How game companies can make money off used and pirated games

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posted 5/15/2009 by Charles Husemann
other articles by Charles Husemann
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There's been a lot of talk lately about how the second hand game market is killing the game industry. While opinions from the game industry vary from hard core whining to more sedated conversation, the core argument is simple. Game companies don't make any money when you sell your used game to Gamestop who then turns around and sells it to someone else. This lack of pass through cash is even harder for companies to take now that the economy has turned south.

The music industry has been battling this for years but with the music industry being mostly digital right now they don't have to worry too much about secondary sales. While the game industry is moving in that direction, fully downloadable games on the console are still years away (despite what the OnLive people say). Personally I don't think we're going to see a completely digital market until 2013 at the earliest but I think the next generation of consoles will take a bit step in that direction.

The problem can be broken down into two segments, supply and demand. Managing supply means keep games in the hands of their original buyers to prevent them from selling their used games to stores. Demand in this case is creating an incentive for the consumer to purchase a new copy of a game over an older copy.

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Most view DLC as the key to managing the supply side for a number of reasons. The first is that DLC extends the life of the game by promising gamers a new experience if they hold onto the game. Burnout Paradise and Fallout 3 are great examples of this as they've done a good job of adding new content to the game which expands on the experience of the original game. Army of Two took the idea in a different direction by an alternative "director’s cut" ending to the game which provided a bit more closure for those who were disappointed by the easy Darth Maul like death of one of major villains in the game.

To attack the supply side of the argument Stephen Totilo and others have advocated giving people a one time use coupon in the game box so they would get free DLC with the purchase of a new game. The hope is that the promise of free content people will entice people to purchase new copies of the game because the additional free content would more than make up for the money saved on a used copy of the game.

While this is a great concept but it forces developers to sink money into DLC and hope that it appeals to a wide audience and it also assumes that customers are going to know about this content in advance and are actually interested in the DLC.

The problem is that developers need to attack both sides of the equation at the same time. You need to get people to hold onto their new games as well as providing a reason for gamers to purchase a new copy of the game over a used one. This is difficult because as a digital medium you get exactly the same experience as the person who bought the game originally. Game developers also need to have a way to get their piece of the pie for each used copy of the game sold because there are always going to be cheap people out there who could care less about DLC.
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