First-Sale Doctrine Drives Bad Game Design?

As the Xbox One policies have flipped around, the backlash to the backlash has emerged that says the path to the future has been set back by retaining a classic model of physical goods. Here's the argument. You'll want to read Adrian's piece before continuing with this article.

Used Games Caused Bad Things

So because games have to compete with their used stock (as the designers of copyright intended, fair use and first-sale doctrine being the safety valves built into the exclusive right to duplication given to creators at a time when reasonable copyright terms were a decade or thereabouts) this is what has forced everyone to use DLC, filler content, micro-transactions, etc etc.

It isn't that DLC/micro-transactions were only made possible by internet connectivity and that started during the 6th generation of consoles (DC/PS2/xbox/GC) but was only there on the ground floor (with significant population coverage) for the 7th gen (PS3/360/Wii) so that is where it came to power? Filler content is a result of a move to combat used? If so then why is it something that has existed since the beginning of time (where it was first linked to the quarter slot and need to get more money to see the ending, an alternative design choice to hard and arbitrary death mechanics) with 'grinding' (especially in RPGs) being far more extreme well before used was a 'debilitating' thing (ie before there were significant retail presence for games at all, let alone used)?

Racing to the Bottom Without Lowering the Price

Case study analogy: The automotive industry is 'losing sales' to used cars. They can combat this with the application of repairs at authorised dealers and sale of spare parts for those repairs. There is therefore tremendous pressure on car manufacturers to get their engineers to build less and less reliable cars to reinforce the value of buying new and extract the maximum value from those used cars for which they don't directly get a cut of the sale. If we look at vehicles over the previous few decades we can see that this pressure has done nothing to reliability. A competitive marketplace where the ability to increase reliability within a cost envelope increases your perceived value and so ability to stand out against peers has driven up the reliability of all types of vehicles at all price points.

Does the video game industry have something to hide? Should they be referred to the Monopolies and Mergers Commission to work out if this is some anti-competitive cabal where all the players have agreed not to compete on value with each other in order to stifle the marketplace competition that should be driving up quality or driving down price? My thoughts are no, the entire argument doesn't hold water that links used and these practices. The industry looked for additional revenue streams as soon as they were technologically viable and this was independent of used games and that perceived issue. Expansion packs have been a traditional form of expansion content and those actually moved the other way, to enabling more sales by selling as standalone (so not requiring the original game disc/installed content) before DLC and piecemeal expansion content was considered to be cheaper to produce/generating better revenue for manpower expended at a time when traditional expansion content build on the same engine and gameplay mechanics was now being used as annualised sequel fodder at $60 per disc.

A Potential Future without Used

The Future?

Here is the end-game of the current digital revolution: subscription services. The global music industry can entirely replace their annual income from wholesale music sales with 90m premium Spotify subscribers*, assuming the cost of streaming is below that of physical disc production they currently pay on those revenues. Done. That's how you monetise a zero duplication cost/IP item. You form an evil cabal, call it an artists collective, and collect such a wealth of content (and new content production) that anyone would be culturally excluded if they didn't sign up. Use the volume of people to make the per-person price very affordable. Be aggressive in picking up new talent that is potentially initially incubated outside of the collective (where they live on direct sales or free distribution of their content and donations).

Here's what goes wrong with trying to walk down that road by first removing first-sale doctrine (while retaining your demand that copyright be enforced using harsher and harsher legal penalties for non-compliance and cooperation with data connectivity services and providers to remove potentially fair use and non-infringing content at the mere accusation of copyright infringement) to tighten up the traditional sales mechanic to bleed as much money as possible from each individual: You're going the wrong way stupid! We're aiming to bring down the per user cost and bring up the numbers and make sure our collective products are culturally essential at a great value. Stop driving people away by trying to increase how much you extract from each individual by any means necessary. Here's how you sell a premium product: delight the consumer. Get them to eulogise the value anyone should obtain from making the transaction they did. Apple can make an almost 50% profit on their products (ie they are priced about twice as high as they could be and still be viable) and they don't do it by making people feel ripped off when they've purchased something. This is a perception war, stop fighting to make people feel like their $60 doesn't buy the entire product and demonise people who increase the value of your new product (by offering people who do purchase it cash to sell it at a later date).

