Raph's Website » First sale

First sale

May 30th, 2006 (Visited 3949 times) Tags:

Lately, it seems like a lot of folks in the game industry are talking about ways to get rid of used game sales. There was the rumor about Sony not permitting used games with PS3, which was denied. There’s been plenty of talk about how used game sales and rentals are damaging the game industry among game devs. Even academics are talking about how to reduce resales. Witness this question posed to the rant panel at GDC in 2005:

Q: I am one of the bad guys: I’m working on a big budget next generation console game. I want to ask about totally legalised piracy? Not Russia and grey market – I’m talking Blockbuster. 20 dollars a year you can borrow whatever you like then give it back. People are going to rent my game for 4 dollars. I won’t see any of that. They’re robbing me!

I am probably going to make myself unpopular in the game industry for saying this, but all we do is put bits on a disc. Movies put bits on a disc, books put bits on paper, music puts bits on a disc, paintings put bits on canvas. All forms of software are just bits on a disc. The fact that the doctrine of first sale applies differently across different industries is a historical legacy based on who had better lobbyists at the time.

Consumers know this. That’s why they think the notion of software licenses is silly, unless they work in the software industry. That’s why they think they can copy, give away, trade, or resell something they own. They base it on thousands of years of precedent: information glued onto an object doesn’t make the object any less tradeable, copyable, giftable, or resaleable.

Copyright and IP law basically fight the tide on this one. Now, I am not one of the “information wants to be free” diehards; copyright and patents serve useful purposes. (I copyright my stuff, I am a member of a performance rights organization — ASCAP — and I have filed patents). But I also recognize that laws work best when they reflect reality, and not when they try to rewrite it.

On the other hand, were software not bits on a disc, I would be unable to have my kids playing M.U.L.E. on my Dreamcast on a nice big widescreen TV, four player. And it would be a tragedy to have kids grow up in a world without M.U.L.E. I loves me my emu scene, because without it, we’d be losing vast swaths of gaming history.

When David Edery proposes using XBox’s Achievements system to prevent game resales, he’s essentially making the argument I have in the past, that the industry is moving towards a service where you rent content, rather than selling bits on a disc. EULAs are a stopgap transitionary measure towards the solution of treating content as a utility, like the water coming into your house.

In the meantime, I actually think that fighting against game rentals is a waste of time. If someone rents your game for $5 and decides not to buy it, then the market value of that game was just established, regardless of how much it cost you to make it. If someone pirates your game and decides not to buy it then that’s also the market value being established. And if there’s one thing that keeps all of us in content industries awake at night, it’s the sneaking thought that content is worth very, very little on the open market.

Content is too available to be worth much; what is worth selling is the relationship to the creator. And as long as content providers keep trying to claim that content is worth something to consumers who think otherwise, they’ll keep pissing them off by saying things like “let’s ban used game sales” and “they’re robbing me!” Consumers don’t care how much blood, sweat, and tears you poured into making something. They only care if you touch their hearts. They will pay for that experience.

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Faith wrote on May 30th, 2006 at 11:17 am:

[...] Comments [...]

Cyan Bane's Hall Of Bouncing Souls wrote on May 31st, 2006 at 9:28 pm:

Quite Possibly, (from a video Game consumer’s point of view) this is one of the most consise and most agreeable posts I have ever read on the ‘used video game market’.Raphs Website ? First sale

...on pampers, programming & pitching manure: Carnival of Gamers #15: Hard Times Besiege the Midway wrote on June 1st, 2006 at 2:47 am:

[...] At the end of the day, there�s a lot to be seen and heard in the carnival, and a lot of things to help earn our wages, but someone�s got to pay up so that we can keep the rides running and the bearded lady well groomed. Along those lines, Raph has an interesting take on the �should game rentals be banned” argument that resurfaces in the industry. [...]

f13.net forums - So I finally bought a PS2 wrote on June 5th, 2006 at 2:04 pm:

[...] This would be an appropriate time to link you to a more intelligent discussion on these matters:http://www.raphkoster.com/2006/05/30/first-sale/ [...]

