Used Games, and the Death of an Industry

by Aaron Daniel

While the gaming industry has a myriad of issues, one that has stood out from the crowd over the past few years is the used video game industry. The used video game market has been under constant fire, with Microsoft championing cloud gaming with Xbox One and publishers pushing ten dollar online passes. However, the battle against used games has failed: both Ubisoft and Electronic Arts’ (EA) online passes have been cancelled, and Microsoft pulled it’s cloud gaming support from the Xbox One. Are used games that big of an issue to the video game industry, or are publishers and console makers fighting a phantom?

The retail market for video games was $65 billion 2011. In 2011, Gamestop, the largest used game re-seller, had world wide second hand sales of $2.6 billion. With used video game sales constituting such a small amount of the total revenue of the market, one would figure that producers and developers wouldn’t bother with it much. One would figure wrongly.

Online Passes and the Fight Against Used Video Games

When publishers decided to take a swing at used game sales they did so by implementing online passes. These passes, costing $10 a piece if lost or not available, were based on a code that was included in new games free of charge. This code is one time use, which means that if you buy an Ubisoft or EA game used, unless you are very lucky and the previous owner did not use the code, you will not have full access to the game. This means that even if you borrow a game from a friend, you will likely not have full access to that game. For instance: if you borrow a copy of Far Cry 3 from a friend or buy a used copy and the Uplay passport code was already used, you can’t reap any benefits – unlocking new guns and abilities beyond level 15 in multiplayer.

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If you want to experience all of Far Cry 3’s multiplayer, you need to buy the game brand new – no borrowing from a friend.

In early 2010, on the EA Sports website, Andrew Wilson, Senior Vice President of World Wide Development, explained the decision to charge for online access:

“When we see how many people are playing all of our games online, consumers are telling us that competition is endemic to sports in a way that most people don’t get just by playing a game alone on their couch. As a result, we’ve made a significant investment to offer the most immersive online experience available. We want to reserve EA SPORTS online services for people who pay EA to access them.”

The important part here is the last sentence. What EA is saying is that if you do not pay them, they don’t care about you. EA here is not only being awful to potential customers, but it is also discouraging brand loyalty, which will hurt future sales. Companies need to protect their work but they need to do it in a way that has as little impact on the end customer. These policies put forth by EA, Ubisoft and others are not about what consumers need, but about money and stemming the tide of used video game sales.

Furthermore, in an effort to make the policy as tough to avoid as possible, both Ubisoft and EA came out within the span of twenty four hours in early February 2010, saying that they were going to release more top franchise games and to tack multiplayer onto everything, thereby assuring a constant influx of people having to buy new games, or online passes. Both EA and Ubisoft made the announcements during fiscal financial calls. These calls are for companies to announce to investors, shareholders and other interested parties the fiscal reports: how much money the company made or lost, and more importantly, how much money the company plans to make and how they plan to make it.

Online passes were a complete failure. Ubisoft became a running joke because of Uplay, their online pass system. From always on digital restriction management (DRM) that forced players to connect to the Ubisoft servers even while playing single player, to being a rootkit that allowed hackers full access to your PC, to people being charged for code activations when swapping video cards, to servers crashing, Ubisoft managed to fully shaft PC users. What made these problems even worse is that people who cracked their game had no issues with any of this. In August 2012, Yves Guillemot, CEO of Ubisoft, arguing for Ubisoft’s move toward free to play, said:

“It’s a way to get closer to your customers, to make sure you have a revenue. On PC it’s only around five to seven per cent of the players who pay for F2P, but normally on PC it’s only about five to seven per cent who pay anyway, the rest is pirated. It’s around a 93-95 percent piracy rate, so it ends up at about the same percentage. The revenue we get from the people who play is more long term, so we can continue to bring content.”

No one was overly surprised that Ubisoft faced a high piracy rate on PC when even people who bought a legit copy were cracking it in order to play the game. Despite Ubisoft claiming that Uplay was a success, neither EA, Ubisoft or any other company with an online pass program have come forth with data proving it.

After the constant failures, EA cancelled its online pass program in September of this year, and Ubisoft followed a month later.

Ballooning Budgets, the Need for More Revenue and What Can Be Done

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The amount of resources and developer hours to make games look this good is causing budgets to drastically rise – but is it worth it?