In the current climate then digital marketplaces should look at how they can better serve the consumers (and creators) by enabling their traditional rights (and in doing so protect creators from potential issues with challenges to their copyright under grounds of failure to comply with the conditions of fair use and first-sale) and any move to justify the import of current digital license rules into the physical product world should be noted as highly suspect and probably unable to hold water. This is a companion piece to my article last month about how the technical limitation of DRM on a closed platform stands opposed to the viewpoint that the medium has and will continue to increase in cultural significance and provide a good value purchase for more and more consumers.

* Twelve monthly payments of $15 x 90m = source for total revenue figure. There are over 7 billion potential pairs of ears out there, the music industry only needs the current subscription value from less than 1.3% of them.

Syndicated from my blog.

12 Comments
12 Comments
Edited by Veektarius

I think your argument was a bit rambling, but I think I disagree with you, so here are some counterarguments.

1) Eliminating the used games market is the simplest means of expanding the number of paying customers for a product. This meets your objective of driving down cost by increasing volume. The most easily accessible, untapped consumer base for video game customers is the group that are paying for games but aren't paying their creators.

2) Video games are already suffering because their appeal is not great enough. Games that are both critically and publicly liked are reported as failures. Apple is not a good comparison for a video game company because the iPhone is a platform that can serve needs that almost everyone has. It's more comparable to a console than a video game (by the way, can you resell your iPhone apps?) Video games are unlike music because production costs are neither small nor fixed. Video games are products that appeal to very specific groups of consumers, like movies. Are consumer costs going down for movies? The price of discs and movie admittance are both going up. Furthermore, growth figures show that the market for video games may be saturated. We'll see how much of this is due to the extended console lifespan soon enough, but if video games have maximized their reach, the only solution for publishers is to eliminate the free rider problem that used games represent.

3) The reason that people are willing to pay too much for Apple products isn't that Apple is a very consumer-friendly company. Your point that they make consumers pay through the nose to get their products is proof of this. Apple is as successful as apple is because of two things: Marketing and good, easily accessible design. The first made people think they want it, the second kept people from feeling ripped off once they had it. Marketing is a real weak area for games these days - you can probably count the number of good mass-appeal TV spots that have ever existed in games on one hand (World of Warcraft? Gears of War? Any others?). I'm not in marketing, so I don't know how to fix it, but putting 'plays used games' is not going to attract new consumers to a product. That is an appeal purely for consumers who are already in the market.

Edited by Yadilie

The only thing the First Sale Doctrine drives is misrepresentation of your video game primarily over hyping said video game. Such as showing the absolutely best scenes that are super polished just because they're being shown off for E3 or TGS and then suddenly the rest of the game is just boring and uninspired and the consumer is non the wiser because of they got overhyped. That in turn can make people more wary of buying brand new or right away.

Also, fuck "Winner of X E3 awards" on covers. God damn it.

Posted by Jimbo7676

Your blog here is rambling and your point is hidden. This isn't a term paper where you need a minimum word count. That said, the market was not ready for used games to go away. Microsoft's horrible messaging did not help. They are going away though. It will be a more natural process of console makers providing benefits and services that outweigh the minimal used game price cut and digital prices on consoles being as variable as they are on the pc. It is going to happen this coming console generation. In a couple of years or so it will feel dumb buying a disc. Games are becoming a service instead of a single product you buy and own. As a side note I hate Apple. They have very anti-developer business practices. Veektarius has some great points about game pricing and marketing as well.

Posted by tourgen

Great post. Get ready for a raft full of corporate apologists who failed econ101.

Posted by lebkin

I think your argument was a bit rambling, but I think I disagree with you, so here are some counterarguments.