Alice said on May 30th, 2006 at 9:47 am:

Very good, young man. Carry on.

Yehuda Berlinger said on May 30th, 2006 at 10:30 am:

Very nice, but you forgot a few more things:

- First sale increases the value of an item, since more people will pay more money for the object. The net gain outweighs the net loss.

- People have had libraries for thousands of years, and it hasn’t hurt the book industry all that much.

- Copyright covers only copying. It means nothing more than that (well, also derivating, performing, and so forth). It does not mean “control” of the item. You can’t prevent people from seeing, borrowing, writing about, and so on. If your business model depends on absolute control, you are going to have to invent new laws.

- Any business model that depends on new laws being created to support it doesn’t deserve to exist. Milk delivery trucks are out of business, too. That’s the way it goes.

Yehuda

Raph said on May 30th, 2006 at 10:51 am:

First sale increases the value of an item, since more people will pay more money for the object. The net gain outweighs the net loss.

Well, it increases it in a nicely theoretical way, at any rate. It’s more accurate to say that the total currency exchanged in transactions involving the objects increases. That doesn’t mean “value” in most definitions.

At some point, an object carrying content may become valuable, if the specific content is both scarce and desirable (antiques, autographed copies, limited editions). But usually, these objects grow cheaper to each subsequent buyer, since the integrity of the actual object is usually decaying.

But none of this matters much to the content creator, because they only get a chunk of the very first sale anyway.

Yehuda Berlinger said on May 30th, 2006 at 12:32 pm:

Actually, I meant exactly what I said. People pay more for objects that can be resold. Studies show that enough people factor in the cost of resale in their decision on whether to buy an item, be it a car, college textbook, music, and so on. Take away the resale ability, and you take away not only how much people are willing to pay for an item, but sales altogether.

In other words, a person “worrying” about those people who borrow, rent, or buy his item used, who cuts off this avenue, ends up with less profits. So yes, I mean value, exactly.

And why shouldn’t it? The object has become less useful, and therefore less desirable. This makes perfect sense.

If you want to know where these studies are, you can find them linked to in various places on Techdirt, Copyfight, and so on.

Raph said on May 30th, 2006 at 12:39 pm:

Ah, I see. I misread what you wrote.

Morgan said on May 30th, 2006 at 2:40 pm:

Scott Miller’s contract deal points from January 2004 mentions that console "rentals destroy sales." SiN Episodes from Ritual Entertainment is provided via Steam as rented content, according to this situation. In that situation, the EULA is, purposely or inadvertently, used as crutch to force sales of the SiN Episodes soundtrack (bits on disc) which is to be sold in stores. Most of the soundtrack music can probably be found by extracting the music from the GCF archive. The MP3 files cannot be played in a standard MP3 player due to bit protection. That music, however, is actually licensed to SiN Episodes subscribers already; "unfortunately", as Chris Pickett of Ritual QA wrote, the EULA prevents the lawful extraction and decryption of the archived music files. (This seems contrary to the FBI notices preceding films that declared the user’s right to personal use.) In my opinion, when a contract is used to facilitate business, the contract is being misused. This usage of the EULA also damages Ritual’s marketing efforts with regard to the soundtrack. The value proposition ("why purchase this soundtrack?") becomes "because you’re not allowed to extract the music that you are already licensed to play".

Lobosolitario said on May 30th, 2006 at 4:00 pm:

- Any business model that depends on new laws being created to support it doesn’t deserve to exist.

I agree here. All I see in an industry that isn’t competitive trying to protect its overinflated prices. But that seems to be the problem everywhere at the moment - “Our products are overpriced? There are cheaper alternatives? Get them banned! Make it law that everyone has to buy our product!” How long will it take before the companies involved stop thinking they have a right to sell whatever rubbish they want at whatever price they want?

