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In 2009 GameStop had made 2 billion dollars on used game sales through their trade in program. In 2011 the video game industry was valued at nearly $65 billion, in the course of those two years publishers have struggled with an acceptable method of cutting into the used game market. Insert EA's "Project Ten Dollar" which was essentially the Online Pass, and coincidentally how most Online Passes ended up costing ten dollars. The idea was to cut into the used game market by blocking access to certain content from a game, unless a single use code was entered. Those who purchased the game new, which makes the publisher money, would be granted access to that content. Those who purchased used, which only makes the retailer money, would have to purchase a code to unlock that content. In this way EA was influential in the formation of the online pass we see invading nearly every new release. As for how much money EA has openly admitted to making from "Project Ten Dollar," in September 2011 CFO Eric Brown had the following to say on the program:
"The revenues we derive from that haven't been dramatic. I'd say they're in the $10-$15 million range since we initiated the program," which according to Brown was all found revenue since the company paid nothing to make that money. Not a terrible amount of money, but that's around 1.5 million passes sold through the program. Generally speaking this found revenue is exactly what the publisher was after, and with good reason. That being video games are extremely expensive to make and publish. There is more to a video game then simply artists and programmers, publishers have to consider marketing, PR, voice actors, musicians, and of course actual distribution. This leads to budgets reaching over $100 million for Rockstar's GTA IV and publishers can not afford to take a hit that size, on top of loss revenue from used games.
Alternatively, Gamestop makes a large portion of revenue from used games, Onlive founder broke down the figures on revenue gained from the sale of a single copy of a video game.
While this arrangement seems neat and tidy, it is also one of the reasons that Gamestop is so heavily involved in used game sales, and why the price you get for those trade-ins can feel a bit like grand theft. Gamestop could not survive as a retailer, especially with as big as the company has become without this line of revenue. Each side has their reasons for the business model they have chosen, and that's mostly because that is how they have found a way to survive in a turbulent economy, and a video game market that is overly saturated with choice.
The online pass has left a nasty taste in many gamers' mouth though, primarily from a content stand point. I hardly doubt anyone has had as much trouble in most games, except for primarily the Resistance 3 code which sounded extremely frustrating. The issue of what exactly a person owns when purchasing a game, or any software, for that matter seems so black and white from a consumer perspective, I bought this game, the code unlocks the content, and that's mine. Which of course to some means it's "on disc content," however look very closely at the wording of the EULA next time. More than likely that agreement you simply click "yes I accept the terms of the agreement" will probably tell you that the code you just inputted gave you a license to some content as agreed upon. Anyone who has deleted their music from iTunes may have noticed a hard time downloading those tracks again, and that's because you are paying for a license to that music. There is no ownership, you are literally paying for the right to take that music with you as you please, but just that copy. Once it's deleted from your iTunes library and iPod that prized video game soundtrack is gone for good, unless you pay up.
This business practice has been upheld in the U.S Court of Appeals from the decision in the Vernor v. Autodesk case in 2010. In this instance Mr. Vernor bought copies of Auto CAD Release 14 from an office garage sale, and turned around and sold them. The original owners of the software though had only bought the license to the software as per the SLA (Software License Agreement). Because of the SLA Vernor was ordered to cease and desist selling the software. Now this might be confusing, since essentially GameStop is also selling software, and publishers could simply enact the EULA to include no resales, but the first sale doctrine also works to protect Gamestop in this regard.
The first sale doctrine allows Gamestop to distribute and dispose any copyrighted material that they have purchased in the manner they wish. Because Gamestop is a retail outlet, they are not capable of selling a license, and because of this the physical media purchased falls into the first sales doctrine. This also means that the consumer can turn around and sell the physical media, so forth and so on. However that content behind the online pass is just a license and non transferable, in both laws the two entities protected are the publisher and the retailer, and in only few instances does the consumer find themselves capable of having a voice.
The online pass isn't the saving grace of the industry, and Gamestop and other dedicated retailers do an excellent job of actively promoting video games, and the community within, but the gamer has become merely a number on financial sheets. The problem of why an online pass exists, or whether it's justified or not for legal reasons or financial reasons in ultimately a moot point. When customers have become nothing more than a steady source of revenue, and both sides of the industry have failed to find a middle ground the gamer suffers. The pass isn't war on consumers, because ultimately consumers will pay for product that they enjoy, blocked content is a war between publisher and retailer, and sadly those financial reasons, whether justified or not, ultimately hurt the customer. No industry can survive without the customer, and until the customer stands up for what they think is right and fair, then industry will continue to wage a war between each other through us.
*Special thanks to Chris Mrkvicka for the info on first sale doctrine, and the Vernor v. Autodesk case.
That was some very insightful information about stuff I knew nothing about. Excellent blog post, TOGNick!
Great post Nick! I've been keeping up with your series on The Game Effect regarding this topic as well.
I wish there were other solutions, but I don't fault the publishers for trying to recoup something.
When it comes to Online Passes, I think in theory that it would work ,but it gets really annoying when you know that a section of the game is cut off and you have to make some kind of payment through a new game or used and an individual pass.
One thing that annoys me is that publishers and developers say they "lost" money from the used game sales. In reality, you can't lose what you don't have, can you? Instead of "lost", always replace it with "money we could have made". For example, has Gamestop ever stolen money from the publishers and developers physically? The answer is, no. The publishers simply didn't make as much cash.
In this scenario, I am the publisher, and you are the retailer. I published a game, created fifteen copies, and then sold ten copies @ $60 each. So, I made $270 according to the break down. Five of those buyers resold the game for $25 and you mark it up to $45 and sell all of those. From that, you made a gross profit of $100. Add that to the $150 cut from the new game, you now have $250. Now, did you, the retailer, ever steal or made me lose money because of the used games? No. I simply did not make another $135 but instead you made an extra $100. It's not that publishers are losing money, they simply aren't making as much.
Whatever it is, the consumer always gets the boot. I wish there was actually one company that had the consumers in mind. Sadly, very few, if any, get to tell the tale of it.
Nice post and some very valid points... and even though I mostly buy new with preorder (for some sort of bonus) this still effects me to a degree...if only in principle, I hope Valve dominates next gen so that this whole no used games crap gets thrown right out
Depending on what content is locked, i see no problem with online codes. BUT, the thing most people are forgetting is that there is a very small window of one to two years of when a game can even be bought new before your only option is to buy it used.
I was an avid buyer of used games from Gamestop in the past. That was until all this conflict arised from the shadows. Now, when I buy an used game, I feel as if i was'nt supporting the developers. I dont know if the Online Pass is the answer, but I definitely started resenting Gamestop (which is owned by a single person by the way) when I think that they take away 2 billion dollars a year from these studios and developers. That's 2 billion dollars that could've been employed to make a sequel or new IP's of what we love most, videogames. 2 billion dollars that could've been given to the developers as a reward for their hard work, for their creativity.
Needless to say, I dont support used videogames anymore. Or at least not in the massive way they are being sold nowadays.