1) Eliminating the used games market is the simplest means of expanding the number of paying customers for a product. This meets your objective of driving down cost by increasing volume. The most easily accessible, untapped consumer base for video game customers is the group that are paying for games but aren't paying their creators.

This is not as simple as you think it is. If you eliminate the ability to easily share/sell games, you may increase see an increase in sales to those who usually bought used. But you could also reduce the sales of those who bought new. Some people only buy a $60 game because they know they can sell it again for $30 when they are done.

There are also people who never sell their games, but share them amongst family and friends. I know that I personally evaluate every new $60 game I buy with whether or not my brothers will also play it. A 360 game we can share amongst us is worth full price. Something only I will play? I will wait for a price drop. If I can't share it with them? Then almost no game is worth $60. I waited two years to buy Starcraft 2 at a cheaper price, because I knew only I would get value out of it. If no games could be easily shared, I would just switch to buying games 6 months or so after they launch and get almost nothing right away.

Posted by YukoAsho

@tourgen said:

Great post. Get ready for a raft full of corporate apologists who failed econ101.

You haven't been ready for that for the past month? They've been coming fast and furious since the May 21st Xbone reveal.

Edited by GERALTITUDE

I think your argument was a bit rambling, but I think I disagree with you, so here are some counterarguments.

1) Eliminating the used games market is the simplest means of expanding the number of paying customers for a product. This meets your objective of driving down cost by increasing volume. The most easily accessible, untapped consumer base for video game customers is the group that are paying for games but aren't paying their creators.

2) Video games are already suffering because their appeal is not great enough. Games that are both critically and publicly liked are reported as failures. Apple is not a good comparison for a video game company because the iPhone is a platform that can serve needs that almost everyone has. It's more comparable to a console than a video game (by the way, can you resell your iPhone apps?) Video games are unlike music because production costs are neither small nor fixed. Video games are products that appeal to very specific groups of consumers, like movies. Are consumer costs going down for movies? The price of discs and movie admittance are both going up. Furthermore, growth figures show that the market for video games may be saturated. We'll see how much of this is due to the extended console lifespan soon enough, but if video games have maximized their reach, the only solution for publishers is to eliminate the free rider problem that used games represent.

3) The reason that people are willing to pay too much for Apple products isn't that Apple is a very consumer-friendly company. Your point that they make consumers pay through the nose to get their products is proof of this. Apple is as successful as apple is because of two things: Marketing and good, easily accessible design. The first made people think they want it, the second kept people from feeling ripped off once they had it. Marketing is a real weak area for games these days - you can probably count the number of good mass-appeal TV spots that have ever existed in games on one hand (World of Warcraft? Gears of War? Any others?). I'm not in marketing, so I don't know how to fix it, but putting 'plays used games' is not going to attract new consumers to a product. That is an appeal purely for consumers who are already in the market.

Fair enough, but systems that combat the used market (like MS' authorization box & internet connectivity) are shrinkers, not expanders. It's also erroneous to assume that because Billy spends money on used games that he will pay the higher price of new games. Even if the game is the same price as a used game, you still have the problems of Authorization Boxes (which retailers need to buy many of, train for, etc) and the Internet. With games markets exploding in many places around the world now is not the time to start putting-up barriers to entry.

The Middle East is a 1 billion dollar market this year and Sony has just started building Playstations in Brazil to easier reach that market. The number of PC and Console developers in both ME and South America jumped something like 2000% this last decade. This also says nothing of China. Either way, the point is the demand and affordability of consoles is growing and so are the number of developers. You may recall a story where MS said they expect Next-Gen consoles to easily break the 200 or 300 hundred million users, and for once, I agree with them. We're not quite ready for international games but this coming generation will blow the doors off at least.

The other interesting note - and this is debated, to be fair - is that many phone/tablet-only gamers are sleeper agents. They don't know they want console games yet. But they are about to. It's based on a simple idea: you always want more and better of the things you like. Exposure to games will only increase your interest in games, and as gaming becomes more normalized and more "cool" the difference between sitting on the couch to play CoD, playing Angry Birds on the bus and Kinect Dancing With Grandma will all be moot.