Here’s a quick sample of prices taken from Amazon.co.uk, which is generally cheaper than the high street by a fair bit. I’ve tried to get three fairly comparable products.

King Kong DVD Special Edition £15 (down from £25)

Red Hot Chilli Pepper’s latest two CD double album £11

Lord of the Rings: TBFME2 for the Xbox360 £40! (down from £50!)

Lobosolitario said on May 30th, 2006 at 4:04 pm:

Now I’m fairly sure that King Kong can compete with LoTR on budget quite happily, and the Red Hots are famous enough to be able to demand a fair bit of money, yet the game costs twice what the film does, and that’s the Special Edition DVD, not the standard… of course, having worked for EA, I know that the management there live in a nice isolated little happy place, but all the other publishers charge similar prices…

Lobosolitario said on May 30th, 2006 at 4:09 pm:

A quick currency exchange later…

King Kong DVD - $28 (down from $48)
LoTR TBfME2 Xbox360 - $75 (down from $95)
Red Hots - $20

CmdrSlack said on May 30th, 2006 at 4:46 pm:

In my opinion, when a contract is used to facilitate business, the contract is being misused.

I think I get your main sentiment, but I also am afraid that we’re stuck with EULAs in some form for quite a while. When courts issue hair-brained decisions that say things like, “Loading the OS into RAM is copying for purposes of the copyright act,” you are almost forced to license the software to people. If common sense ruled the roost, we’d not have to deal with byzantine IP statutes — there are still documents out there that are protected by the 1909 (or was it 1919) copyright act.

The fact that EULAs are abused should create a paradigm shift in the courts in the next five to fifteen years, IMO. When I speak to older, more experienced lawyers about theories surrounding unconsionability and other “contract defenses,” they act like I’m a cute law school grad who remembers minutae from Contracts I. I really think that we’ll see the EULA start to erode, but I don’t think it will be based on the games industry. I think that we’ll see it start to be eroded by lawsuits based on theft of consumer data.

But that’s way off topic. Suffice it to say that if the software industry as a whole continues to ship products that are not secure, we’ll see a lot of the nastier parts of EULAs getting bounced if challenged.

This, of course, assumes that the cases go all the way through the trial process. Settled cases do not precedent make. While I support the idea of EULA reform, I also think the last thing we need is to have Congress or the States drafting some kind of UCC-esque statute to deal with software licensing. I don’t really think we can trust them to draft something that doesn’t heavily shaft the consumer.

As far as licensing the right to hear the songs while playing SiN, but not to extract the files goes, I think that’s pretty much what you’ll see until consumer groups ramp up and care about licensing issues. The Sony rootkit DRM snafu should have caused more of a stir than it did, IMO. Because copyright is so goofy as-is, you end up with rights nested within rights. There’s the IP rights to the game, to the music, to the story, etc. Each right has to be licensed out because we have judges who just don’t understand computers.

Something has to give, and short of creating a whole new court system solely for IP and tech issues, I think it’s going to have to come from the consumers.

This is why I should really go back for an MBA or something — I am not exactly versed in the economics and business end of this stuff, just the public policy issues.

Morgan said on May 30th, 2006 at 5:17 pm:

Our products are overpriced? There are cheaper alternatives?

The correct response from marketing would be the establishment of value to the consumer. Price can add value to a product; however, there must be other attributes that attract consumers. Price must become a value-add in the mind of the consumer in order to substantiate the purchase of the product based on value. "Value" consists of benefits consumers derive from a product. For example, stealing from Guy Kawasaki’s speech, Nike sells "authentic athletic performance". They may also sell two pieces of cotton and rubber manufactured under highly suspect conditions. Nike customers, however, buy "authentic athletic performance". Kawasaki calls this the "mantra". Those of us in branding call this the "brand essence". Those in strategic marketing call this the "value proposition".

