Archive for August, 2010

Used Game Sales

A preamble, since this seems to be missed: most of my posts are written quickly, in minutes of free time.  They are therefore not heavily reasoned, carefully formed essays designed for peer review.  I would have weeks of time, plus editorial input if they were.  Instead, treat my posts as germs of ideas, vaguely formed, generally written rapidly with very little editing on my part.

The last post I made was one such; this one is another.

So, to the topic at hand: penny-arcade’s most recent post is about a THQ dev saying he has no sympathy for used game players…because the dev is being cheated (I guess out of rightful profit).

This is precisely the same simplification as used by media creators about piracy.  The problem is that it overly simplifies the interplay of the various market forces involved: a used sale is not a game sale the dev/publisher/retailer would have gotten if only there hadn’t been a used copy competing.  Generally, I consider these sorts of statements problematic on a variety of levels.  First, they’re incorrect due to the over-simplification (yes, I realize I simplify, too.  In my defense, I know I’m doing that and rarely believe anything I say.  It’s your fault for believing me).  So if they believe their own words, they’re being ignorant.  Second, they’re demonizing their audience, which seems like it’d be…awkward.  Look, if you feel there’s a market for crippled games at a lower price point, why not just sell those directly?  Microsoft does that with most of their products (windows home, pro, ultimate; Visual Studio Express/Pro/Enterprise, etc.).  Of course, Microsoft does its level best to lock the software to a computer.

Then again, games have a somewhat shorter average span of utility.  I’m relatively certain very few games have enjoyed quite the longevity of use that Windows XP has.

Here’s an analogy that actually works for me.  In Eve, an industrialist spends an exorbitant amount of time and effort to build a ship.  Battleships and Capital ships don’t spring out of nowhere; some player put that shit together.  If I buy that ship, turn around and resell it for more, I’ve cheated them out of that sale?  Or if I buy it, use it to run some missions, then resell it for slightly less than they are, did I cheat them out of a sale?  That feels…silly.

Or here’s another example of a thriving secondary market in digital products: Magic: the Gathering Online.  MTGO costs $10 to start an account, which gets you some starter cards and lets you play.  There’s no additional charges to play.  To participate in events on MTGO, you must use event tickets, which can be purchased from WotC for $1 a piece.  Once you’ve started up an account, you’ll probably want to pick up more cards, and there exist two methods for doing this: buying booster packs from WotC at MSRP ($4) or purchasing cards on the secondary market, which is de facto denominated in event tickets.

Now, event tickets can be re-sold for money (usually below par value, so <$1), meaning it’s possible for a savvy MTGO card trader to make a profit on second-hand sales.  Now, to some extent, WotC takes a cut of the secondhand market because you have to buy tickets through them, but bear in mind these have a market value themselves: you can cash out your event tickets, meaning someone else is buying them at a lower price than WotC sells them, effectively cutting in to Wizards’  potential sales.

Why does WotC allow this?  After all, I see distinct parallels with the used game market here, where sales move into a parallel economy which generates no direct profit for Wizards.  In fact, it constitutes a cost, as most of these sales are made on their servers, incrementally increasing the cost of maintaining the MTGO service.  So why tolerate it?  Because the useful life of a card is limited.  Without the ability to exchange them down the line, whether that option is exercised or not, the perceived price of the card increases.  That means the cost of entry and the cost of continued play increases, meaning the number of people who can become invested in MTGO would decline…which would mean the secondary sellers would have a smaller market, and would be less likely to fund purchases of new cards, or event tickets (which constitutes the money supply in this little parallel economy).  Cutting out this secondary market will reduce certain types of sales for WotC.  The question, then, is would there be sufficient increases in other sales to make up for this loss?  And that’s leaving aside the question of the intangible value of customer goodwill.

Now when I buy a game new, it intrinsically has a resale value.  This value changes over time, initially declining until, somewhere down the road, it begins to climb again (as games have been demonstrated to have what might be called ‘collectible value’).  I vividly recall the price of Chrono Trigger, used, sticking at $30 for YEARS.  Looks like simply the chrono trigger cartridge, no box, manuals, etc., will set you back $40 on ebay right now.  And that’s knowing you can pick the game up for the DS or PSOne.  If you remove that resale value (assume no secondary market for the sake of argument), then the perceived value of the game declines relative to if there were a resale value.  That implies a decline in demand.

Now, we’re talking about aggregate game sales.  We can assume that the total demand for games is consistent whether there’s a secondary market or not (we’ll assume that there’re no losses due to the lack of price granularity, though I’d argue that might be an issue (by price granularity, I mean if I have $80 I can spend on games, but games cost $60, I am inclined to simply save the $20 extra, since there aren’t any game options at $20)).  The existence of a secondary market implies that perceived price of a game is lower, meaning that demand with a secondary market will be higher at any given point in time.  By this we mean if I can resell a game for $10, and buy it for $50, the perceived price will be around $40 (if we want to really get into it, inflation could be a factor, but over the time horizons we’re talking here, that’s not a terribly large factor), so demand will be somewhat magnified for new games at any point.  However, used game sales will be pulling demand from new games.

