Category Archives: videogames

Publishers, Retailers, Consumers: 1-1-0. How about 1-1-2, instead?

There are three main players in the videogame market: publishers, retailers, and consumers.

And the last five years have demonstrated fairly clearly how the market arranges itself to screw consumers, to the ultimate detriment of all.

Let me explain, with reference to the last two big fights between the publishers and retailers: second-hand games, and online publishing.

Each is in the interests of one, at the expense of the other.

Retailers found that they were quite good at running a marketplace for used games, where consumers could trade in their old games just in the very physical location where they were likely to spend that money on a new game. Retailers took a cut (and at the margin between what they were paying customers for the used games and the price they were reselling them, a very substantial cut) on each exchange. The publishers became increasingly antsy at all this economic activity from which they weren’t directly profiting (although they were, indirectly, by consumers having more money with which to buy new games and by consumers feeling that the almost hundred bucks they were about to spend on a new game wasn’t going to be completely lost).

So the publishers started crippling games so that critical features were available to the first purchaser – and only that one purchaser, no longer could a couple purchase a game together and each play the whole thing. Second-hand purchasers found themselves unable to play significant parts of the games they’d just bought.

The publishers thereby seriously slashed back a revenue stream for retailers.

In return, when it came to online sales of games, the retailers – now with one revenue stream curtailed – put their foots down. You must not undercut us with digital sales, they demanded, even though without a physical copy of the game the production and distribution costs are significantly lower and consumers know that they are paying full price for a product that costs you less and requires that they pay the distribution costs themselves (by way of bandwidth) and forsake their right to resell it.

And so the publishers charged full price, even on games that were discounted physically in stores. Digital copies of games often cost more than the physical counterparts, even though this makes no sense whatsoever.

In regions where the retailers overcharged customers substantially, like in Australia, where a 50USD game retails at EB Games for $110 Australian (ie, more than double, particularly when the Australian dollar is actually worth more than the US one), the online retailers were required by the publishers to similarly overcharge. So on Steam, which actually charges Australians in USD anyway, new games will be 50USD for Americans, and 90USD (or worse) for Australians.

The number of sales lost to consumers who simply refused to buy games at that markup apparently didn’t occur to the publishers. Nor did it occur to them that they should be doing everything they can to encourage consumers online, where they can have a higher margin even with a lower price, boosting sales and revenue at the same time.

So – two fights, and each side won one and gave ground on the other. Only they both took the sides that screwed consumers. One each for the publishers and retailers; nil on both for consumers.

Instead of the retailers selling second-hand games uncrippled, and the publishers selling online games at a reasonable price, thereby encouraging consumers to buy, they chose the options which reduced sales. They each carved out ground from the other – but the wrong ground if they want consumers parting with their hard-earned.

They forget – videogames are a discretionary entertainment expenditure. Consumers have plenty of choices for their entertainment dollar, both within and without the field of videogames. Nobody likes feeling cheated or ripped off, and in industries where consumers simply can easily go elsewhere, it’s surely not a good idea to leave them with that feeling.

Perhaps it’s no coincidence that so many publishers (eg THQ) and retailers (eg GAME) have struggled or gone out of business this year.

Maybe they should consider renegotiating their faustian pact. Maybe the retailers should say – okay, we’ll agree to you selling games online at an appropriate discount from physical retail, if you’ll agree to stop crippling second hand games. You can increase revenue from online distribution, and we’ll increase revenue from what we’re good at, facilitating a physical marketplace for these products between consumers. We both give and gain ground – and the consumers win and will be willing to buy more of our products. And the retailers the same in reverse.

And that’s what would happen.

If the market actually worked.

This is a thing that should happen

Lego asked the Internet if it wanted them to make Minecraft-themed Lego sets. They got their answer very quickly:

Okay, we get it. You have a passionate community who wants to see Minecraft themed LEGO sets. It just took three server outages to prove it to us, but yeah, we’re listening. ;-)

They might even have something to announce before Christmas.

Digital distribution the future of software? Only if you don’t mind having stuff you’ve paid for deleted

Game publisher Electronic Arts has a special new power it’s given itself over products consumers buy from it – the power to block them from playing their own software.

It’s like if you bought a car from Holden, and then said something publicly that Holden didn’t like, and so Holden came around and disabled your car and it was now worthless.

Meanwhile, EA and other dinosaur publishers think they can charge more for a digital download than a physical product, as part of their cunning strategy to delay digital distribution (from which they profit handsomely, having no physical costs and no retailers to cut in on the profits).

Which, given what they want to do with it, is possibly a blessing in disguise.

Another corporate thinking fail

Check out the cunning in this business model for videogame publishers:

  • Sign deals with developers that make their pay dependent on a good review score average through Metacritic;
  • Force developer to add nasty, anti-consumer, obnoxious DRM and limitations to the game.
  • If reviewers pretend that your anti-consumer nonsense doesn’t matter, then you get away with it. If they don’t, if they penalise the game by lowering the scores, then you don’t have to pay the developer as much!
  • Profit.

Well, for a while. In the era of digital distribution, their ripoff strategy is actually costing them money – but trying to make these monkeys understand that would be like trying to teach a cockroach to type. Still, the question for those who care about the developers and products affected is – how do we break that cycle?