With most AAA titles now having a budget at or north of $50 million, the problem is making enough money to show a profit, but the real question is: do video games need that big of a budget? There is no denying that the rapid leap of console technology seen from the Playstation 2 and Xbox to the Playstation 3 and Xbox 360 was a large part of why video game budgets ballooned on this console cycle. Between costs for new engines, character models and more detailed art, budgets were going to increase. However, there were also other self inflicted factors involved.

With the online passes came the need for every game to have a multiplayer component. While EA, with their litany of sports titles, is more or less required to include multiplayer since their games heavily rely on it for repeat customers, many other games, such as Dead Space 2, simply don’t need it. Tacked on multiplayer is usually buggy or just not as fun as the single player game. Coding multiplayer, sorting it out, and the need to continually add to the experience to keep players engaged is expensive. Tacking on multiplayer can also cause already limited resources to be spread too thin, resulting in a game that is not as good as it could have been had the developer focused on one element.

Another thing we have seen this console generation is the proliferation of super-specialized jobs of people making video games. Anymore, AAA titles routinely have credits that roll for twenty minutes or longer showcasing a giant list of multi-syllabled job titles that must shoot labor costs through the roof. When every job is specialized, you generally have to pay everyone a premium. During the past couple of years, while the recession was running wild, most industries were trying to cut labor by cross training their own employees, or hiring in individuals who already were. Meanwhile, the video game industry was apparently hiring in workers to accomplish singular tasks that could have been done by others who already worked there for less cost if retrained. Obviously, more work requires more pay, but utilizing in house staff, training them to do other tasks or hiring others who can work on multiple stages of development is more cost effective than hiring an army. To clarify, I’m not arguing that developers should punish their employees with ridiculous hours week after week. But we have to ask – is the large amount of people working on AAA titles justified?

While new consoles dictate new engines, a developer can save money by not making their own engine. Video game engines are going down the same road as car manufacturers. In the early 1900s there were a vast array of auto manufacturers, but now there are but a few giant ones. This isn’t necessarily a bad thing as each manufacturer has options for each consumer, and the same is true for video games. Game engines have become so overly complex due to the abilities of the technology behind them. Between the physics, artificial intelligence and other bits, what once could be done by anyone is now often best left to others. Creating a new engine means writing the code, debugging the code and linking it to all the other aspects of the game. Licensing an engine is, for the most part, a much more frugal option, and it’s no surprise that so many games use pre-existing engines. Also, licensing an engine allows developers to focus on other things that need work. A great example of this is Rocksteady Studio, who licensed Epic’s Unreal engine for their Batman games, and made some of the best games in this console generation. A bad example would be Rare’s Kameo: Elements of Power with mathematically correct water that was a complete waste of resources.

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Yes, all that time to make the water move exactly like real water was completely worth it. None of that time could have been used to make any other aspect of the game better. Nope, it’s the perfect game.

Another way to cut costs is to avoid unnecessary use of what I call “Hollywood Realism.” Hollywood realism is the notion that using Hollywood actors to voice characters and photo realism is needed for a video game to be successful. Using Hollywood voice actors is profanely expensive. Professional voice actors are far cheaper than movie actors basically due to name recognition. The way that movies sell based on actors names being placed in the promos does not translate over into the realm of video games. I do not care that John Goodman voiced Dan Hagar in id’s Rage because I’m not watching John Goodman: I’m only listening to someone speaking. In video games, developers need only hire quality voice actors, not Hollywood actors. Also, while photo-realistic games may look great, the money spent to be that realistic is insane. The amount of graphical programming behind games such as Crytek’s Crysis has to be immense to say the least. The difference between a great looking game and a photo-realistic game is such a fine line that there has to be a point where developers say “Enough is enough; there are better things to be spending money on.” I’m not advocating developers hiring a hack off the street to voice their game, or use stick figures for graphics, but there are cheaper options available than what is believed to make a successful game, and those options are more than capable of doing just as good of a job at a fraction of the cost. I’m also not advocating the abandoning of high resolution, ultra-graphics games, but publishers and developers have to realize the risk associated with making such games, the budget that entails and then decide if the game actually needs those graphics to succeed.