Most importantly: video games aren't suffering because of their appeal. The old management and pricing model is dying. High tide-low tide, 1-project studios are a way of the past. We saw Squeenix get clobbered because of this, not because of appeal, and I think this next-gen will see some much smarter run companies, with many more Blood Dragons and episodic releases for big games.

Edited by MildMolasses

@shivoa said:

Racing to the Bottom Without Lowering the Price

Case study analogy: The automotive industry is 'losing sales' to used cars. They can combat this with the application of repairs at authorised dealers and sale of spare parts for those repairs. There is therefore tremendous pressure on car manufacturers to get their engineers to build less and less reliable cars to reinforce the value of buying new and extract the maximum value from those used cars for which they don't directly get a cut of the sale. If we look at vehicles over the previous few decades we can see that this pressure has done nothing to reliability. A competitive marketplace where the ability to increase reliability within a cost envelope increases your perceived value and so ability to stand out against peers has driven up the reliability of all types of vehicles at all price points.

This isn't a good analogy. People don't go buy other games because their old games wear out and don't function they way they used to. They buy them because they want different experiences. You're comparing something that has a largely utilitarian purpose to something that is meant as entertainment. I have an extensive game collection while I only have one car. You can't compare and item that sells for 10's of thousands of dollars to something that goes for $50-60, and can also be sold in tangible and intangible forms. They are two drastically different industries that operate under drastically different business models

You're also talking about planned obsolescence which has been going on for decades across many industries, and which is tolerated by governments because it allows the industries to continue existing and employing all the people they do. If cars don't wear out, then no one has need to buy a new car. And the people who buy used cars are the ones who can't afford new cars.

Edited by Shivoa

@mildmolasses: An analogy is not meant to be an identical situation. I am transferring the point to a different area so the argument against using the analogy is that the particulars of the transferred argument do not work. "These are not the same in several ways" is only a case if you can point to why the ways they are different invalidate the use of the analogy for this specific debate (on a product with a new and used market where the seller of the new product is able to increase their monetisation the used market with a simple method that makes their product worse for the move, this is Adrian's case for why used makes games worse).

Most people do buy other games because their current one does not function as they desire. Here are some examples of games that have significantly longer than normal longevity for the people who really get into them: Minecraft, WoW, CoD multiplayer. Yep; the novelty, the new content, the conversation between peers, the level progression: these are all factors that wear out with games. This is not to say this makes them identical to cars, but this is why people buy lots of games: they are wearing them out for their personal use, their value decreases as their novelty drains. The big difference is obviously that this does not change the resale value (well, state of the conversation about the item in wider society - I guess they are devaluing for everyone but my main point of degradation would be using up novelty and that is on a per-user basis). You don't have a large collection of games you play at the same time; the low unit cost/resale value is why you didn't have to sell off one game to buy another, not your desire to be playing both at the same time. Note that when you scale up to people with a lot of money to throw about and an interest in cars as entertainment not utility then garages full of vehicles are not unheard of.

Anyway, the details are not that important; the analogy is just a nice lazy way of transferring the argument Adrian made to another area and showing how crazy it seems, how a good marketplace of competitive companies goes against making worse products for the same price so we shouldn't be totally shocked if the entire notion doesn't hold water.

Posted by Gargantuan

I don't understand the shitty DLC argument. Does anyone actually believe companies will release less DLC if used games disappeared?

Posted by Jeust

I don't understand the shitty DLC argument. Does anyone actually believe companies will release less DLC if used games disappeared?

I don't personally. I think they will continue in the same way.

Edited by golguin

I don't understand the shitty DLC argument. Does anyone actually believe companies will release less DLC if used games disappeared?

Companies will not stop trying to make money. I also don't understand the logic in withdrawing a practice that makes you a ton of cash simply because...actually no, there is no need to understand that logic. Companies will not stop pumping out DLC and micro transactions if they keep making money from them.