Let’s assume $1000 video game demand and new games are $50, with or without a secondary market.  All of that demand is exhausted on new game sales, so $1000 of new games are purchased.  Now, assume a used game market.  We use an average of $10 in resale value and games are resold only once.  The $1000 in video game demand must now be split between the secondary market and the new game market.  We assume that there is a need to fund initial purchases in order to supply games to be resold.  Not all of that can go to the secondary market, or there would be no games to be sold on the secondary market.  Further, the value of all games is increased by their resale price, so we can increase the demand by that ratio (in our case 10/50, or 20%), meaning there’s n0w $1200 in demand available (yeah, there are a metric shit ton of simplifications going on in that previous bit alone, but I don’t really want to get into resale velocity or cash flow analyses, which would mean demand would have to be categorized as a flow, rather than set amount, and yadda yadda.  No deal, I think this is enough to demonstrate my point).  This implies that if $200 of that demand is spent on used game sales, that means the secondary market has (roughly) no impact on new game sales.  So, if more than 17% of sales are used game sales, new game sales suffer.  On the other hand, if the resale value is greater than 20%, more sales of used games can be supported without affecting new game sales.

A quick check of ebay suggests that resale prices are higher than 20%.  Red Dead Redemption seems to be hitting 67% and Final Fantasy XIII is at 33%.  Further, if we believe this venture beat article quoted analyst, 20% of GameStop revenue is based on used game sales, implying less than 20% of game sales are used (I’m basing this educated guess on the fact that games are sold out of places that do not also sell used copies, such as Walmart, Best Buy, or Toys r us.  Also, GameStop is apparently recognized as basing a huge portion of their revenue on used games, meaning they’d push that as hard as they could).

So I guess my point is that an awful lot is being made out of this, and I don’t really get it.  I don’t buy the ethical argument: if I buy a game, I can sell it.  I don’t owe the developer any more money for that, and I’m not taking anything from them (and yeah, I”m a game dev, not that it matters).  If I’m allowed to sell it, someone else is allowed to buy it, and the only person they owe money to is…me.  This is how property law works.  This is regardless of degradation of quality or lack thereof.  Additionally, I’m not convinced used game sales are hurting anything.  I’ve at least come up with a reasonable model that shows them having no impact (and, potentially, a beneficial impact).  I may be wrong, but at the very least I see my model to be just as convincing as any other presented, with no real way to choose between them.   It’s all hand waving and cries of “OMG that’s not FAIR, obviously they are THIEVES!!”.  I’m not really the type given to accepting that sort of ad hoc argument.

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This article from the BBC discusses a study which correlates increased living space with increased evolution.  More particularly, the ability of a mutation to thrive is directly correlated to the ease with which it can enter an evolutionary niche.  The article ends with a critical quote from another evolutionary biologist:

And in general, what is the impetus to occupy new portions of ecological space if not to avoid competition with the species in the space already occupied?

The problem with this question is it’s subtly misinterpreting the study results.  First, generally, evolution is success by accident, so there’s no “impetus” involved.  But more importantly, the study is pointing out not that evolution does not creatures into additional ecological spaces, but rather that having found ecological spaces, things evolve.

Survival, once a free ecological niche is found, is assured for some time.  Take the evolution of birds.  Once they evolved wings, why evolve further?  There’s no reason to, no evolutionary pressure; especially initially, when individuals can just move into open space within the ecological niche they already inhabit.  However, there is ample room for new species to evolve without any threat.  Competition does not provoke proliferation through specialization necessarily.  Instead, it could as easily reduce the ability for new trials to succeed and thrive, since they would be rapidly killed by ruthless competitors before they could find their niche.

When success is assured and survival simple, though, new traits have a much easier time developing without significantly harming the survival opportunities of the infant species.

The impetus to occupy a new niche, then (if we can speak of such a thing), is not to avoid competition.  The animal moving into the niche is likely the descendant of a successful survivor and competitor.  It has no particular need to expand.  Rather, the impetus is more likely why not expand?

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I haven’t said much about WoW because I’ve said all I can: the  quest changes are pure awesome.  The zone revamps really expand the story.

