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Opposable Thumbs / Gaming & Entertainment


Analysis: Policies on used games, broadband are a series of tricky compromises.

After at least a year and a half of constant rumors, we finally have concrete answers from Microsoft on how its next console will handle used games, Internet connection requirements, and more. The era of console games being primarily tied to cartridges or discs is indeed over, as Xbox One discs will now be little more than a vestigial form of offline game distribution, a mere means to get initial code onto the hard drives and linked Xbox Live accounts from which they will actually run. The changes Microsoft is making to adjust to this new era show just how tricky the challenge is in threading the needle of user and market expectations.

Developers and publishers have had the used game market in their sights for a while now, so it's not surprising that Microsoft has finally given in to their concerns by providing the option to stop game resales. The Xbox One can't survive without a happy stable of third-party publishers any more than it can survive without a large base of happy gamers, and playing the desires of one group against those of the other has always been a delicate balancing act.

Two main factors have stopped these sorts of used game restrictions on consoles up to now. The first is technology. While there are some Internet-free methods for blocking secondhand game sales, all of them require some sort of proprietary physical media that would add at least a little bit to the distribution cost of both software and hardware. Thanks to Internet ubiquity, this is changing.

The second is inter-console competition—the idea that any console maker that blocked used game sales could be undercut in the marketplace by a competitor that doesn't. While we don't yet know for sure if Sony's policy on used games and game sharing will be significantly different from Microsoft's, Sony has strongly hinted that it is willing to be more permissive.

This could be an opportunity for Sony to differentiate its system from Microsoft in an important way in the eyes of many devoted gamers. On the other hand, Microsoft's move could give Sony the cover it needs to also block used game sales, forming a unified front against the used game market that gamers will have a hard time fighting. (Where will they go—the Wii U? The practically used-game-free world of PC gaming?)

Will publishers bite?

We don't yet know how many publishers will take advantage of the used-game blocking options being given to them by Microsoft. Remember that Xbox One publishers are able to "set up business terms or transfer fees with retailers" regarding used games, allowing the publishers to get a cut of used games sales. EA could, for instance, tell GameStop that its used games will only work on secondary systems if the retailer gives the publisher $10 for every used, EA-published Xbox One game it sells. Gamers wouldn't have to pay this fee directly, but that $10 could show up in the form of increased prices charged by GameStop (the alternative—GameStop taking a hit on its obscene profit margins—is also possible, but it seems less likely).

Some forward-thinking game publishers might take a compromise position by allowing used game sales only well after a game is first released. After all, the vast majority of a retail game's sales usually come in its first four weeks on store shelves. A publisher may decide to protect those sales by preventing retailers from reselling used copies until a month after the game's new release, then keep long-term interest in the game up by allowing used game sales thereafter.

Note that Microsoft is also a game publisher, and the company hasn't said whether it will enable the resale of its own used games on the Xbox One. Also note that, even though Microsoft says it "does not charge a platform fee to retailers, publishers, or consumers for enabling transfer of these [used] games," it only makes money from licensing fees on new copies of software from third-party publishers. If those publishers decide to block used game sales, Microsoft also stands to benefit from the increase in new game sales.

Of course, that assumes that used game sales are actually as bad for the bottom line as publishers think they are. Used game supporters have been arguing for years that a thriving resale market for games actually helps prop up new game prices by promising day one buyers that they will be able to get $20 or $30 back after they're done with the game in a week or so. With the Xbox One, we'll finally be able to test this proposition in a live retail environment. Publishers that decide to block used game sales might see sales of their new games decreasing as consumers cotton on to the fact that they won't be able to recoup any of their investment in that $60 title. Of course, this depends on the marketplace of gamers being better informed and more price conscious than it has often shown evidence of being. But hey, anything's possible.

The agonizingly slow death of the game disc

If Microsoft really wanted to do away with used games, all it had to do was get rid of discs altogether, distributing games exclusively online. Microsoft and Sony both decided the world wasn't quite ready for that due to the current state of online bandwidth vs. game size, but such a move could have solved a lot of perceived problems. Xbox 360 owners are already used to the idea of buying Xbox Live Arcade games that they have never been able to resell or lend to friends. On the PC side, Steam has grown to dominate game sales despite having no mechanism to resell purchases.

