The XBox One has already given us many reasons for disappointment but the used game situation stands out as especially dire.
And Ben Kuchera of the Penny Arcade Report, supposedly a bastion of critical coverage in the oft-troubled arena of videogame trade journalism, has – astonishingly – told us it could be good news.
The purported drawbacks of the used game market for developers and publishers are well-known, but here’s a brief summary: publishers pocket some fraction of the revenue from the initial sale of a new game, doling out a contractually-obligated portion of that revenue to the developers who produced it. The consumer may eventually sell the copy back to the retailer, who sells it again – this time taking the entirety of the profits for themselves.
Publishers resent this secondary market almost as much as outright piracy. Steam-style digital distribution may attract good press from gamers enamored by convenience and (sometimes) more appealing prices, but make no mistake: Microsoft is pushing digital distribution because they aim to profit from increased control and directly-marketed licensed products, not because it’s consumer-friendly.
That Microsoft is aiming to destroy or at least command the used game market is all but explicit. Players will no longer be able to loan games to one another without exchanging accounts or paying full price for the license to play the game. Microsoft also intends to fix prices for every used title at no lower than 90% of the game’s original price. A shift to digital licensing means every transaction will feed Microsoft’s coffers even as the traditional incentive for used purchase is removed.
In Microsoft’s brave new world, you are going to be paying it, at near- or full-price, for every single XBox One title you want to play, new or used. This is without question a monopoly.
Kuchera argues for three potentially-beneficial (in his view) effects of a digital-distribution-dominated, directly-sold, no-used-games market for console titles: the reduction of piracy, additional revenue to developers and a subsequent potential reduction of prices, and the end of artificial product shortage. While the first outcome is reasonably likely – pirates without significant capital or technical resources (in other words, individual typical consumers) the latter two are at best credulous and run counter to economic precedent both within this industry and in general.
In reality the conflict between used and new games is nowhere as stark as industry advocates – such as Kuchera – would have us believe. Used game sales only mean new games not sold if one assumes the game’s purchase inevitable. This arrogant attitude is arguably a greater reason for the industry’s financial woes than any secondary market – prices are rising, many gamers’ supply of ready cash dwindling. Since games are a luxury, we can more easily do without them than actual necessities like food, and even if we are still able and willing to purchase games we may be much more discriminate with our purchases.
The sales they consider stolen out from under them often would not have taken place at all.
Kuchera imagines the gaming industry as a pure meritocracy, where market share and profits are necessarily the results of innovation and service. But the dominance of interchangeable AAA military shooters over many far more ambitious and innovative titles is evidence enough: innovation is typically trumped by – or at least must overcome – capital.
Breaking into any industry requires that the would-be competitor have a worthwhile idea, push that idea from concept to finished product, generate interest from potential buyers, and find avenues to distribute that finished product for a price sufficient to not only cover production costs but produce a profit. Every step after conception is heavily dependent upon a contributor’s available capital; a competitor with money is more able to make money and enforce market dominance. Publishers – from console makers like Microsoft and Sony to large distributors like Electronic Arts and Activision – are game facilitators as much or more than they are game developers; they are the wealthy gatekeepers of the industry.
This is why Activision is an industry juggernaut and Double Fine is not: innovation alone is insufficient to dominate the market.
This imbalance between developers and gatekeepers is considerably stronger in the console sphere than the PC sphere due to the stronger barriers to entry in consoles. For all their debatable faults and complications, PCs are more readily “backwards compatible” than consoles – which regularly render entire previous generations obsolete – and offer a wider variety of distribution methods with fewer barriers to entry. Steam may be the leading digital distributor in the industry, but it is just one distributor among many, unlike Microsoft or Sony who monopolize access to their platforms. Consoles also utilize specialized or proprietary OSes and hardware that offers technical benefits but allows another avenue of gatekeeper control. This allows gatekeepers to extract more favorable contracts with publishers without necessarily suffering for the competition; an exclusive title helps the gatekeeper as much or more than it helps the developer.
In short, the meritocracy argument relies upon enlightened consumers and an open market of non-exclusive distributors. Neither is a console fixture at present – and that’s leaving aside an industry rife with mismanagement and grossly overestimated sales points and developers increasingly captive to platform requirements with necessarily shorter sales windows and more ambitiously expensive development cycles.
Judging by historic precedent, Kuchera’s optimistic hope of a price reduction in the death throes of the used game market is a pipe dream. Microsoft’s new monopoly over the sale of XBox One titles is unlikely to lead to more consumer-friendly prices or more innovative titles; why should it, when they aren’t satisfied with their share of the existing revenue flow?
As for the issue of artificial shortage, Kuchera’s so-called benefit is laughable. Even in the commodities and goods markets we have examples of monopolies that artificially inflate the demand for goods, most notably the diamond market. But digital distribution of licenses means Microsoft no longer needs to do this – they are charging for the product in abstract terms. The entire concept of supply and demand breaks down when the product is a license rather than a physical good. I hardly think most gamers are so desperate for their collector’s editions (usually standing out because of the physical perks, I remind you, and thus constrained by very real shortages) that they would willingly sacrifice the entire used market for it.
In short, Kuchera’s argument has told us that we should cling to Microsoft’s beneficence. We should welcome a new monopoly by publishers already unsatisfied with their profit margin, hoping that in their generosity they will suddenly become radical innovators and take risky price-slashing measures when they are already supposedly having trouble breaking even.
Monopolies do not typically turn around and better seek to serve their customers. Monopolies exploit their dominant position to remove the usual pressures of competition on pricing, revenue, and service. That’s why they are typically broken up.
Microsoft is a business and we are their customers. They have their own best interests in mind, not necessarily ours or even those of developers. We are all served best by remembering this.