Software companies, especially those producing computer games, have long been trying to kill off the market for used games, claiming that they are "losing money" over this practice. First of all, regardless of whether this statement is true or not, customers have such a thing as First Sale rights, which preclude these companies from killing used software sales. A European court ruling last July stating that used downloaded software could be resold didn't help their case, either.
Now, we have the latest tactic in this never ending war, this time by Microsoft with their upcoming Xbox One console, by applying charges to sales of used software and artificially limiting the resale price, which we think is a Very Bad Idea that could backfire on them, as we reported a few days ago, since the previous Xbox 360 console has no such resale restrictions imposed upon its games.
Now, Japanese boffins have researched the effects of eliminating used game sales in Japan by running various complex simulations and concluded that doing so without changing anything else could actually cause profits of new games sales to drop by around 10%. However, if companies allowed used games sales to continue and adjusted new prices to optimum levels of around 33% less than they are now and didn't insist on taking a cut from used sales, then profits would actually jump by around 19%. That's a massive 30%-odd difference in profit and something that these companies should take heed of when creating their business models.
The study looks at all this in great detail, but the takeway is that new games are currently priced too high and that the used, or second hand market should not be killed or leached off.
When a customer buys a game, they may take into account the likely amount of money made back by selling that game on as a Total Cost of Ownership (TCO) judgement on whether that game is affordable or desirable at the full retail price. Thus, if the game is expensive and they can't get something back from it, they may not buy it at all.
What I think is especially interesting however, is that the Steam download-only software delivery platform, which uses relatively relaxed and flexible account-based DRM has not been looked at in this study. This is significant, because since Valve created Steam way back in 2003, they have never allowed their customers to sell their games on, thereby preventing a used games market from ever being established.
Often Steam games can be quite expensive too, compared to the retail disc version available from the likes of Amazon, which must then be tied to an account before it can be used. Yet, Steam is doing very well indeed and is now a juggernaut in this sector, so perhaps preventing used sales does actually lead to bigger corporate profits after all and greed wins? What do you think?
The research was carried out by marketing professors Masakazu Ishihara of the New York University Stern School of Business and Andrew Ching of the University of Toronto’s Rotman School of Management. The paper is catchily titled "Dynamic Demand for New and Used Durable Goods without Physical Depreciation: The Case of Japanese Video Games”.
The research has been published in English and for free on the Social Science Research Network website and can be downloaded as a 63-page 1.1MB PDF. The file is also available from us at the link below.
Image may be NSFW.
Clik here to view.
SSRN-id2189871.pdf 1.11MB
3 downloads
If you don't want to wade through 63 pages of complex analysis, but want to know a bit more, Wired have a more detailed summary, here.
Now, we have the latest tactic in this never ending war, this time by Microsoft with their upcoming Xbox One console, by applying charges to sales of used software and artificially limiting the resale price, which we think is a Very Bad Idea that could backfire on them, as we reported a few days ago, since the previous Xbox 360 console has no such resale restrictions imposed upon its games.
Now, Japanese boffins have researched the effects of eliminating used game sales in Japan by running various complex simulations and concluded that doing so without changing anything else could actually cause profits of new games sales to drop by around 10%. However, if companies allowed used games sales to continue and adjusted new prices to optimum levels of around 33% less than they are now and didn't insist on taking a cut from used sales, then profits would actually jump by around 19%. That's a massive 30%-odd difference in profit and something that these companies should take heed of when creating their business models.
The study looks at all this in great detail, but the takeway is that new games are currently priced too high and that the used, or second hand market should not be killed or leached off.
When a customer buys a game, they may take into account the likely amount of money made back by selling that game on as a Total Cost of Ownership (TCO) judgement on whether that game is affordable or desirable at the full retail price. Thus, if the game is expensive and they can't get something back from it, they may not buy it at all.
Image may be NSFW.
Clik here to view.
A typical, dizzyingly complex equation used by the boffins in their analysis
What I think is especially interesting however, is that the Steam download-only software delivery platform, which uses relatively relaxed and flexible account-based DRM has not been looked at in this study. This is significant, because since Valve created Steam way back in 2003, they have never allowed their customers to sell their games on, thereby preventing a used games market from ever being established.
Often Steam games can be quite expensive too, compared to the retail disc version available from the likes of Amazon, which must then be tied to an account before it can be used. Yet, Steam is doing very well indeed and is now a juggernaut in this sector, so perhaps preventing used sales does actually lead to bigger corporate profits after all and greed wins? What do you think?
The research was carried out by marketing professors Masakazu Ishihara of the New York University Stern School of Business and Andrew Ching of the University of Toronto’s Rotman School of Management. The paper is catchily titled "Dynamic Demand for New and Used Durable Goods without Physical Depreciation: The Case of Japanese Video Games”.
The research has been published in English and for free on the Social Science Research Network website and can be downloaded as a 63-page 1.1MB PDF. The file is also available from us at the link below.
Image may be NSFW.
Clik here to view.
SSRN-id2189871.pdf 1.11MB
3 downloads
If you don't want to wade through 63 pages of complex analysis, but want to know a bit more, Wired have a more detailed summary, here.