What value does Quake 4 provide to players? Thus marketed, competitive entertainment. Many games provide competitive entertainment to players. This is a weak value proposition. In fact, first-person shooters are generally weak products, offering only new products for technology licensing programs. "These games shouldn’t be priced at $50.00 USD. They’re merely technology demonstrations." No amount of marketing can turn murky water into Italian wine.

Here are some other benefits offered by Quake 4: "battle outdoors using tanks and walkers", "fight with the support of an elite squad", "compete online in fast action, arena-style Multiplayer". Anyone else intrigued by those benefits? I bought Quake 4 because the word was that the game offered a return to the experience of Quake 2. Apparently, the players’ experiences with Quake 2 differed greatly from the developers’ experiences with Quake 2 because Quake 4 is certainly not a return to the good ol’ days.

I remember reading the Ultima Online packaging at CompUSA when the title was first released. There were photos of real people next to side-by-side dossiers. The message — the value — that was provided to consumers was that by playing Ultima Online you can become a citizen of a living, breathing virtual world. Live a second life. Be all that you can be. Think different. That was the right direction for interactive entertainment marketing; unfortunately, old habits die hard.

Bottomline: when you’re competing on price, your marketing sucks.

Blake said on May 30th, 2006 at 5:20 pm:

The key way to defeat the rental market is for the publisher/creator to actually make a game worth buying. So when you rent Game X from Blockbuster and take it back, you HAVE to go buy it so you can play through it fully.

For the most part, I’d say a good 75 - 80% of the time for me, I play the game for an hour or three and realize how crappy it is and return it. Saved myself the $50 on a crappy game, and punished the company that made said crappy game by costing themselves a potential sale.

Rik said on May 30th, 2006 at 7:59 pm:

Yea, my first thought about the “rumor” that PS3 games will have no resale value was “Are they going to lower the price?” Because when a game is new, and I’m talking myself into it, that resell value is my safty net. If it’s one of those 75-80% of most games Blake talks about, well, I can sell it back the next day and I’m only out $20, not my whole $50. This starts to fall apart when then want $60 on “Opening Weekend” for games of unknown quality. Maybe I should just wait for the “Greatest Hits” version, and if it never comes out, maybe there was a reason for that. Now, truth be told, I rarely resell anything, I come attached to games, and on some level collect them, like they were traiding cards and I’m not alone. Oh, and that denial? Weak. “We haven’t offically said anything of the sort, and if it’s new policy, I haven’t been told about it.”

David Edery said on May 30th, 2006 at 9:58 pm:

fighting against game rentals is a waste of time

For the most part, I’m with you on this.

Content is too available to be worth much; what is worth selling is the relationship to the creator.

I know that you’re simplifying this just to make a point, but it’s fun to talk through anyway.

Agreed — the relationship with the creator is very important. Game developers are also selling a relationship with a franchise and a community… one that can outlast the developer (or the lead designer, or the brand representing the developer, etc). In fact, given enough time, the creator might very well prove to be irrelevant. Joys of user-generated content.

Steven Davis said on May 31st, 2006 at 5:18 am:

Every business would like to eliminate the rental market - unless they control it. Remember, not too long ago, VHS tapes were $70 or more to protect the rental market (when the studios got a cut, I believe)?

While the cited examples for movies and music were useful, remember the relative size of the audience - games are still a niche market.

One thing that really aggrevates all of this is the self-fulfilling targeting of the “hardcore” gamer. By building games with a theoretical audience in the modest millions, game companies need to raise prices to cover their costs and risks… and of course they are paranoid about rentals as the wonderful “hardcore” audience is also poor and highly likely to pirate or rent a game.

Since a movie or an album sells one to three hours of entertainment for about 1/4 to half the price of a contemporary game, maybe game developers should sell games that deliver 1-3 hours of content for 1/4 to half the price? maybe less to reach a wider audience.

After all, the 20-40 hours of content model is from a time when there was more procedural content and custom content was cheap - text and 2D images.