And I just have nothing to say about the talent tree revamps.  They haven’t done anything for me.  I don’t like them.  They killed even the old illusion of choice.  When you go through and spec out a toon, you grab almost the entirety of the tree on your way down.  Very few talents are out-and-out choices.  Most of the time, there’s (as there always has been) utility, pvp talents and damage talents.  Builds have absolutely collapsed.  At this point, I’d rather they yanked even more straight damage talents out, and put in talents that altered the impact of a single core class ability in a unique way…but offered basically the same DPS.  Then, put these side-by-side and bloat the shit out of the talent tree.  Essentially, every choice becomes a “choose how you want to use this” choice.

Right now?  There’s no choice at all.

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Seriously.  I want an answer to this, because it seems to be the underlying assumption of all arguments against any kind of government spending; that GDP growth occurs, but does so without being debt-financed.  How can this be so?  I don’t see how it can.

Let’s assume a closed economy with a set quantity of money and absolutely no lending of any kind, and no money printing.  GDP is a measure of the positive cash value of all transactions within an economy over some period of time – which is equivalent to the negative cash value of all transactions within an economy over that period of time (I’ve gone over this before).  At any point, the value of all those transactions can’t be higher than the total amount of money in the economy (for what should be a fairly obvious reason) and there exists a physical limit on the number of transactions which can occur at one time, so GDP is limited by the rate of transactions that can occur and the total money in the economy.  That’s a hard and fast barrier on GDP, and because we’ve strictly locked the rate of money increase, we’ve locked the rate of GDP growth.

As it happens, we have organic methods of money supply growth, which exist outside the government sector and are known as “banks”.  This happens regardless of reserves or money, due to the offering of near-money equivalents.  That is, you loaning money to a bank doesn’t “fund” the banks future loans, because a bank may simply offer a borrower a near-money equivalent rather than your cash.  Heck, you don’t need cash to lend the bank money; you just need a near-money equivalent which the bank can use to procure capital (I’ve gone over all this before, too).  Capital is a cash-flow, and cash-flows finance interest rate imbalances and the maturity risks in loan portfolios.  Basically, the way a bank makes money is by converting cash into cash flows, so the bank-price of cash is going to be predicated on the risk of the need for cash, rather than the number of loans.  Because of this, an economy with a banking sector has an effectively infinite money supply (over an infinite time horizon), regardless of the flat amount of actual currency.

Importantly, this is regardless of the existence of a government-controlled Central Bank (This is directed at Chartalists, which I consider a sub-theory of the broader Circuitist theory (something with which I doubt they agree)).

So how can GDP grow, outside of debt or money-printing?  I’m curious, cause I’m not seeing it.

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I disapprove of even the possibility of patenting something like this.  More specifically, it seems as if patents, generally, are now producing precisely the opposite of the intended effect.  So I guess I’m less disapproving and more curious as to whether this is reasonable and why exactly we allow it.

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I’m actually pretty excited about Guild Wars 2; it’s expanding on some neat ideas and has a couple neat innovations.  Sadly, they’ve given themselves over to marketing speak and have been…overstating their case.

The most recent example was the levelling curve.  Look, it’s true: RPGs tend to ask you to spend more time between levels as your level increases.  There actually exist a number of reasons for this: first, the early levels are a sort of tutorial mode, easing you in to playing the game by parcelling out character defining abilities across the early levels, but granting you the levels faster.  They want you playing the game with most of your tools quickly, but they don’t want to give you all your tools too quickly; that can be overwhelming.

Second, RPGs have a number of reward schedules operating in parallel.  Obviously, this includes level gains, but it also includes things like loot, synergies for skill/talent trees, and all the various things that the player gains from simply playing the game: access to new areas, new game abilities, etc.  In general, you don’t want to overwhelm the player, and these things all have a tendency to multiply each others effects, particularly level.  So as time progresses, you space out level gains.

However, not all RPGs do this sort of thing.  MMOs in particular have generally moved towards the precise levelling curve Guild Wars 2 claims they’ll use: short durations between levels initially that ramps up for a while, then stabilizes.  Experience requirements per level increase, but that’s a function of making sure high level monsters reward more than low level monsters, while keeping the number of equal level mobs and quests you need to complete between levels similar.  Seriously, play back through Wrath of the Lich King’s level 70-80 experience.  You’ll find it takes 3-5 hours to gain a level, maybe a bit more if you’re meandering around, at each level.  The time to level never really increases.  That holds true in Cataclysm…except now they’ve gone back and made the early levels follow a similar pattern.  On the whole, each zone takes a few hours to complete, and gains you ~5 levels.  Content drives your levelling pace…just as Arenanet says they want it to in Guild Wars 2.

I’m glad Arenanet is keeping pace with advancements in our knowledge about flow and reward structures in RPGs, but seriously, playing to stereotypes and dead tropes about games ten years gone is a tad disingenuous.

I’d really like to see better from you, guys.

Update: The latest video on Guild Wars 2 (h/t kotaku) illustrates my point.

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Nothing else need be said.

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