Monetising the MMO

The Elder Scrolls Online, Wildstar and Rift – three different solutions to the same thorny problem.

Monetisation. The rise of app stores and the emergence of new, low friction business models have made this divisive term one of the prevalent issues of recent times. Every game needs to make money, from the earthiest indie to the most high-falutin’ blockbuster, but the concept of ‘monetisation’ has started to creep into the general discourse in unpleasant ways. It is now a staple of public-facing statements issued by executives and developers, a constant reminder of the ambiguous connotations of the term ‘consumer’. A recent article on Gamasutra about coercive monetisation techniques was met with a polarised response, but its statements aren’t too far removed from those released into the public arena week-in, week-out. If anything, it just hit a little too close to home.

For the industry, this is a painful Catch-22. The general trend towards business models that drip-feed revenue in small, relatively painless increments has been motivated by a number of factors; some of which are self-inflicted, but in general it has far more to do with the needs of the customer than corporate greed. And yet many in the core audience find the accoutrements of free-to-play and micro-transactions distasteful. They rail against the sense of being nickled and dimed, even when the factors that cause that feeling are ultimately saving them money. And yet the subscription model – far closer to the traditional ideal of paying a fixed price for a fixed product – has fallen dramatically and obviously from their favour.

“I don’t think there’s ever going to be a time when we think this is the way a free-to-play game should be made and has to be made or you’re gonna fail”

Simon Ffinch, Trion Worlds

If there is a battleground for this conflict it is the MMO, where game after game has shifted from subscriptions to micro-transactions. One of the latest, though almost certainly not the last, is Trion Worlds’ Rift, which was launched to general critical acclaim in March 2011. According to Simon Ffinch, design director at Trion, the decision to embrace free-to-play was not taken to avert commercial disaster, but to provide its “robust and loyal” fanbase with a better experience – a recognition that the “massively multiplayer” aspect of the MMO is vital to the genre’s success.

“It was doing fine,” Ffinch says. “There was no moment where we thought we had to go free-to-play or Rift was gonna die. That absolutely was not the case. We just wanted to open it up to more people, and this is just the way the market is going. We didn’t want to be behind the curve, so to speak.”

In fact, Trion pre-empted the move in February last year with the launch of Rift Lite, which made the game free up to level 20. “It worked great, but it’s not the same as saying it’s free,” Ffinch says. “The word ‘free’ is, well, it’s magic. That’s what brings people in.

“I’ve seen a lot of games make the transition, and some have done it better than others. We wanted to make sure that all the content was always going to be free. The things we’re going to sell are things that players want, but not things that are required in the game. MMOs are better when you have tons of people. We had tons of people already, but now we have tons times tons.”

But if the transition has produced a positive outcome – for now, at least – it isn’t because Trion has done anything particularly daring or original. When I ask Ffinch about the guiding principles behind Rift’s more accessible model, he lists several ideas that are quickly becoming part of an orthodoxy of free-to-play: avoid pay-to-win, no egregious time-gating, monetise cosmetic and convenience items, and so on. If you have read coverage of any game making this kind of strategic shift in the last 12 months that list is likely to be immediately familiar, and it begs the question: after so much talking, are we finally reaching a point where a definitive framework of the ‘right’ way to handle free-to-play has started to take shape.

“We’re getting closer to that,” Ffinch replies, “but we’re not yet at the point where we’ve established a way that it should be done. And you know what, the thing that’s so amazing about the games industry is that when we think we’ve reached that point, somebody will do something that’s completely different.

“I don’t think there’s ever going to be a time when we think this is the way a free-to-play game should be made and has to be made or you’re gonna fail. But I think we’ll reach a way that the majority of people do it.”

