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An In-Depth Look At Game Publishers and the Second Hand Market, Part 4

By 28 October 2010 8 Comments

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Vernor v. Autodesk, Inc

Just over a month ago on September 10th, the 9th Circuit Court of Appeals gave decision on a long standing case, Vernor v. Autodesk, Inc.  Where first sale doctrine applies to copyright, the 9th Circuit Court essentially said that when it comes to software license a company can do whatever they want.  In other words, if a publisher or developer decides they don’t want to allow second hand sells, all they have to do is disallow it in their EULA.  Some feel that it is likely this case will go on to the U.S. Supreme Court.  But as it stands now, Gregory Beck, who is Timothy Vernor’s attorney believes the outcome of the case,

“…means the infrastructure already is in place for other software makers to say their customers don’t really own those programs.”

And if you don’t own a program, then it is licensed, and if it is licensed then the company can create language within the EULA that prevents a resell.  As it sits now, console game developers and publishers will most likely hold off doing something drastic as it would be in their best interest to wait and see if the case goes before the Supreme Court.  Technically speaking though, if a company wanted to add into their EULA tomorrow that their software could no longer be sold to EB Games, or on eBay, or that second hand merchants could no longer sell used games, according to the outcome of this 9th Circuit case, those companies would be within their rights to do so.

What Does the Future Hold?

An immediate question is why developers and publishers are not seeking out higher royalties from companies like GameStop/EB Games for selling used copies of that developer/publishers games instead of punishing the consumer?  The answer is probably because these developers and publishers have great relationships with companies like GameStop/EB Games.  When a new product is launched these are the companies pushing the newest product to customers coming into the stores, hanging up marketing for products, having midnight game releases, and generally getting the customer excited about new products.  Developers and publishers most likely do not want to risk jeopardizing that business relationship.  So companies like Epic have decided to “attract flies with honey” while EA Sports has decided to punish second hand purchasers.  We can assume the market will help companies determine what strategies work best.

The video game marketplace is much like any technology marketplace.  It is constantly shifting and will continually change.  Simply considering that the console market did not have access to Downloadable Content, readily-available and quality online gaming or voice chat until a few years ago, all functions that existed years earlier in the PC gaming marketplace, it stands to reason that PC gaming can traditionally be looked to for what is coming down the line for console gamers.

Their are two new gaming business models that are pushing the boundaries in the PC market that likely will be a norm on consoles in the near future.  Digital copy via download services like Valve’s Steam allow for fast download of full games via Content Delivery Networks (CDNs) like Limelight Network.  Some publishers/developers are also running their own download services, but Steam dominates the market with over 1,000 available games.  The benefits of such a service are obvious.  Your games are tied to your account and not physical media.  There is no physical media to lose, there are no key codes to misplace.  Once a game is purchased to ones Steam account, it is tied to the account forever.  If you change computers or want to access the game from multiple systems it is available.  Steam will make its first push into the console market as Steamworks launching with Portal 2 on the Playstation 3.

The second model is that of streaming video games.  Several companies are in the works, but OnLive is up and running and the real first contender in this model.  The games stay on OnLive servers and the consumer can pay anything from a rental fee to access the game for a few days up to a purchase to have permanent access to the game.  The games are streamed to the users computer, and shortly in the future OnLive will have a micro console that will stream the games to anything from a basic TV to a full 5.1 audio, HDTV home theater setup.

Should these models take off in the console market to the point where the larger percentage of games sold are digital copy or streaming, the problem of the second hand market for game developers and publishers will be less of an issue.  But this will be a question of time and technology, because with Steam and various console marketplaces as examples, the consumer seems ready to except the digital copy model.

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  • Digital Society » Blog Archive » An In-Depth Look At Game Publishers and the Second Hand Market, Part 2 said:

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  • Raspenex said:

    I’m not sure about the exact model they use but in Asia (in my experience Korea, Taiwan and China) all have internet cafe with huge selections of games available. It is not uncommon to see people playing common games such as Warcraft, Counterstrike, etc. I’m sure if they have a model that I know has been in existence for at least the last five years the west will eventually figure one out as well.

  • Nick R Brown (author) said:

    If I had to guess, Raspenex, what you probably saw were just computers with physical copies of the software installed on them. We have Internet gaming cafes here as well.

    Check out http://www.ipwngaming.net for example.

    Of course, you could have been seeing computers running Steam with games installed on the computers, but no physical media needed to play.

    This is most likely the way hardware manufacturers are going. Last week for instance, there was pretty solid information that came out that Sony’s next Playstation Portable, i.e. PSP2 would not use the UMD (Universal Media Disk) drive on the previous system. It will have a mini Memory Stick slot. But it is being suggested that the Memory Stick slot is not a traditional “physical drive” and that it will only be used for memory and that all games would be direct to drive download only.

    I think that cellphone/smartphone gaming and portable game machines are just our first wave. I would doubt the next generation of consoles in the gaming market gets rid of physical media, but the generation following probably will. Since we generally see about a 5 year life cycle on consoles now, probably a machine released near 2020 will have no physical media. And I wouldn’t doubt that within the next 5 years you start to see PC gaming physical media start to disappear from store shelves. It’s already fairly sparse as it is.