Preventing Gamers From Selling Their Games

Why would limiting the budgets of video games ruin the used game market? One reason is that with smaller budgets, developers would not need to be paid as much by publishers, yet they would still be able to pull in a similar amount of profits. If publishers do not have to pay as much to developers, they have a fantastic option to fight the used game market: lower prices. If publishers went with lower prices they would likely curtail a good amount of resells since people won’t have to sell their games to be able to afford the new one. Also, those same people would likely view the game as a better buy since they got the same enjoyment out of the game with less money out of pocket.

For the April 2008 MI6 game marketing conference in San Francisco, the organizers commissioned consumer research firm OTX to do a study on the video game resale market in the United States. This study found that of the 75 million people who buy video games, only 26 million turn around and sell those games. Of the 26 million who sell their games, 21 million reinvest that money into some form of video game merchandise, while a full 16 million use the money to subsidize the purchase of a brand new game.

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A breakdown of how gamers purchase and resell video games.

The study also went into detail on why people sell their used games and found that the number one reason, with 62 percent of people saying that they sell their game because “The game wasn’t very good.” At 38 percent, the number four reason people sell video games is because “A new version of the game was released.” Two of the top reasons that consumers sell their video games are within the control of producers and developers.

In an effort to make more money, Ubisoft, EA and others decided to release sequels of AAA titles every year. Producers and developers do this expecting the same people to fork out 60 dollars each year on a game that is virtually the same as last years, but with an updated roster (EA), or set in a new time period (Ubisoft). Those two aren’t the only ones doing this either. It is time to face it – yearly releases either dilute the excitement that a new game should bring or encourages consumers to trade in their previous versions. Expecting your consumer base to up and eat the $60 bill every year when they can trade in a now outdated game is amazingly egocentric. If developers and producers want to stop people from selling their games, they have no business releasing games as sequels every year because it just isn’t feasible to release the same product each year while making it good enough that gamers want to hold on to it forever. The games most likely to remain in the hands of gamers and not resold are usually never yearly releases.

The video game industry’s ambition is no different than any other industry: to make a profit. The companies that find it easiest to make a profit are those that make their customers happy. Developers and producers have an obligation to make a quality product and sell it at a fair price that will keep customers coming back for more. The truth is, regardless of budget, not every game is worth the $60 price point set on all new video games – some are worth less, and some are worth more – it just depends on what is included in the game. If a gamer buys a game and feels that he or she has not received the full benefit for the dollar amount invested, they will likely sell the game to recoup some of that perceived lost cost. Developers and producers need to find a price point that reflects the true cost of the game, yet will bring in enough buyers to turn a respectable profit, and until they do this gamers will keep selling their games due to lack of quality.

Death of the Used Video Game

I am convinced that we will eventually leave tangible media behind and move to digital copies of video games. Brick and mortar stores that focus on video games alone will dry up, focus on selling hard to find games for older consoles or find another niche to fill. Music has already embraced the digital trend, and movies aren’t far behind thanks to services such as Netflix. Video games will be completely digital within 20–30 years.

While this is the move that publishers and makers of consoles want, as it will result in direct profits, I wonder if they are ready for the consequences this will bring. A study done this year by marketing professors Masakazu Ishihara of the New York University Stern School of Business and Andrew Ching of the University of Toronto’s Rotman School of Management has come to the conclusion that if the used video game market were to cease today, video game makers would see their profits decline by ten percent per game if they did not change their pricing. However, the study went on to say that if publishers dropped their prices by 33 percent they would see profits per game increase 19 percent. The study came to the conclusions by analyzing data from the Japanese video game market to simulate what would happen if used video games were completely axed. Some in the video game industry have long viewed the used video game market as anathema, but it allows for higher prices of video games as the study shows that consumers are forward thinking by calculating the resale value into the initial purchase price of video games. Take this option away and something will need to change.

When tangible media goes belly up, publishers and developers will have to step up. Current practices will not support the death of used video games, let alone the death of tangible media. The question for used video games is, will the game license be tied to an account or to the digital copy? If the license is tied to the digital copy, used games will still exists as they still do for PC. I for one will say this: if I could buy a digital copy of a brand new game for $40 the day it was released, I would buy more new video games and I know that I’m not alone.

About the Author

Aaron Daniel began gaming on the Atari 2600 and hasn’t stopped. He still owns a NES, and SNES, but is most pleased with his complete Sega Master System. His favorite games are Xenogears, Castlevania: Symphony of the Night and Skyrim. His favorite genres are any RPG and First Person Shooter, and his favorite developers are Bethesda and Gearbox.