Used Video Games: The New Software Piracy: Part Three

Part One: Introduction
Part Two: Becoming the Stop For Games
Part Three: The Feeling of Being Used
Part Four: A Programmed Response
Part Five: A Conclusion on Distribution; Corrections

In 2000, Sony patented a technology that would allow a consumer device to read a disc and erase a licensing code from it, locking recognition and use of the disc to that device. It would take the world of computer software product keys and not only dumb it down for console video game players, but act as a gigantic “fuck you” to consumer rights. Nothing came of this patent. In 2006, this by-product of the Japanese used video game war spawned rumors (as reported in Western journalism) that the technology would be incorporated into the PlayStation 3.* Sony had to actively denounce the rumors as rumors. In May of the same year, it was reported that Sony was planning to integrate a video game licensing system into the PlayStation 3 and was warning retailers that second-hand sales would become illegal…or at least Sony legal teams were prepared to argue that. That was also debunked.* However, these rumors made great headlines in a market that watched Sony struggle to control the distribution of their products. After all, the company was only a couple of years removed from the embarrassment of watching their multi-million-dollar key2audio copy-protection suffer a calamitous defeat, brought on by the head of a felt-tip magic marker.*

Despite internal concerns within developers, publishers, and manufacturers, the road to defeating used video games was pre-empted by what was, at the time, the most financially successful years in the history of the video game industry. The boom was spawned by the urgency of new Nintendo President Satoru Iwata, who took over the company in 2002 and decided that Nintendo had to think differently. By 2005, after another defeat in their war against Sony, Nintendo was dismissed by industry critics as a company that was “behind the times”. Ironically, they weren’t. The company matched Sony and Microsoft in the pursuit of more complicated console games with complicated control schemes. As it turned out, the Nintendo GameCube was not just a fantastic video game machine with fantastic video games, but a disgusting and indisputable leap in game quality over the Nintendo 64. Unfortunately, for every progressive game like Viewtiful Joe, F-Zero GX, Eternal Darkness: Sanity’s Requiem, P.N. 03, Resident Evil 4, Metroid Prime, or Metroid Prime 2: Echoes, Nintendo could not shake the identity crisis of being “that video game company for kids”, critical at a time when adult audiences were becoming the focus of game development. Super Mario Sunshine would take flak for its motif while The Legend of Zelda: The Wind Waker became controversial for its colorful cel-shaded art style. (Yes, this actually happened.)

Nintendo would fight with Microsoft for table scraps as Sony would achieve the most dominant console market share in the modern history of the business. (While one could say Nintendo’s Entertainment System deserves that recognition, it was never popular in Europe. The PlayStation 2 ruled all three major gaming markets.) Mario was old news. Shooting hookers and teabagging your fallen opponents were things that the cool kids were doing. Ignoring calls to ditch the hardware business as Sega had done, Nintendo marched forward and they did little to change their overarching philosophy. They continued their strong first-party support and their flagship franchises still appealed to kids. Only this time, they scaled back the input device and made the games simpler. It turned out that a massive contingent of potential customers was holding out for simpler games with simpler input schemes, a number of whom were castoffs from the Super Nintendo days, left behind when the Nintendo 64 and Sony PlayStation ushered in the rise of three-dimensional video games.

After a decade on hiatus, Nintendo stole the thunder back. The Nintendo Wii would earn both headlines and the money of soccer moms who would typically spend their disposable income on the kids’ infatuation with Grand Theft Auto. The Nintendo Wii would launch alongside the PlayStation 3 in November 2006 and steal Sony’s momentum. Certainly, Sony didn’t help their own cause. Their infamous demonstration of the PlayStation 3 at E3 2006 (including “Giant Enemy Crabs” and 599-dollar price points) and the smugness of the company (PlayStation creator Ken Kutaragi’s insistence that people would want to “work more hours to buy [a PlayStation 3]”*) would stymie the device. However, TIME Magazine writer Wilson Rothman asserted a simpler reason: “I discovered quickly that [Wii Sports] might be the greatest videogame ever made.”*

As incorrect as that conclusion may be, Wii Sports was the new Duck Hunt, the system-selling “killer app” that offered appeal to those who didn’t actually like video games. The new hardware released during the holiday season and the “casual gamers” that chased the Nintendo Wii would help pay the bills. In 2006, the industry sold 13.5 billion dollars of software and hardware in the United States.* Going by sales, it was the best year in the history of the young industry. Despite the achievement, the major North American publishers got the shit kicked out of them. French-Canadian publisher Ubisoft watched their year-to-year earnings stagnate.* Activision’s year-to-year operating profits declined 170 million dollars.* Electronic Arts’ 2005 net income of half-a-billion dollars was slashed in half.* In response, these companies would co-opt Nintendo’s strategy and stalk the “casual gamer” gravy train, where games such as Wii Sports, Wii Play, and “games” such as Wii Fit could be used to finance the development of “core” games such as Super Smash Bros. Brawl and Metroid Prime 3: Corruption.

