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September 23, 2005



I'm going to blog some thoughts on this later, but I think I have to side with Mark on this one. (as abrasive as he might be).

On the support thing: People don't call on an ongoing basis. It's normally on 1-in-N people, and they do so on install/setup. So person A gets their issue resolved, never calls again. But if they sell to person B there might be a fresh new issue.

This isn't anything unique to games. Or media for that matter. Simple supply/demand economics have worked out the value chain, and people short-circuiting that chain pay for it elsewhere. In this case, it's a large increase in margin to retailers and a small savings to consumers; which in turn results in higher prices being sustained. If it were feasible to get away with lower ASPs (as such a 'rental law' would enable), the market would go there. SOMEONE would take advantage of it, firing the pistol for everyone else.

Another way to think about it: The market has evolved to a certain price point to satisfy all levels of teh supply chain. Let's say for example, that people started grouping together in pairs (or 3's, 4's) and buying a single insurance policy and then saying "if I have an auto accident, I'll just call you to come down, say it was you, and we'll all split the costs of your policy!" - BRILLIANT! Only as it catches on like wildfire, the insurance market reduced by 75% in size, the number of claims stays fixed, in the end rates go up.

No one's saying that consumers shouldn't have choice. Of course they should. But that choice shouldn't be provided by other parts of hte supply chain short-changing the developers of the content.

THis has been worked out with the movie industry in the past. Consumers have choice, rent or buy. But the cost of a DVD for 1 person's consumption is priced differently than that of a DVD for rent. In the latter case, the film company has said "ok, I'll sell you a movie to use in your rental business. I guess you'll make about $100 off of it (50 rents at $2 each), so I offer to sell it to you at $50 so that I can offset the hit I'll take to my consumer sales" - since if it weren't offered to rent, some of those folks would buy the DVD.

Same goes for the ad revenue of BBC broadcast content. I can't just record shows on my Tivo and then sell them to people, since that would cut into BBC viewership and in turn, ad revenue.

It's all economics 101, I think.

It's easy to pick on Epic because their uber-wealthy, but would you say the same thing if it was a small developer teetering on the edge of bankruptcy? Where that extra revenue would make the difference between another 100 people losing their jobs?


So there you go, Epic are uber wealthy. There isn't a problem in this system. If a small developer is suffering, it's because they haven't made the right decisions - as someone like Epic did once, and got rich yet. Harsh, but true?

The only person I really see suffering in Mark's vision is the consumer, unless of course he's advocating that second hand sales and rentals REMAIN, but that a cut goes to the developers from the middleman (like EB). But he was very clear on saying rentals should be banned, that second hand sales shouldn't be promoted. If EB had to pay developers a cut in each second hand sale, obviously the price too of second hand would go up... and consumers would have to go pay more.

Either way, if developers don't like this system they'll route around it (see Steam), create new business models. But trying to have someone else's business model closed because you don't like it? Nuh-uh :)

And lastly, I have to point out - the BBC doesn't run on ad revenue. Different biz model!

I think I can agree that there's a bump in the system, but I don't agree that Mark's solution would make any of it better...

kim pallister

See here:

"It would be fine if they share that revenue with us. They can also be marketing partners with us as well. We can have an official refurbished games policy"

Sounds like he's been taking this story a lot of places. Maybe the panel just got a bit heated and he took a hard line on it?


All Kim's post tells me is that if the world worked like Mark wants, Epic would make more money. It does not follow that "therefore the world should work like Mark wants". The world is not designed for the express purpose of giving Epic money.

As to: "It's easy to pick on Epic because their uber-wealthy, but would you say the same thing if it was a small developer teetering on the edge of bankruptcy?"
... the world is not designed for the express purpose of reviving small & failing companies, either.


This sounds ridiculous to me. At the end of the day these companies have to keep phones manned for the people that buy the software, and I'm pretty sure they won't be inundated with calls 24/7. I don't see how them getting more calls for support can really affect them. Most support lines charge the caller, so it will probably generate a little extra revenue for them.


I'll correct my post a bit; I should have said: "All Kim's post attempts to tell me is that if the world worked like Mark wants, Epic would make more money."

Because it's not clear at all that more money would be made. Under such a system as Mark Rein describes, games are less valuable to the consumer (not free to resell => effectively more expensive + more risky) and less valuable to the retailer (obviously). What you get is essentially an increase in price & decrease in sales -- a move along the demand curve, right? It does push some of that increase in price to those who buy / sell second-hand games, but (a) I would think those are more price sensitive consumers, so pushing a price increase on them is bad for business and (b) this category includes the retailers, and so inadvertantly probably includes a majority of the consumers.

