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killias2 avatar 10:33 AM on 09.20.2011  (server time)
Why Jim Sterling Is Wrong on 'Online Passes'

I'm so sick and tired of the ignorance that pervades this site when it comes to the used game market and online passes. It seems like once a week or so, Jim launches some big tirade against online passes or in favor of the used game market, and any responses are lost in a flood of "JIM ROCKS," "JIM IS FAT BUT I LOVE HIM," and "ME TOO"-type responses. As a result, I'm taking a C-Blog to set the record straight: online passes HAVE THE POTENTIAL to be a straight positive for gamers and game developers, if done right.

Let me start by critiquing the central argument of the anti-online pass crew: that used games are an integral part of the gaming market. The basic argument they make is that used game sales finance new game purchases. However, online passes devalue the used game market. This, they insist, will lower used game prices and crash the market. The inevitably result, supposedly, is that general game sales will suffer and all will be worse off.

This basic argument would be correct.. if market economics only applied to the used game market. Fortunately, market economics also applies to the new game market, so this claim is totally bunk.

Let's follow the logic here. Online passes -> lower used game values -> less money for used game trade-ins -> less sales. The basic argument being that, over time, the -de facto- price of new games for a certain subset of gamers (trading gamers) ends up be increased. This is because their resell value is lowered, and these trading gamers price in the resell value when they make their initial purchase. So how should retail outlets and game developers respond to this? If prices are set too high and if this results in less sales.. what would you do as a market entity? Would you just sit there and realize what a mistake you made with online passes?

No. No of course you wouldn't. That would be incredibly idiotic. Any reasonable market entity would respond by LOWERING PRICES. Now, keep in mind, I'm not necessarily arguing that this will lead to a drop in the initial price of video games. However, it should almost certainly result in quicker and deeper price cuts during the lifetime of the game. If game developers were smart, they would institute online passes AND drop the initial price by 10 dollars simultaneously, but I don't think they're that imaginative. However, when game sales stall, retail outlets and publishers put the game on sale and even engage in permanent price drops. These are already standard procedures in the gaming market. I have absolutely no idea why we should expect the situation after online passes to be any different. In fact, this could actually increase companies' flexibility to engage in price cuts for two reasons: 1. They'll now be receiving revenue on online passes, which they hadn't had access to previous, 2. There will be less used game sales and more new game sales.

So, let's reflect. The introduction of online passes will not hurt game developers because it's a market and they can respond to problems of pricing vs. demand. This also means that gamers will not be hurt by the general shift in prices because game developers have a strong ECONOMIC incentive in re-establishing a DE FACTO price level comparable to pre-online passes.

Moving forward, is there any evidence that this could actually be -good- news? The answer is.. yes. This can totally be good news for developers and gamers.

I realized this myself about a year ago during one of the cyclical heat-ups in the whole used game debate. I was solidly on the used game market's side, and I decided to create a rough little formal model to try to demonstrate why used games were central to the gaming market. However, almost instantly, the truth stared me in the face: any gaming dollar that goes to Gamestop is a gaming dollar wasted.

Let's face it, as gamers, we basically have two primary economic goals: 1. Pay lower prices for games, 2. See more games being made, especially by our favorite developers. If you agree with this basic goal, you should obviously agree that, in a perfect world, all gaming money would go to either gamers or game developers. Money that stays in the hands of gamers is obvious - we get to keep more of our (sometimes) hard earned money! However, when more money goes to developers, we get a better game economy overall. We should see more games being made; we should see more talent being hired; we should see greater chances being taken; we should see more developers staying open; and, in particular, we should see our favorite developers succeeding on the market.

If you agree with this basic argument then.. why do you want to see money go to Gamestop? About half of Gamestop's total revenue (and, trust me, it's a MASSIVE company, we're talking BILLIONS of dollars) is straight from used game sales. Not a single dollar of this money goes to the companies that make games we all, and not a single dollar stays in the wallet of gamers. I understand that there are alternatives now, such as ebay, Amazon, Dtoid, etc. However, let's be realistic. When discussing the macro of the game industry, the used game market is dominating far more by entities like Gamestop than player-to-player services over the internet.

Let's reflect again: not only are the economic arguments made by Jim Sterling et al. completely nonsensical, but there are real economic incentives for gamers to be fine with online passes.

Let's cover a few more things: 1. Since online passes are optional and since, by Jim's very argument, they devalue used games, they actually CREATE options for gamers. Do you not like multiplayer? Buy a game used, and you don't need to pay for it. How is this something that nobody is fine with?
2. Games are often compared to the car and book market. "You wouldn't outlaw buying used cars, would you?!" However, the online pass situation doesn't really have an analog. Do books often come with online support that I am unaware of? Online support requiring upkeep by a dedicated team, a network of servers, etc. etc.? I guess car warranties have some similarities, but not all car warranties can be transferred between owners. As far as I can tell, the "used market" comparison doesn't tell us anything about the morality of online passes.

So, to recap: online passes will NOT destroy the gaming market; they CAN create a better distribution of resources (gamers and developer, not gamer, developer, and GameStop); they create more options for gamers; and the used market metaphor really says nothing about them.

So, I guess there is a question that deserves to be asked: well, Mr. Killias2, can you think of an example of a situation unfolding as you describe? Name a gaming market where used game sales are impossible, but where greater amounts of price fluctuation and a better spread of resources result in a more efficient and better system!

Okay. Steam. Case dismissed.

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