Soapbox: Game Rentals - A Slow, Secret Death For Developers?

Game Rentals - Who Do They Benefit?

According to the Video Software Dealers Association, over the past several years, the popularity of console game rentals has risen dramatically – $723M in rentals in 2003, compared to $5.8B in sales. That's a significant chunk of change - anywhere from several hundred million to a couple billion dollars in lost sales, depending on how you calculate it - that, to my knowledge, is not being passed on to developers at all.

The rental problem snuck up on developers because of the slow but constant shift in mind share to console games over the past few years (PC games are legally protected from rentals). Existing developer contracts with publishers don't take into account rental revenue at all – check your publishing contract and see how many times the word 'rentals' is mentioned. My guess is zero. This major ambiguity in the relationship between developer and publisher is primarily hurting the developer, since they have much at stake, and little say in the matter.

Publishers, in fact, are pretending that rentals are a non-issue – the most recent annual reports from Activision and Electronic Arts do not mention game rentals even once. How can the executives at these companies pretend that a $700M+ industry that directly cannibalizes sales isn't something worth discussing with investors? My guess is that rental chains are simply treated like distributors or retailers. As long as the publishers are profitable and there is no demonstrable link between rentals and declining sales, then rental outlets are a nice way to boost sell-through numbers.


Are Rentals Cannibalizing Sales?

But are rentals actually cannibalizing sales? It's hard to prove a definitive link, but anecdotal evidence and common sense would seem to indicate that this is true. If you look at Internet forums, you'll find two key reasons players claim they prefer rentals: renting is less expensive and it's also a good way to mitigate risk from substandard games. Very often, you see reviews such as: "Not worth buying, definitely worth a rental". Or, even worse, "It's a great game, but you can complete in a rental cycle."

For shorter-playing genres (action RPG, strategy, platformers, adventure, single player shooters), a single rental period is often long enough to complete a game – why pay $50 for something when you can get the same experience for $6? This forces developers either to concentrate on multiplayer genres (sports games, online first person shooters, fighting games) or games with a lot of replay value (sports games, party games). This isn't necessarily a bad thing, as long as you're not a fan of the games that are marginalized by this shift.

Reducing the risk of purchasing a bad game is a valid reason for rentals. Whether we admit it or not, the general quality of games is fairly mediocre. If you're going to spend $50 on a game with no right to return it, then renting may be the only viable option if you don't want to get stuck holding the bag with a subpar game. In fact, some rental outlets encourage this "try before you buy" approach by allowing you to simply keep your rental for a price lower than that of an unused retail copy.

There is nothing wrong with this form of rental, and in fact it is a natural outgrowth of the broken return policies enforced by our industry. Both of these reasons directly lead to reduced sales, for better (fewer bad games are purchased) and for worse (less money is spent on good games).


The Rental Solution?

There's no easy fix to this problem. Movies solve this dilemma by staggering releases – production costs are offset by the initial theater run, and then additional profit is made by sales and rentals. Games don't have such a subsidization system, so rentals immediately take away from profits from developers. Rental outlets could agree to share revenue with publishers and developers, but this only dampens the effects of rentals. It's also not very likely to happen, since without some form of legislation, there is no reason for rental outfits to give up their profits.

Of course, such an incentive, in the form of new laws, would make this possible, but that's a huge special interest fight that would likely be spun into a consumer rights debate. Even if – in fact, especially if – video game developers and publishers prevailed, there would be a lot of bad will generated. Realistically, the rental outfits simply have too much money at stake to give up without a fight, and large publishers don't believe that rentals are a problem, making this option somewhat moot.

Game rentals are not conceptually flawed, but the current system places developers and even publishers at a financial disadvantage as they find their own products competing against themselves. It's only a matter of time when purchasing a game will be considered a silly idea. If that sounds like hyperbole, think of DVDs today – the majority of movies, measured by unit, are rented, and only a minority of massive hits are purchased in appreciable quantity. The game industry will become even more hit-driven than it is today, stunting innovation and any form of risk taking on the part of developers and publishers alike.

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