It worked. In 2007, total sales in the American market tallied 17.9 billion dollars, a spectacular forty-three-percent increase over the record set just the year prior.* Nintendo was the trendsetter and the other developers followed. Activision published the hugely-anticipated Guitar Hero III: Legends of Rock and followed it with the surprise hit Call of Duty 4: Modern Warfare. Ubisoft responded with the multi-million-selling Imagine series, targeted at younger kids and tween girls. For a brief period of time, the franchise would become the best-selling Ubisoft property. Hitching on to some of the success in the casual gaming market, Bungie’s Halo 3 would convince people to purchase an Xbox 360 and Sony would recover from their disastrous launch of the PlayStation 3. In this climate, few could do anything wrong. That would include GameStop.

GameStop investor reports indicate that, from 2006 to 2008, their sales of “new video game software” and “used video game products” would increase by 83.1 percent and 53 percent respectively. In other words, GameStop matched the increase in size of the United States retail video game market, which grew by 62 percent over the same span.* (In the pursuit of accurate research, I’ll inform you that the numbers come with context. GameStop obviously has stores outside of the United States, so these reports take a small percentage of international sales into account. Also, the “yearly sales” comprise a fifty-two-week period usually concluding at the end of January or the beginning of February. As the January retail month is a dead period for video game sales, we can simply treat “52 Weeks Ended January 31, 2009” as “sales in 2008”.)

But as it already stood for game creators, growth that would satisfy the shareholders could no longer come through software alone. The pursuit of new profit streams led to an increase in “downloadable content” and fostered a once-a-year development model for games other than sports titles. Used games represented one of the healthiest revenue streams in the industry, and none of this money was going back to the publishers and developers, i.e. the creators. They didn’t care much that GameStop’s new game sales grew eighty percent from ’06 to ’08. They cared that, in those same three years, the company sold five billion dollars worth of used games, yielding 2.3 billion dollars in gross profits.* Assuming that a publisher gets thirty dollars from the cut of a sixty-dollar video game, those gross profits are equal to the money made from the sale of 70 million new games. In order to understand what the used game market had transformed into, the website for the Dallas Morning News would quietly reveal the scope of GameStop’s resale operation in March of 2009, publishing pictures of a GameStop facility used for the sole purpose of distributing used software and hardware. The photographs featured “PSP systems tested in batches of 30” and conveyor belts for the rapid delivery and distribution of used games throughout the facility.*

As early as April of 2008, Edge Magazine writer Colin Campbell reiterated the growing dissent within the industry for GameStop’s used video game business, stating that the “silent fury of publishers toward their retail “partners” is a palpable force in game industry politics”.* At this point, nobody was coming forward to say anything about it, knowing full-well that “GameStop refuses to sell your games” might as well be a development death sentence. Around this period, GameStop asserted that it was now responsible for sixty to seventy percent of all first-week video game sales.* (It is not clear whether this number reflects North American sales, worldwide sales, or something inbetween. Oh, and just in case you’re wondering how a retailer could build that kind of market share, we claim to have laws against monopolies in this country, but that’s pretty much all bullshit. Even “U.S. government looks into Nintendo’s business practices” was as much a “fuck the Japanese for Pearl Harbor” thing.) Nobody in the industry was willing to take the chance of pissing off the retail giant. One of the lone voices ended up being Frontier Developments founder David Braben, who used the 2008 Develop conference to chat about the game selection in one shop owned by the British game retailer GameStation.

“More than half their floor area is dedicated to pre-owned and that is something as an industry we don’t see… those same retailers are only carrying new copies of games from the past few months – if it’s a game that’s been out for two months and you want to buy one from a shop not Amazon and you don’t want pre-owned, it’s very hard…[t]his is essentially rental, and it’s not tolerated by other industries… Why can we not introduce special ‘for rental’ copies?”*, “Braben calls for action against pre-owned sales”; published July 30, 2008*

But in September of 2008, the world economic system nearly collapsed. While those in the developed world were more concerned about holding onto their house than corpsehumping their friends, sales would set another record in 2008, peaking at 22 billion dollars.* Video game journalists read into the sales numbers and labeled video games as “recession-proof” entertainment. It wasn’t a crazy proposition. When economic times are bad, people prefer to stay home. You don’t use nearly as much gasoline walking around the house. Games seemed like a winner, and it turned out that they were…just not at new video game prices. People wanted price relief. The sales of the cheaper used games would surge and the sales of newer games would stall. If the situation didn’t have an immediate impact, video game creators knew it was coming. With the economic collapse, the cold feet disappeared. It was time to go after used games and retail. There was only one question left to ask: How would this conglomerate of game designers, development mills, and publishers organize their message and go after the menace?

Initially, their goal would be to invoke the wonderful world of passive-aggressive communication. That is, “We’re not saying you shouldn’t purchase used video games, but.” They weren’t going to say it was your fault, and they weren’t going to say it was GameStop’s fault. Presumably, this would be their way of questioning GameStop’s dominance without having to call the company out. After all, it’s the consumer’s choice to buy new or used. However, they just want you to think about this “serious problem” that they’re having.

