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It's A Capital Expenditure, I Shouldn't Be Able To Dodge Offsetting It So Easily

Submitted by kmeisthax on Thu, 06/13/2013 - 23:17 in Rants

The economics of game development are completely unhinged from the way they're monetized. When you go and buy a game you're told that they're very expensive, that they're going to be $60 (or regional equivalent) a piece and that you should keep hold of them because they are most certainly valuable objects. But the cost to make those copies is actually zero - ever since the beginning of the CD era distribution costs have slowly fell to the point where, with digital distribution, the cost to actually ship a file to your machine with the game on it is on the order of pennies per copy. If this was a competition-model market (i.e. piracy) the costs of games would plummet to nothing.

This hasn't happened though, for good reason: game development - the cost of making the bits that go on those discs - is the real cost, but it's a one-time cost that's very expensive. This is called a capital expenditure. Offsetting this cost is the big problem of any artistic endeavor, or for that matter, any knowledge work at all. Mass culture (artistic works designed to be mass-produced and sold to a large audience) relies on the ability to sell many copies of a single work to pay for the creation of more works. This is why they charge $60 for copies that cost dimes to press or pennies to transmit.

In a competitive market nobody would be able to get away with that, though. So we have a law called copyright, which creates a new property right in certain kinds of knowledge work. The range of works copyright includes is quite large. (although it doesn't include things like fashion because the misogynists that write copyright law don't want a woman holding an intellectual (or any) property interest) And one of the advantages of working in a copyright-based society is that certain classes of business models - including the one where you commit to a large capital expenditure to make a product that is later sold for way above it's market value - are legally protected.

Yes, this tramples your rights. But American law is so chock full of "rights trampled under the feet of profit" that copyright law is probably one of the more noble-minded tramplings of human rights so far. And fundamentally, depending on how one defines a "right" you could argue that artists couldn't survive in an economically uninhibited market and thus you could say that artists definitely should have commercial control over their work. After all, rights can only be considered properly in context - vague and high-minded statements about rights like what come out of the Libertarian camp only serve to benefit those who already are positioned to profit from some kind of social imbalance.

So basically, we have a legal history of curtailing the rights of the public in order to make certain classes of art and knowledge work economically possible. This is not anything new, it should not come as a surprise to you. However, what rights should be curtailed and what ones should be reinstated is very much a question of the current situation. For example, I'm of the opinion that the definition of 'derivative work' needs to be sharply curtailed in order to promote cases of legitimately creative and transformative reuses of copyrighted works.

Likewise we should also cast our eye to the "first sale doctrine", which states that copyright law doesn't apply to the trading of physical objects. Most of the time this makes perfect sense. But at the same time we should realize that, at least in the games industry, there's a massive retailer out there which has adopted a business model primarily around the idea of reselling a game multiple times without remunerating publishers. To be honest I'm finding it harder to justify the used game model as time goes on. GameStop is clearly using it as a way to put themselves in the economic position of a game publisher or developer without spending the time, money, and effort required to actually make a game. And yes, that does hurt the gaming industry, albeit the effects are still arguable.

I've read the arguments pro and con with regards to used games and I'm kinda leaning towards the con side. In certain cases, yes, used games can hurt sales in the same way piracy hurts sales. Actually, they're more or less identical: ways to obtain a product without money going to the developer. In fact, let's go on a flight of fancy and claim that used games hurt more than piracy. Think about it for a second: someone who pirates a game has to be actively looking to avoid paying the developer for the product. Piracy is less convenient than buying the game in a lot of cases, and this has driven adoption of legitimate services when and where they are able to be even marginally convenient. But used games are more convenient than new: some GameStops will even refuse to sell you a new copy if there's used anywhere in the store that they can hawk to you. And when you go into GameStop you're already committed to the idea of plunking down $50-$60 on a game, the only choice being if you want the publisher to actually see any of the revenue or if you want GameStop to see it.

In digital distribution spaces, such as iTunes, Steam, and console download services, there's no resale at all. They don't necessarily sell copies, they sell permission. The key difference being that copies can be transferred and resold while permission can't. This model means that you, as the publisher / developer, don't have to worry about intermediaries like GameStop going in and cutting into your revenue like they can in the physical property model. And as such it's not like nontransferrable licenses are necessarily new to consumers. There's been much handwringing about the Xbox One and it's horrible license system but it's not the used game blocking that makes it bad. Actually, no - it doesn't even do used game blocking, it does used game monetization. Much of the issues with it's model come from the fact that they explicitly want to support used games, in a form that can be monitored, controlled, and charged for.

The fact is that "used game blocking" already exists in console download services and the correct way to move from selling copies to selling permission is to expand those services. Valve already proved that you can make your download service have all kinds of nice sales and pricing experiements without hurting retail sales. So do exactly that: push digital distribution as a certification requirement, let independent developers register as digital-only publishers, give publishers the tools to hold sales, and get consumers used to the idea of buying permission instead of copies by making the former easier and cheaper than the latter. Then we will trust you.

Incidentally, Nintendo was recently asked about the whole "used game blocking" deal, and they had an interesting quote. They compared packaged game software to physical toys, and used that as a justification for not restricting resale. That's kind of a backwards idea to be honest; especially considering that out of nowhere Nintendo's download services became the most progressive in the console industry. They've been heavily pushing download services for both Nintendo 3DS and Wii U and the consumer response has been very positive, especially despite the fact that downloaded software is locked to the console you download it on and moving it to another machine is treated as a matter for Nintendo repair centers. Forget used game blocking, how about multiple console blocking?

used games
game consoles

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