Prokofy Neva said on May 31st, 2006 at 7:25 am:

I agree totally. I am so glad you wrote this. And it’s very important to keep up this critique of those trying to curb sale of used software or rental of games — because inside virtual worlds, there’s an aggressive and vocal lobby of content-creators who invoke this special understanding of the rights of digital content creators in order to legitimize their attempts to control yard sales and tag sales of used items or sale of freebies. This is wrong, and an illegitimate grab at the economy by these content barons to keep their class privileged over others.

One problem I do see with PC games as distinct from others like X-Box is that if you have signed up for a MMORPG online with a game box code and made a character, you’re stuck then having used up the code. You could sell your character or the right to delete him and make a new one, but game companies often frown on selling your account in this way, in particular because they don’t want the liability for you giving out your password.

Still, people keep selling these games at yard sales in RL and selling the stuff in them at virtual yard sales, and God bless them, they should be free.

CmdrSlack said on May 31st, 2006 at 7:41 am:

Given the revenues posted by the games industry for the last few years, how exactly is it niche? Perhaps the MMO genre is niche when compared to other game genres, but take a look at MSN Game Zone or Yahoo games or all of the other gaming spaces that attract a large segment of adults.

All of the flak about rentals and resale is just another symptom of an industry that is still very immature when compared to other entertainment industries. Because computers have come along and made copying so easy, people who own IP feel like they had better protect it even more. Given time, it will die down, just like the people who initially freaked out when the first photocopiers showed up in libraries.

Lobosolitario said on May 31st, 2006 at 2:04 pm:

I was waiting for this one to pop up, thanks
I think there’s a lot more to it than this. Yes, games are niche to a point, but how much of this is due to the industry being inherently niche, and how much is due to the failiure of said industry to market itself properly?
More importantly, films, although they have very large budgets (I’m mainly referring to Hollywood films here) are different in a significant manner to games. Film publishers fund films, game publishers fund games. Film publishers, however, know their market inside out, and it’s very rare to see a Hollywood movie flop. I personally dislike a lot of the mainstream Hollywood stuff, but I can’t deny that it sells, lots. Game publishers, on the other hand, seem to have a pretty huge miss ratio, and make several flops while waiting for that one game that will make their quarterly review look great. End result? Money put into films is much more efficient, and, while it may not produce once-in-a-lifetime films every time, it will certainly produce profits reliably. Money put into games is a lot less efficient, and thus prices are forced up to make up for all the mistaken investments.

maybe game developers should sell games that deliver 1-3 hours of content for 1/4 to half the price?

The question here is: what counts as content? In a lot of first person shooters I often get the feeling that I *am* only experiencing a few hours worth of content, repeated time and time again to stretch the game experience out for ten times its actual inherent content. I know that this remark is unfair in some ways, I’ve worked on enough games to know all the effort that goes into them, and know that every level had to be hand-crafted, even if it is filled with the same old baddies I was fighting in the very first level. But that’s still the feeling I get in a lot of games, that the last three quarters are just the first one recycled…

Kim Pallister said on May 31st, 2006 at 9:33 pm:

>They only care if you touch their hearts. They will pay for that experience

Well, my first reaction is “not if they don’t have to they won’t”, at least not all of them.

But I digress.

Personally, I think the whole argument will resolve itself. As people enable different business models, some of which involve the “software as service” approach you mention, people will be given more choices. And then consumers will vote with their dollars.

MMO’s, Half-Life2, and other examples are proof that a significant number of people are willing to pay for a quality experience even if their isn’t a “sell it off the back end” recoupment.

Check my vote in the ‘give consumers choice’ column, thank you!

Tappen said on June 1st, 2006 at 8:25 am:

“Content is too available to be worth much; what is worth selling is the relationship to the creator.” was the assertion that really struck me as important in this article. I’d like to send this to Woody Allen to help him understand why added features on a movie DVD are an essential part of the medium.

First sale

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