“There’s a reason why a lot of the free-to-play games aren’t making money, and that’s your costs don’t go down a lot if you’re free-to-play”

Jeremy Gaffney, NCsoft

However, with so many games following a broadly similar network of conventions, it could be argued that we’re closer than Ffinch is willing to let on. It’s not hard to understand why: the push-and-pull of games struggling with free-to-play is so frequently problemtaic that developers have obvious incentives to demonstrate that they don’t have one hand on the mouse and the other in the consumer’s back-pocket. Finding some kind of standardised harmony between business model and game design would serve that end, and is therefore desirable at the very least. However, according to Carbine Studios’ Jeremy Gaffney, whose substantial experience with online games is difficult to rival, any such homogeneity is not something to be celebrated.

“There’s an interesting phenomenon, which is not very many games actually make a ton of money, and with the ones that do you’d have to squint really hard to find two with the same business model,” he says. “In the Western market, World of Warcraft is the subscription king, and EVE Online is a subscription model with modifications. World of Tanks is free-to-play, but the way they do it is different to Maple Story and the Asian games. You can’t point to any one thing that’s dominant in terms of revenue.”

To put a finer point on the matter, it isn’t that every single MMO or online game employs a radically different model, but that the developers imitating the success stories tend to make far less money – if they make money at all. This is where the pitfalls of emulating the approach of a competitor are found, particularly in games shifting from their original model to one based on micro-transactions. Gaffney believes that when a game is designed with a model integrated into its structure on the most fundamental level it can work to the benefit of all – step forward League of Legends – but MMOs are an expensive business, and more players doesn’t always mean more profit.

“There’s a reason why a lot of the free-to-play games aren’t making money, and that’s your costs don’t go down a lot if you’re free-to-play,” he says. “Your users still use bandwidth and take up servers, and you’d better still be adding content into the game. Not many of your costs drop by going free-to-play, but your user count goes up dramatically. What that means is you get more revenue and less profit, often to the point of [making a loss]… But you’ve got to profit at the end of the day. It’s what you’re in business for.”

Ultimately, Gaffney believes that the games business is driven by innovation, and in MMOs the business model is now a crucial point for original thinking. An MMO does not find an audience through the sort of flashy claims normally found on the back of a plastic box, but through getting “the meat and the potatoes” of the experience right. Increasingly, the meat and potatoes of an MMO involves the balance between playing and paying, and there are myriad ways that balance can be struck – and myriad ways to get it completely wrong.

“Boxed games are a horrible business to be in, because 9 out of every 10 fail. It’s the same with MMOs, but the number of variables in boxed games is much higher”

Jeremy Gaffney, NCsoft

Carbibe’s latest MMO, Wildstar, has taken a more idiosyncratic approach to monetisation than Rift – a combination of free-to-play and subscription that aims to avoid reliance on micro-transactions through a player-driven economy. It is the sort of risk that Gaffney believes must necessarily be taken in the ongoing search to find non-abrasive ways to monetise – the sort of risk that could propel Wildstar to the sort of success that so many recent MMOs have failed to attain. In that sense, Gaffney explains, Wildstar is an anomaly. It is increasingly difficult to find a publisher willing to entertain an MMO model that breaks from established approaches to subscriptions and free-to-play.

“Depending on who you talk to World of Warcraft had a $65 million budget, and budgets have only gone up since then,” he says. “It’s tough to go up to your boss and say, ‘Hey, I’m gonna take $100 million and do something that’s never been done before and, trust me, five years later you’re gonna get something awesome out of it.’ You get conservative when budgets start to get that high, but that’s a mistake, because the second you stop trying to break new ground you get in trouble.

“Boxed games are a horrible business to be in, because 9 out of every 10 fail. It’s the same with MMOs, but the number of variables in boxed games is much higher… With MMOs, at least [success] maps more or less 1-to-1 with game quality. There haven’t been, I would argue, a lot of quality games that people have tried and were like, ‘Nah, the hell with it’ and stopped paying. Why would they? If you did a really good job of making levelling fun and making your elder games fun, why do people tail off? I mean they can – the invisible hand of Adam Smith tends to go and move the market around – but for the most part I like this market because it’s so tied to good games.”

And Gaffney is clear about one thing: a subscription model is the most effective way to realise certain notions of what an MMO should be. He knew that the economics of the modern industry demand that the player be given options, but he also wanted Wildstar to offer a sense of scale and balance that only consistent revenue and no strong reliance on micro-transactions can provide.

