Used Games and the Modern Gaming Economy

Posted in Games, Services

As disgusting as it felt, I went out today and sold a bunch of my PS3 games to Gamespot. Then turned around and used that credit to buy a few other games, thus enabling the second-hand gaming market to live for a bit longer.

The big news in gaming this month was the unveiling of the Xbox One and the real possibility of no longer having a used gaming market[1] on either the new Xbox or Playstation. The internets are alive with rage, as gamers complain and threaten to boycott the console. The rationale seems to coalesce around the idea there is already a mature market around used games, that games are already expensive, and that gaming media ought to follow other media in its ability to be sold and transferred to a new owner, as long as it’s not copied[2].

Rather than focus on whether gamers should or should not be able to buy and sell used games, it’s a lot more illuminating to try to figure out why the industry is seriously trying to kill used games.

Games are cheap

Contrary to popular opinion, games are pretty cheap, and this is just as true of the $0.99 app store as it is of $60 AAA, big-budget titles. The prices of games have not kept up with inflation; I remember spending $80+ on a copy of Final Fantasy III on the SNES back around 1995, which in today’s dollars would cost well over $120. That we’ve had cheap disc media – and the corresponding price drop – and only a $10 bump in MSRP for top titles really shows the price sensitivity of the gaming community.

The biggest development beyond standardizing around $60 USD is the introduction of limited editions, which generate better profits for the publishers and are tricky more in terms of managing the feeling of exclusivity (e.g., limited) and inventory management (it’s expensive to keep big boxes in warehouses and stores).

Games are expensive – to make

What’s often forgotten in gaming is that as games get more complicated, they cost substantially more to make, and along with having the budget of a summer blockbuster movie, they also need to sell increasing amounts to make a profit or even break even. This is a great article summarizing the costs: a $300k budget for a top-flight SNES title has a modern Xbox 360 equivalent budget of $15 million. It’s not clear that there is a 50x sized market today to support the 50x cost, and if anything, the size of the gaming market has pretty much already stabilized through this generation[3].

The developers’ and publishers’ response has been to augment the traditional buy-game-in-box model. The savings can come from:

  • software engineering – licensing middleware (UE3)
  • marketing – sequels, spinoffs
  • art and design – DLC
  • QA – patches

Even then, the world that modern games create is a lot more complex, and requires substantial design and engineering just to realize. Compared to the business models of non-gaming software, the closest analog are actually yearly sports titles: they use the same engine, reuse the same assets and design over years of successive releases, but are always sold at full price and do sell well.

Games provide great entertainment value

On a per-hour basis, games compare pretty well to other media for their cost. This hasn’t changed much in the past 20 years of gaming evolution, but it does help when trying to compare how games are bought and sold compared to music, movies, TV shows and even books.

What’s less cited when describing entertainment value is the quality of that time spent entertained. The $0.99 paid for a 4-minute MP3 is cheap, but is less likely to provide even an hour of entertainment; the 80-hour epic RPG will likely pad its gaming time with a lot of travel or repetitive combat; the 2-hour action movie will include explosions and choreography to keep you interested. Not all media is created equal, and not all genres within each media type provide the same kind or quality of entertainment[4]. I’d argue that good games easily provide value equal to or beyond other media.

The disruption of gaming

Console gaming as we know it may have already peaked; the gaming market doesn’t seem to be getting any bigger, companies are posting quarterly losses, studios are shutting down, and a wave of truly cheap mobile games threaten to obsolete the current gaming model altogether. For whatever reason, the price of video games have been anchored absolutely – in line with customer electronics – but the costs of development have ballooned and expectations keep growing.

At some point, the economics no longer make sense for developers and publishers to maintain the status quo and run their businesses with ever-thinning margins and trying to make it up by scale. It’s not all terrible news about a dying industry, though; indies are attempting to circumvent the game publishing standard, mobile and Facebook games have pushed forward with IAPs[5], and some multiplayer games have been able to make microtransactions work.

But that would mean many popular genres of games will have to adapt to these practices or perish as a result, like the MMORPG. It’d be a real shame.

Footnotes    (↑ returns to text)

  1. At least, not one that’s kept in check by the console makers and major publishers, extracting a tax with every transaction.
  2. Copying, the technicalities of stealing and digital piracy are worth a tome all by themselves.
  3. The explosion of the Wii gave some hope to expanding the market, but its dismal end of life and lackluster WiiU sales have reinforced the maturity of console gaming as we know it. Mobile gaming is harder to accurately gauge, as the market itself keeps on growing and throwing off assumptions and expectations.
  4. Not to mention, what the consumer finds entertaining.
  5. Though to the annoyance of many gamers and industry observers, particularly as they get more aggressive to maintain the free price point and raising production values.