In October of 2008, Epic Games designer Cliff Bleszinski would be far more blunt than David Braben, calling used game sales a “huge issue”, and stating that “We don’t make any money when someone rents it, and we don’t make any money when someone buys it used – way more than twice as many people played [Gears of War] than bought it.”* (Although “one copy for every two people” may sound terrifying, it’s important to note that not every person who played the game did so by purchasing a used copy. Bleszinski’s implication is that everybody who played Gears of War should or would have paid for it. He’s also the man who thinks Unreal Tournament 3 tanked at retail because of software piracy. Yeah, I paid fifty dollars for that game and Cliffy B claims people are stealing from him.) Following in September, game audio director Marty O’Donnell warned that smaller studios would be in for rough times due to used game sales.* Then, at the beginning of December, Atari C.E.O. David Gardner stated that used video games had been “extremely painful” for the industry, while also assuring that “the disc in the box” would be “only one part of the experience”, as the game models became more dependent on the internet for their entertainment value. He would also preface the statement by stating that “[s]econd-hand game sales represent consumer choice and desire”.* Two weeks later, Take-Two President Ben Feber would make light of the situation during a fourth quarter company statement, noting that the company would more aggressively look into “microtransactions” and subscriptions as a means to “enhance the packaged goods business by offering multiple revenue channels.”*

At this point, GameStop decided that complete silence would not be in the best interest of the company and acted accordingly, ignoring the chance that a public defense of their resale model could publicly incriminate them. (At least for the consumers who follow this kind of stuff.) At the beginning of 2009, GameStop’s chief marketing officer Mike Hogan answered the question much in the way Charles Bellfield had seven years ago.

To present his perspective, Hogan used the example of buying a new car every two years. “If you couldn’t sell your old car — would the industry sell more cars?” Without the trade-in value of their current models, Hogan argues, car owners wouldn’t buy as many new vehicles.

“We track this fairly closely,” he says, claiming that well over 90 percent of the used games GameStop sells are over 90 days old. “We believe we’re extending the life-cycles of users.”

Hogan also says 75 percent of all the credits that GameStop issues are utilized, immediately, to purchase a new game.

Gamasutra, “GameStop: Used Game Sales Fuel Industry Growth”; published January 16, 2009*

Whether Hogan’s figures were accurate and his reasoning was sound, a defense of the company by one of its own would do little to keep the complaints from trickling in. Game designer David Jaffe would continue the industry narrative, going on the record in March of 2009 and stating that publishers and retailers needed to work something out, and that it was not the consumer’s responsibility to police his purchase of new and used games.* The same month, Reggie Fils-Aime (the American figurehead for a Nintendo that, seven years ago, recommended Linda Cobb’s readers make a visit to GameStop) told tech publication Venture Beat that his company did not “believe used games are in the best interest of the consumer”, and to “[d]escribe another form of entertainment that has a vibrant used goods market.”* In his defense, he may have actually been speaking to American schoolchildren, appealing to their belief that books can’t possibly be entertaining.

All of these public pleas from video game developers and executives, best described as “passive”, did little to stymie their enemy. From 2006 to 2008, GameStop’s used video game sales would remain fairly consistent as a percentage of all company sales, ranging from 23 to 25 percent. In 2009 and 2010, the percentage of used sales would increase beyond 26 percent.* In a May of 2009 press release, the company reported record first-quarter sales, a nine percent increase over first-quarter 2008. They managed this in spite of a three-percent decline in new video game sales. The sales of “lower-priced used products” grew a robust 31.9 percent. In the press release, GameStop C.E.O. Daniel DeMatteo avoided the contentious side of the situation and focused on positives, stating that “value is becoming more important to our customers.”* Game journalism publications Joystiq and Kotaku would use the words “flourish” and “balloon” in discussing the press releases.**

The next month, the San Francisco Chronicle reported that used game sales had become a hot topic during the 2009 Electronic Entertainment Expo, and that plans were possibly in motion to push back against GameStop.* But why would the retailer care? That year, the twenty-six percent of business that the company would do through used game sales accounted for forty-six percent of gross profits. (Compare that with the forty-one percent of new software sales that would be responsible for twenty-one percent of gross profits.) And in their annual investor report, GameStop stated that they would “continue to expand the selection and availability of used video game products in our stores.”* If GameStop didn’t care, you’d better believe consumers didn’t, either. Why would they? David Jaffe was correct. Most people aren’t packaging whores and most people don’t care if the box is in mint condition. They just want a game that works. So what benefit would a new game offer the consumer? So long as it’s not broken, the disc or cartridge in the box doesn’t care whether it’s coming straight from a distribution plant or making its fourth trip through a GameStop. The disc isn’t designed to discriminate.

Well, that could be amended.

Continue to Part Four: A Programmed Response