Category Archives: Capitalism

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.

Talking of avoiding responsibility

Another ripper story in Friday’s Crikey daily email, with Bernard Keane calling bullsh*t on business people pathetic present ruse of blaming every bit of their own incompetence on THAT DIABOLICAL GUBMINT!

We need a name for this — we’re calling it Whinger Whack-A-Mole. Business leader after business leader sticks their head up to blame Julia Gillard for all their own failings and says that investors were turning away from Australia. We at Crikey whack them with facts. Rinse, repeat. Well, someone has to do it, because the rest of the media don’t appear interested in doing it.

Today it’s Myer’s Bernie Brookes lamenting that Everything Is The Gummint’s Fault, dutifully reported verbatim by Fairfax’s Eli Greenblat, that dedicated diarist of the woes of the traditional retail sector. Brookes also got plenty of air time at Business Spectator, where he was more circumspect about the Prime Minister’s personal culpability for everything wrong with Myer, but still managed to fit in a few complaints about taxes, uncertainty and that old favourite, the lack of GST on the evil internet.

To rehearse the tiresome facts all over again: the Fair Work industrial relations framework sees industrial disputes and wage pressures at or near historic lows. The government presides over a low inflation, low unemployment, low-interest economy of the kind only dreamed of for most of the past 30 years. The tax take from business has fallen as a proportion of gross operating surplus to the lowest level since the mid-1990s; overall tax receipts as a proportion of GDP are at their lowest level since the mid-1990s. It’s hard to work out, bar removing all protections for workers, how much more this government could have delivered for business.

That’s presumably one of the reasons we’re almost choking on investment. Brookes’ comments were particularly poorly timed given yesterday’s release of new resources investment data by the Bureau of Resources and Energy Economics, which shows there’s a mining investment pipeline of half a trillion dollars, with “advanced projects” accounting for over a quarter of a trillion dollars. If there’s a capital strike on by foreign investors, god help us if they ever get enthusiastic.

Fortunately for Tony Abbott, that kind of actual analysis and balloon-pricking doesn’t appear much in the news media consumed by most Australians.

It’s either amusing or galling (depending on whether you can forget for long enough to avoid an ulcer that the consequences of this shameless whinging will ultimately negatively affect the vast majority of us) watching business blame every one of their problems on everyone else whilst claiming to be advocates for “personal responsibility”.

Next for Work For The Dole: full taxpayer-funded slavery

Remember in the old days when slaveowners had to at least feed and clothe their human chattels? How quaint. The new, highly-profitable corporate ones won’t even have to do that:

Britain’s jobless young people are being sent to work for supermarkets and budget stores for up to two months for no pay and no guarantee of a job, the Guardian can reveal.

Under the government’s work experience programme young jobseekers are exempted from national minimum wage laws for up to eight weeks and are being offered placements in Tesco, Poundland, Argos, Sainsbury’s and a multitude of other big-name businesses.

The Department for Work and Pensions (DWP) says that if jobseekers “express an interest” in an offer of work experience they must continue to work without pay, after a one-week cooling-off period or face having their benefits docked.

Young people have told the Guardian that they are doing up to 30 hours a week of unpaid labour and have to be available from 9am to 10pm.

Work 30 hours a week for 53 pounds from the taxpayer, the benefit of that labour going not to the community but to profitable private companies.

And how much more profitable will these private companies be able to be now they can force staff to work for free (with a minimal amount of food and shelter covered by the taxpayer) or starve!

I hope Tony Abbott is watching. I bet the Business Council of Australia is already drawing up the formal policy, apologising to members that its British colleagues got there first.

To those who have, much will be given; to those who have not, much will be taken

You know how in the argument between public services and capitalism the latter is presented as some kind of default position, where people are just left alone with what they’ve earned, and the former is presented as “redistribution”, where money is taken unfairly from one person to be given to someone else.

Watching Four Corners’ report last week on poor children in the first world reminded me what a lie that is.

Capitalism is a system where those without capital pay more for basic necessities. Where those with capital pay less. Where, at its most basic, capital breeds capital – where to those who have, more is given, and to those who have nothing, more is taken. That’s what capitalism means. That’s why it’s called “capitalism”.

So these poor families in the documentary pay a pound plus electricity to be able to turn on their TV for six hours. They pay more for travel (because they live further from work and in places poorly served by public transport) and they subsidise our credit cards. They pay more for housing – mortgage payments might be more than rent at first, but after five years or so and for the rest of the homeowner’s life, they’ll be paying less to the bank than those renting an equivalent place. Their meagre property gets damaged because the housing in which they live is filled with problems like pervasive damp, so they have to replace it if they can. And because they’re only renting, they can only get temporary appliances, that actually cost more than fixtures a homeowner could install.

And how do we try to balance budgets when the people up the top bugger things up? Do we raise their taxes since they’ve actually got something to sacrifice? No, we cut welfare. Austerity for the poor. Come on, you bastards, your kids don’t need to eat three meals a day!

It’s kind of sickening.

Still, at least the name “capitalism” is honest. It is what it says it is – a system that rewards the people with capital, at the expense of those without.

It’s not like where they call the system that builds corporate monopolies the “free market”.

PS Stay to the end of the Four Corners piece to watch the interview with Danny Dorling. His explanation of what’s happening and what’s coming next is exactly on the money.

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.

Ordinary American questions for-profit health care

I’m not surprised this interview with an “Occupy Wall St” protester didn’t air on Fox, but I am surprised that it leaked:

That bit at the end?

“I think, myself, as well as many other people, would like to see a little but more economic justice or social justice — Jesus stuff — as far as feeding the poor, health care for the sick. You know, I find it really entertaining that people like to hold the Bill of Rights up while they’re screaming at gay soldiers, but they just can’t wrap their heads around the idea that a for-profit healthcare system doesn’t work. So, let’s just look at it like this, if we want the president to do more, let’s talk to him on a level that actually reaches people, instead of asking for his birth certificate and wasting time with total nonsense like Solyndra.”

If you relied on their national media, you’d almost forget that such Americans still existed.

Heads you pay us, tails you send customers to us

We’ve seen it before, for example when Ebay used its dominant position in the online auction sector to gain an advantage against competitors in the money transfer business by forcing customers where it has an effective monopoly to use its product (its PayPay “PayPal” system) instead of a competitor’s where it doesn’t. Using a dominant position in one industry to undermine competition in another.

And here it is again. The nearly monopoly electronic payment system for purchasing goods with a customer’s own money in shops in Australia – EFTPOS – is now gouging its retail customers with extra fees. How is that similar? Because EFTPOS is controlled by, along with some big banks and insurers, Coles (Wesfarmers) and Woolworths. So those two enormous supermarket chains can absorb these fees easily – a good portion of them are just going back to themselves anyway – where their competitors, like independent grocers, are left struggling with another cost they have to pay or lose customers. Heads you pay us, tails you send customers to us.

But, hey, I’m sure this will all work out for consumers in the long run, somehow. Go free market! Go!