Pre-Pwned

There's been a bit of a furore this week instigated by EA planning to charge $10 for an online pass for their EA Sports titles. Newly bought games will come with a code covering it, but anyone buying pre-owned will have to pay the $10 to access online services.

Predictably, it's suffering quite a backlash from gamers accusing EA of greed, yet also getting quite a lot of support from analysts and developers, with Andrew Oliver of Blitz stating that pre-owned is a bigger problem than piracy. Given the recent discussions by Wolfire about piracy and the Humble Indie Bundle, he may well be right. When the sale of a game also leads to costs for online services, it's an important issue: how much support does a publisher owe the buyer, especially when they bought second-hand?

Pre-owned has incensed publishers, so let's look at their options:
Negotiate royalties on pre-owned sales with retailers.
Lobby government to mandate royalties on pre-owned sales.
Educate consumers.
Switch entirely to online games, either downloadable titles or subscriptions/microtransactions.
Offer incentives to buy new copies, and find a way to take some revenue from pre-owned sales.

(Have I missed any?)

Lets go through them. First up, negotiating with retailers: talking to every retailer to try and arrange a kickback from second hand sales would almost certainly result in publishers being politely be told to sod off, especially in markets like the UK and US where games retailers are feeling the squeeze due to businesses such as Wal-Mart, Asda and Tesco. Those larger businesses, in turn, are very used to wielding power over their suppliers. Not only would these be extremely difficult negotiations for publishers to succeed with, they'd have to repeat them internationally, as well as every time a new retailer started dabbling with second hand games, and there have been quite a few doing so in the past few years. Even if it were feasible, the overheads of trying to put something like this in place are phenomenal.

Instead of retailers, publishers could go crying to governments. At least from a consumer point of view, nation states have made some horrific moves in recent years when it comes to IP, but legislating royalties into second-hand sales is a big stretch. Arts markets in certain countries do have such conditions built into them, but the chances of that catching on for something as commercial as the games industry are approximately zero. Considering how long it's taken TIGA, ELSPA and developers here in the UK to get the government to even mention the idea of tax breaks for the games industry, and how many other markets bear second hand sales perfectly adequately, does anyone really think this could get onto the agenda?

Next on my list is educating consumers. I've heard this mentioned in other sectors as "Audience education", and it stinks. Even if you're offering valuable knowledge, you can't shove it down peoples' throats and have them like it. In the case of, say, an extremely worthwhile educational resource, no matter how good it is it has to be merely made available. If you force feed someone, it doesn't matter how good the food is, they'll still resist.

In the case of "Hey guys, don't buy pre-owned!", it's going to be an unpopular message to start with. See anti-piracy ads before films for a good example of how audience messaging can be patronising, badly targeted, and aimed entirely at the wrong people. Last time I saw one, a paying cinema goer heckled the screen with "You're too late, it's already on the internet!", and other people, who'd of course also paid for their tickets, laughed.

If console game publishers went to their customers to plead poverty in the face of pre-owned games, they would also be laughed at, especially if they desperately clutch at ways to make it current (Remember "Don't copy that floppy"?). Games have been positioned as a product for decades, people are used to buying and selling them for that long, and pre-owned has now had plenty of time to entrench. As someone involved with the industry, I prefer to pay a few more pounds to make sure some of the money is going to developers and publishers, rather than all of it to the retailer. I'm not an average buyer though. Consumers aren't stupid, but I'd wager they tend not to think about supply chain logistics and are more concerned with face value.

So with audience education blithley nixed, what about switching to online? To an extent, publishers are dabbling with this, but they're big organisations with a lot of inertia. A great deal of their operations are given to the management and sale of boxed product, for which there's a large and established market. Additionally, digital distribution platforms are still taking their first steps and evolving considerably, and a lot of developers don't necessarily understand how to work with them. They may still prove to be a dinosaur squashing asteroid strike of a technology, but just as consumers aren't instantly switching entirely to digital products, neither will businesses.

The final option in my list is to use extras to incentivise people away from piracy and pre-owned, and this is exactly what EA are doing with their online access codes. Gamers perceive this as a publisher gouging extra money from them. Again, just as with a supply chain, consumers will look at face value they're confronted with rather than the ongoing costs of a business.

I tend to think "Oh grow a pair" when I see developers bitching about pre-owned being immoral (n.b. This is not what I think when reading the piece with Andrew Oliver linked above): if you're selling a product and can't bear the weight of it being sold second hand when your first buyer no longer wants it, then you need to either turn it into a service, or address serious structural problems in your industry. Nonetheless, whenever I look at pre-owned games I'm pretty shocked to see retailers setting prices so close to that of new copies. It certainly makes it a lot easier to choose to pay a little extra to support developers.

Ultimately, I think two things will occur: The more egregious examples of making people pay for extra content or online services will suffer from outpourings of fan rage and boycotting, while the smaller things, such as $10 charges for online access, will be balanced out by an overall reduction in average pre-owned prices.

Consider: I am a gamer wanting to buy a copy of "Run Kick Ball Thing 2010". The RRP (MSRP) is £49.99, most retailers are selling it brand new at £39.99, and it comes with a code for new owners to use for online play. Pre-owned copies are £37, but it's going to cost me, say, £8 for a code to go online and run kick ball things with my friends. Of course, I buy the new version.

Rinse and repeat. The bottom isn't falling out of the pre-owned market, but the titles with online codes are not shifting as well. Whether the stores realise this is because of codes for online services or not, if they have a lot of people wanting to trade in and only a few people wanting to buy at £37, the response will be a reduction in price. The overall price to the consumer remains roughly the same, but the publisher is effectively getting a slice of pre-owned revenues. If the pre-owned price doesn't fall to accommodate the price of additional services, then the publisher has an increased chance of first sales. It seems like a natural evolution of games shifting from products to services, and is much, much simpler for publishers to control and implement than negotiations with retailers, government or consumers.

In the case of EA, I think they've made a sensible business decision on what to do about pre-owned and online services. I may end up having to eat my words if their servers are quickly deserted, but when those EA Sports titles are released, the ball will be in the court of every retailer offering pre-owned games.