The key to user acceptance in both of these cases, though, is that the services tend to make up for their lack of resale with lower prices—XBLA through a hard $20 pricing cap, Steam through frequent and steep sales on older games. While Microsoft has occasionally made moves toward similar discounts on downloadable versions of retail Xbox 360 games, the online Xbox Live Marketplace often sells games at their original price even years after release and usually utterly fails to be price-competitive with used copies of the same game discs. As we've argued previously, getting users to buy in to a world without used games is going to require publishers to offer a lot more flexibility on new game pricing. Doing this right could benefit both publishers and consumers by cutting out the used game retail middleman.

In any case, today we're faced with a hybrid world in which retail game discs and online game sales both result in a game that is played from a hard drive and a linked Xbox Live account. Given that, the compromises Microsoft has made as far as letting users share those purely digital copies of games are somewhat admirable. Fears about not being able to bring a game to a friend's house or of family members being unable to play a game on each other's accounts were overblown, and they have been handled by Microsoft with some relatively simple account management decisions.

The ability to "share" your entire game library with up to ten people, who can access your games from any Xbox One, also solves many of the problems with how players familiar with discs expect to be able to share their purchases. What Microsoft is doing here is actually a step up from services like Steam, PSN, and XBLA, which don't allow for any digital sharing. It even looks like the Xbox One might be better than disc-based game sharing, in a way, because you can seemingly play your copy of the game at the same time as one of your shared library members. (As Microsoft says, "You can always play your games, and any one of your family members can be playing from your shared library at a given time.")

The biggest bit of collateral damage in the all-but-death of the game disc is the rental market. Really, though, rentals haven't played as big of a role in the gaming market since Microsoft and Sony began offering downloadable demos for practically every game on their systems. We'll miss being able to use services like Gamefly and Redbox on the Xbox One, but not as much as we would have missed our local Blockbuster in the 16-bit era.

The decreasingly inconvenient online requirement

And then comes the thread tying all this together: the inability to use your Xbox One if it's been offline for 24 hours. This isn't nearly as bad as a required "persistent" connection that many feared would knock out their single-player games if there was a brief hiccup in their broadband. It's also not the onerous, market-limiting requirement it would have been in even the recent past.

We are increasingly living in a world (or a first-world, at least) where home broadband connections are almost ubiquitous. Broadband penetration in US households just climbed over 72 percent, according to the National Telecommunications and Information Administration, up significantly from just 50.8 percent in late 2007. That still means that nearly 3 in 10 US households won't be able to easily use an Xbox One, but the households that can't afford or don't want a broadband connection these days likely overlap heavily with those that can't afford or don't want an Xbox One in the first place, limiting the market damage. Also, if current adoption rates continue (far from a given, even though those rates have increased rather steadily over the past 13 years), then a broadband connection could be as common as a telephone line in US homes by early 2019, when Microsoft will probably be thinking about announcing the successor to the Xbox One.

In the meantime, though, some potential players are going to be severely inconvenienced or prevented from playing the Xbox One. Even with 72 percent household adoption, there are still some parts of the US where broadband isn't available at any price, especially in the mountain west. Bringing the Xbox One overseas will be tougher for many because of the online requirement; soldiers at overseas military bases are especially going to have trouble getting their systems online for a regular check-in. That's a shame, because America's soldiers are generally some of the biggest gamers out there. Taking the Xbox One to a remote, disconnected rural cabin for a weekend or keeping dozens of systems connected at conventions or competitions will also cause headaches that don't exist on the Xbox 360 (though on the plus side, you won't have to lug any discs along to these events).

All of these things will require adjustments from publishers and players, and there are going to be growing pains associated with those adjustments. But Microsoft's decisions regarding Xbox One game licenses aren't likely to destroy the console gaming industry any more than the transition to digital distribution destroyed the PC gaming industry. By the time the next next generation of consoles is set to hit stores, the march of technology and the supply and demand forces of the marketplace will have created a new equilibrium in the console gaming market, for better or for worse. It's going to be one hell of a ride getting there.

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