Online Passes: Why They Are a Good Thing and Why They Are Here to Stay

on November 1, 2011 1:00 PM

Every time a publisher announces that a new game is going to have an online pass, or any kind of content locked behind a one-time code made to encourage sales of new copies (or to discourage sales of pre-owned copies, depending on the point of view), the whole internet explodes in a festival of wailing and hair pulling.

Of course the most sensationalist among our friendly neighborhood journalists will join the mourning, or better, they will encourage it, fueling the fire and pushing all their media weight into increasing the drama as much as possible, because, as you very well know, controversy generates traffic, and traffic generates revenue.

While the usual gamer isn’t required to know the real reasons why online passes exist, and a displeased reaction to something seen as an additional cost is natural, a sizable percentage of  journalists know those reasons very well, especially the most experienced ones, but some still try quite hard to paint developers and publishers in the worst light possible, in order to keep the cash flow generated by controversy and drama running. 

Online Passes: Why They Are a Good Thing and Why They Are Here to Stay

The fact is that, not only are online passes not as bad as some would like you to think, but they are actually a beneficial implementation. Even more than that, they are a necessary countermeasure that is here to stay, no matter how much people protest and express their indignation about the preposterous attempt by businesses to generate revenue from a product they provide. Mind you, online passes will actually spread further one way or another, so we better get used to the idea.

Angry already? I wouldn’t be surprised, especially after the indoctrination campaign by that sector of the media that did every possible effort to paint developers and publishers as the “evil corporations” out to eat your soul. Because, you know, your soul is yummy.

But let’s give a look to some numbers, shall we?

During the fiscal year ending on January the 29th GameStop earned $2,469,800,000 (yep, you read it right, two and a half billion dollars) from the sales of preowned software and hardware, corresponding to the 26.1% of their total annual revenue. Pretty nice, isn’t it? Wait until I tell you the actual profits.

Online Passes: Why They Are a Good Thing and Why They Are Here to Stay

The gross profit from those pre-owned sales is $1,140,500,000, corresponding to 46.2% of their total annual profit. The fact that pre-owned sales amount to 26% of their revenue, but 46% of their profit, should be quite telling already on how naive some people are in buying their pre-owned games, and in selling their games back to them, but that’s only marginally relevant to today’s topic, so we’ll leave that for another editorial.

What is relevant is that GameStop (quite obviously) didn’t develop those games. They didn’t publish them. They get such large profits on them simply because they didn’t have to do much else than picking them from your hands, giving you much less than their value in return, checking the contents (normally not even that accurately), putting a few ugly stickers on the cover, while applying a draconian markup in the process, and placing them on a shelf again.

They built up a nice little secondary market on which they offer exactly the same product as the publishers, spending much less to generate such product, resulting in the ability to sell that product to you at a lower price, despite a much higher mark-up. This, ladies and gentlemen, is what most civilized people define as unfair competition.

Online Passes: Why They Are a Good Thing and Why They Are Here to Stay

Those two billion and a half dollars of revenue are taken away from the game development industry and go to inflate the coffers of GameStop, without being reinvested, in turn, in the gaming industry itself. It’s a massive black hole that sucks funds out of the pockets of the publishers, significantly reducing their revenue. Reduced revenue automatically means reduced ability to invest into new games and into keeping development studios afloat and game designers into their jobs.

If you were surprised by the high number of development studios that close every year, and by the amount of those hit by large numbers of layoffs, be surprised no more. Now you know why (or at least one of the reasons why).

The problem gets even bigger if we consider that GameStop is only one of the businesses that deal in preowned sales. There are others, and each of them takes a further slice of the revenue that normally would go to publishers, and through them, to developers.

So the situation is as follows: Developers and publishers face an increasingly big secondary market that they have no means to compete against, since it offers exactly the same products at a more convenient price. Given that they are businesses, and businesses aren’t exactly keen on going out of business (please forgive the horrible pun), they have to defend themselves.

Online Passes: Why They Are a Good Thing and Why They Are Here to Stay

I can already hear someone saying that they should just lower their prices. Wouldn’t that be a very convenient and ideal solution? Too bad that, as most ideal solutions, it doesn’t have much of a footing in reality.

Publishers cannot lower the prices, as producing today’s AAA games has massive costs (and massive risks), and businesses need to actually turn a profit in order to survive and prosper. They cannot work at a loss just to manage to compete against GameStop and the rest of the preowned business gang. And even if they could, it wouldn’t work anyway. GameStop and the gang could easily reduce their prices as well by paying less for the preowned games they buy from you, or even just by cutting a little off the massive markup they apply.

No matter how the publishers try to compete, they simply cannot win, as they have to shoulder much higher costs than GameStop does, so they simply have no way to offer their products at a competitive price in comparison. No matter how low they could go. GameStop can go lower.

Since they cannot compete with the preowned gang on pricing, publishers have to find alternate ways to defend their business. Last time they had to do this, it was when the PC market started to take a severe hit from piracy, and the result is that now the vast majority of PC games have unique activation keys that almost completely prevent any organized resale, without even mentioning more draconian DRM we already know too much about.

Online Passes: Why They Are a Good Thing and Why They Are Here to Stay

Of course piracy and the preowned market are two entirely different issues under the moral and legal point of view, but what about their practical effect? When a game is pirated a large number of people can enjoy that game without paying a dime to the publisher and the developer. Sounds familiar? I bet it does, because it’s exactly the same thing that happens when preowned copies of the same game are sold.

So now the gaming industry pulled out this online pass solution, keeping part of the content of each game locked beyond a one-time code in order to encourage users to buy the games new.

This is actually a rather mild solution, as it still allows people that are so inclined to buy preowned games and enjoy most of what they offer, giving them the possibility to purchase the pass separately in order to get the full experience, saving money with the used copy, but still providing the publishers, and through them the developers, with the revenue they deserve for the enjoyment they provide.

Of course, as mild as this solution can be, many still don’t like it. Who doesn’t like to get the same product for less? Well, though luck on this one.

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 /  Executive News Editor
Hailing from sunny (not as much as people think) Italy and long standing gamer since the age of Mattel Intellivision and Sinclair ZX Spectrum. Definitely a multi-platform gamer, he still holds the old dear PC nearest to his heart, while not disregarding any console on the market. RPGs (of any nationality) and MMORPGs are his daily bread, but he enjoys almost every other genre, prominently racing simulators, action and sandbox games. He is also one of the few surviving fans of the flight simulator genre on Earth.