Multiple usages of tech support for install seems likely to be a very marginal cost, and I do doubt it would greatly affect the analysis.

Even if it is the case that increasing price in this fashion will increase profit, (a) this system does it in a fashion that appears mis-targeted to me, and (b) this kind of decision should really be made on a per company business strategy level, not on a let's-change-the-entire-industry/legal-system level. And there are technical solutions to the problem, of course, most obviously Valve's Steam.


And all this means is more Steam? as the end-useing layperson that doesnt seem like a good thing.

Besides that, he might have a point with resale games in retail shops. Seems like money for old rope.

Although in my experience you go in & you swap your old games for a new one, yeah I can see how the retailers love that sort of behaviour but surely the devs/publishers get something out of it as well ?

As for banning rentals, 'Erm..'

Seb Potter

Not only does Mark Rein show an remarkable lack of economic insight, ignorance of the docotrine of first sale in the US, and an alarming direspect for consumers, but it seems that he's actually convincing people he has a good idea. (Kim, I replied to your post on your blog rather than get off on a rant here.)

It's a legal principle in almost all western countries that the owner of an item of property can sell it. Why should video games be special?

Just because some games publishers provide a value-added service along with your purchase doesn't change your legal rights. Many publishers charge for support, or only provide it to registered owners within the warranty period.

Mark's argument is that a second-hand game generates support calls. Well when it comes to making games that work reliably, he hardly has the best record. Perhaps concentrating on QA might help him out here. Also, Atari pay for customer support as the publisher, not Epic themselves.

Remember that a retailer has to pay the consumer for the second hand game in order to be able to sell it.

Mark ignores the fact that second hand games provide an impetus for consumers to buy newer games by being able to offset some of the cost of a new game, which they may find too expensive.

Pixel Kill

"It's a legal principle in almost all western countries that the owner of an item of property can sell it. Why should video games be special?"

That pretty much nails it. You paid for it, it's yours to do what you want with it. I don't even see how there's an argument here. I have to say, much as I love Epic as a whole, Mark Rein seems to make a habit of spouting stuff I strongly disagree with. What exactly does he do at Epic anyway?


I don't know what I would conclude, but here's what I think:

I think that for other forms of media, rentals and reruns etc. provide some sort of revenue to the creators of the content. So libraries pay authors a royalty; radio stations pay musicians a royalty; TV stations pay film companies a fee; I don't know about video rentals, but I have some hazy notion that they pay above the odds to get the videos early, so they effectively contribute more revenue than the sale of a single copy.

I think that in principle I should be able to resell something I own. But I'm not clear about what I own if I buy a piece of software - isn't it just a license agreement? So I guess it would be possible for that agreement t prohibit resale, right?

And I also think that in practice, in the US and Europe, a couple of retailers have a monopoly on the supply of videogames to the consumer. A large portion of the price of a videogame goes to the retailer already, making the games prohibitively expensive for someone relying on pocket money for income. What this means is that many consumers subsidise their purchases by selling their old games. This further allows the retailers to fix the prices in the secondary market for their own benefit. When a retailer buys a copy of, say Splinter Cell, from a customer for £30, having sold it to them for £40, and resells it to another customer for £35, the retailer is basically depriving Ubisoft of revenue while generating additional revenue for itself. I don't think that seems right.

Peter Clay

Same goes for the ad revenue of BBC broadcast content. I can't just record shows on my Tivo and then sell them to people, since that would cut into BBC viewership and in turn, ad revenue.

This is simply not true for the BBC. The BBC does not run ads on broadcast television and instead is funded by an annual tax on TV set ownership.


With regards to the BBC: It's ad-free in the UK since we pay for the content throught the annual licence fee. They also broadcast in the US where I thought they were a subscription channel but it's possible they have ad revenue as well/instead.

The analogy of selling a Tivo'd show is spurious and ridiculous. You can't sell the show because you don't own it. Selling a 'second hand' show is copyright infringement. It's illegal, and that's as true of games as it is for DVD's and TV shows. By contrast there's no problem selling the (legitimately purchased) DVD of the show secondhand.

The reason DVD rental works is that there is different release dates for rental and purchase. This is not true (currently) for games. Personally I would have no problem having a rental 'window' for games (but I suspect I'm alone in that!)

With regards to the second hand games - where would it end? Not allowed to sell your old washing machine? How about your old car? Not allowed to rent a car anymore? Bye bye Avis and Hertz!

It strikes me that Epic wants to make more money and sees this as a way of getting it. And that's *all* it's about - the other arguments are simply twaddle.

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