I suspect that the only way to tackle it is for reviewers to start punishing games that are infected with this sort of rubbish, even though that unfortunately will hurt developers in the short-term – but it’s the only way to let developers know to be wary of those sorts of contracts. Playing along with it isn’t in their long-term interests, anyway.

If corporations worked, then shareholders would stop this

You know the sort of thing – executive comes up with a harebrained idea that looks like it’ll save money in the short term, but only by pissing off (if it doesn’t involve sacking them outright) staff and customers in a way that will, ultimately, cost the company money. Executive gets a bonus, moves on to the next company. Original company loses money, has to undo the whole thing (for which replacement executive gets their own bonus).

Take this utter stupidity from the games arm of Sony, this week:

going forward, all Sony PS3 titles that have a multiplayer component will also contain a PSN Online pass code that you’ll have to input in order to play online. Basically if you buy a PS3 title used you’d better factor in an additional $10 if you want to play multiplayer…

Let’s recap. In competition with a much better online service for which their competitor, Microsoft, charges a $50/year premium, where Sony’s customers have trouble finding other players to play with – Sony’s brilliant idea is to leave their service as second-rate as it already is and lock people out of it.

Thereby further reducing the number of people with whom paying customers can compete online. Thereby making their product even less attractive to the people who are choosing between the two competing console systems

Oh, whilst also cutting the value of games for purchasers who then can’t onsell them. And who can’t play their copy online with their own family without buying another “pass code”.

End result: more customers going to the competition, a loss that will far outweigh the small number of people who’ll actually pay the ridiculous $10 charge. Shareholders lose money, wish they hadn’t paid that executive the undeserved bonus.

And the cycle continues.

ELSEWHERE: EA has had the brilliant idea, whilst trying to grow its competitor to Valve’s far-superior Steam online digital distribution service, of banning customers’ accounts if they play on a non-official server. This isn’t just stopping them playing that game online – it’s stopping them playing any game they’ve purchased digitally from EA using EA’s digital store.

That’s right – if you do something EA doesn’t like, it thinks it can block you from all the games you’ve paid for.

That’s DRM. You buy something, and they can take it away at their whim.

And they wonder why they lose customers to piracy.

Your pictures belong to Nintendo

Do you read the ridiculous boilerplate conditions in the “end user license agreement” that accompanies computer hardware and software? You might not believe the ridiculous terms many companies pop in there and pretend you’ve agreed with by opening the packet.

Take the Nintendo 3DS portable console. Nintendo apparently reckons they:

  • have the power to remotely “brick” your console if they don’t like what you’ve done with it;
  • can keep records of who you are and where you go; and
  • have full commercial rights to any photographs you take with it.

That last one in particular is utterly absurd – and you’d hope no court would enforce it – and you’d hope that, like most of these agreements, these terms are more in the nature of an ambit claim, there to protect the company if it inadvertently cocks up and lets something out about a user by mistake. That Nintendo doesn’t actually intend to collect a huge database of personal and private information about customers and to go through their private pictures one by one to see if they find anything juicy and saleable. (Although it seems very likely that they have every intention of using the first one, deliberately destroying your equipment if you dare do something with it they don’t like, like run a different operating system on it and homebrew software. You know, like Dell bricks your PC if you install Linux*.)

Whether they end up utilising these extraordinary powers they claim you’ve granted them, it’s rather contemptible that they’d claim they can do these things. And a reason, while they persist in this anti-consumer nonsense, to avoid giving them any of your money.

*They don’t, of course. Even Microsoft only deletes a user’s Xbox Live access if they find they’re using a modified console – they don’t actually break the console remotely.

And they wonder why Australians rebel

Australians have, quite unsurprisingly, come to loathe region coding, particularly in the age of digital media.

Not only do we pay significantly more for the same products for no decent reason, but they often arrive late – after their moment has passed – or, indeed, not at all.

And, naturally, the media companies committed to trying to wring every possible ounce of profit out of us, who don’t have any respect for their responsibilities as the custodians of the material over which our governments have granted them a temporary monopoly, are determined to prevent us doing something about it. Hence media players that refuse to let us view content purchased lawfully overseas, regardless of the fact that parallel importing is quite legal here.

Which brings us to this post on Kotaku the other week about modchipping consoles. In short, the High Court formerly held that modchips were fine if they had a lawful purpose such as overcoming region coding – if the console manufacturers insisted on making the part of their system that prevented the playing of pirated software the same system that prevented lawful use, then they couldn’t expect our courts to ban such devices.

That was a good ruling. It gave these manufacturers an incentive to not screw over Australians – you don’t try to impose something you have no right to impose, and we’ll look after your copyright.

Unfortunately, then John Howard signed us up to the disastrously one-sided “Free Trade” Agreement with the US, which now essentially reverses that position: if a device gets around region coding but also enables piracy, it’s prohibited. (Supposedly – it doesn’t appear to have been tested in the High Court yet.) So now the console manufacturers are rewarded for tying those systems together, and they get to enforce their abuse of monopoly privileges on the rest of us.

So, with the next generation of such hardware re-implementing region coding technology with increased vigour, is there any hope for Australian consumers? Will the ACCC finally stand up and fight against this abuse of competition? Will an Australian government undo the damage from Howard’s sucking-up to George Bush? Will one of these companies finally learn the lesson from Steam that not ripping off your customers is actually vastly more profitable?

Or will they continue to be surprised that Australia has such a high piracy rate?