recoup. The fact remains that from their standpoint this is not just a financial issue that is easily addressable, I guarantee that it is an emotional one as well. The discomfort that will accompany this approach will be easily outweighed by the benefits. Unfortunately for us, because as in the case I discussed above, people will pay the extra ten dollars, or they just won’t buy used games as much. In this context, I can’t see EA in a purely negative light, the consumer needs to take some responsibility as well.
Editorial, Rant Tags: EA, EA Sports, PSN, used game retailers, Xbox Live
Next: Nukezilla Presents Wire
Previous: Behemoth Adding Teams to PSN Castle Crashers
I especially like the point about how somebody who cannot sell his game anymore most likely will not buy the yearly updates. At the surface, this sounds a lot like “EA is willing to risk a 60 buck sale in exchange for a possible 10 bucks split from a used sale”.
But then i saw something else: EA might as well expand on the “lets drop support for games older than 1,5 years” formula. So you buy the game, and MUST buy the newer game anyway, because support for the old game will be killed soon (ideally after 1,5 – 2 years, so EA can quasi-force a used sale from the original buyer and get a split from THAT because, yeah the game has still half a year or so of online life left). Being a Sport games pro will get expensive in the next years. And now pass me some goddamn tinfoil hat.
The bottom game on that pile I’m almost convinced is Sonic Unleashed, but I cannot tell what the other 360 game is.
Why yes, I DO have nothing to add to this. I’d just like to see EA be more intelligent about their practices (I do mostly agree though).
Nice write up, Phil. Like I said on Sam’s post, the only thing that surprises me about this is that we haven’t seen this sooner.
I’m sure other publishers are going to watch this experiment with great interest. EA will be followed down this path if they don’t suffer a noticeable drop in sales, perhaps even by first party Microsoft and Sony titles.
We’ll also see what happens to the used market. Will trade-in values on games that feature a robust online component drop as retailers try to maintain margins, or will they be willing the make less on each title when the expectation will be that the used game price will drop to cover the difference of the online buy-in? Someone’s going to get dicked over, and I doubt Gamestop or GAME is going to let it be them without a fight.
“Shit, the war against piracy isn’t working. LET’S FUCK THE PRE-OWNED BUYERS OVER THEN.”
Also, great article Phil.
@Sam “verygoodyearâ€: Thats probably part of it.. they think they are bleeding money one place so they try to squeeze it out of some place else.
@ouched: I’d be willing to bet that every GameStop will be getting a memo this fall telling all employees to not say a damn word about the online pass unless explicitly asked about it. Instead, anyone asking for an EA sports game will be told, “you can save five dollars if you buy used. Is there anything you’d like to pre-order? Hello Kitty Island Adventure comes out next week.”
@Naughton: You have wonder what arrangement EA has with GameStop. Would love to listen in to that meeting.
Hmmm, paid full price for Heavy Rain finished it in 4 days, no plans to replay or buy dlc…what to do, what to do. Taxing MP is one thing, but I wouldn’t be surprised if we’re not far from them handcuffing single player experiences as well for the used market.
@Sam: Yeah, I’d imagine it would be fairly awkward.
EA: “So, we’re going to be pushing this online unlock code thing pretty hard, trying to deter used game sales and such.”
GS: “Oh, yeah, well… uh, I suppose that’s a good idea…”
EA: “We’d like to see some revenue from used sales, right now it’s all being raked in by cocksuckers like GAME, Blockbuster, and GameSt-…oh.”
@Phil: I’m glad that I only payed 8 bucks to be disappointed by Heavy Rain. But that’s a whole other conversation.
An article by Phil…that was serious? I like it!
As a poor college student, I’m big on used games. When it comes to big, highly anticipated titles I may shell out full price to get it on launch day, but I usually have no problem waiting to get a deal. When it comes to Fifa or NCAA, I’d much rather just wait until the new edition comes out and pick up last year’s on the cheap, even if I can’t really play online with it.
Basically the vibe I’m getting from this is that people who buy games new will still do so, and then the people who buy used will be split into those who buy this code and those who don’t. I feel like most people who are angling for the pure value aspect will sacrifice online play, but I agree EA will probably see some increase in revenue from this. And to be perfectly honest, I’m ok with that for the most part. I don’t get “newly used” games that are only like $5 off so my used games will still be at a discount from the full price, and I would rather some of my money go to the actual companies behind the game as opposed to straight to Gamestop. The one thing I’m upset about, though, is the idea that after paying to use Xbox Live that they can underhand extra charges onto it like this. If I’ve paid for the service, I should have full access to the service.
@Glassninja: An article by Phil…that was serious?” Shhhh, don’t tell anyone. I’ll go back to fingering my asshole while I write again soon.
Nice article Phil.
I agree that EA will probably see some revenue from this. There will be people who will refuse to pay and will try to find ways to around this. And there will be those who simply keep doing what they’ve always done and will pay. Plus, there will be any number of variations in between.
I think this all boils down to the sticky issue of intellectual property in the digital age of global capitalism. What’s right or fair, and who’s entitled to what for their work/efforts is such a grey area now because of the lack of actual physical goods changing ownership.
You’re right about the emotions Phil: capitalism is about the pursuit of profit for its own sake and when CEOs are seeing their revenues leveling off, they have to try to seek new revenue streams or lose their jobs; literally. This would be highly emotional for someone at EA.