“Retention is where the money is at,” he says. “In China, there’s a billion MMOs and they’re all fighting for space, and the ones that rose to the top used to update every three or four months,” Gaffney says. “And then some innovator did that every two months, then once a month, then two weeks. Now, the biggest games over there update weekly. If you want retention, that’s one of the ways you can do it. That’s League of Legends – every three weeks, Bam, new champion. That’s the stuff that separates the haves from the have nots.”

The other example Gaffney offers is World of Warcraft, and in doing so it becomes increasingly clear how Wildstar’s business model took shape. Not every game will build an audience on the scale of WoW, or see as much return on letting people play for free as League of Legends, but a balance between these two poles might provide the most benefit for all parties. As Gaffney rightly points out, “Nobody loves a business model, but everybody hates at least one.”

But which one do people hate the most? It would be easy, and very possibly correct, to point to free-to-play and intrusive micro-transactions, but it should also be clear by now that there is an equally widespread – though not nearly as vocal – public distaste for subscriptions. With The Elder Scrolls Online, ZeniMax is making a strident bet against that being the case. The reasoning goes something like this: people loved Oblivion and Skyrim, buying them by the million at $60 a time, so an Oblivion or Skyrim that lasts forever would offer enough value to persuade millions to part with a monthly subscription.

“With an IP like this, it comes with certain expectations,” says Matt Firor, the head of ZeniMax Online Studios. “It’s an Elder Scrolls game. This is the way you play it. With other models, you have to change the way its played or the rules to facilitate new forms of monetisation. I’m not doing that with this game. I can’t. No Elder Scrolls player would ever accept that.

“We really did look at all of the alternatives, but we were building it to be an Elder Scrolls game… If we’d started out with another business model in mind, it would not have turned out that way.”

“we were building it to be an Elder Scrolls game. If we’d started out with another business model in mind, it would not have turned out that way

Matt Firor, ZeniMax Online

In a sense, The Elder Scrolls Online’s choice of business model was informed by the same factors that guided Gaffney on Wildstar. Firor understands that a lot of people regard the IP as a solitary experience, one defined by the exploration and discovery of a completely open landscape. While there will be multiplayer content and options, it is imperative that the game accurately evokes the experience of playing Oblivion or Skyrim. That means there should always be something new quests and locations to find, and that those quests and locations should be worth finding. That requires time and money, and that’s harder to guarantee with free-to-play.

“This isn’t a referendum on revenue models for other games,” Firor says. “For this game, it’s the right decision, mostly because of the expectations that come with the IP. When you’re playing the game, you’re playing the game – you’re not worrying about pay gates or whether you have access to some content. We really feel that paying once a month and not worrying about all of the other monetisation things, that’s what will appeal most to the Elder Scrolls fans.”

Is this asking too much of the modern gamer? Even for the Skyrim crowd, there is surely an expectation that MMOs now generally cost nothing to play at first. Once someone starts to give a product away for free, it becomes far harder for a competitor to charge for the same basic thing. Wildstar at least gives its players an option, but Firor is confident that the strength of the Edler Scrolls IP – and the fact that the beta has seen more than 3 million registrations – will be enough to make its single-minded approach work. “It’s a big deal,” he says. “Free-to-play is out of the window with that.”

Of course, the last MMO on this scale with so much confidence in subscriptions was Bioware’s The Old Republic, and the Star Wars IP is no lame duck. But the announcement is now made, the wheels have been set inexorably in motion, and all that remains now is the all-important launch. Firor claims that ZeniMax is ready as it is possible to be for the “massive IT exercise” of releasing a persistent online game – a challenge that has defeated companies the size of Blizzard and EA – but he admits that guarantees are impossible to make.

For Gaffney, that’s a huge risk, regardless of any rigorous supporting calculations. If there’s a way for people to play for free, there are more ways to bounce back. If there isn’t, you need a strong start. The entire game need to be in place and fully functioning at the moment of release.

“”It’s not like [subscriptions are] dead, but there’s a barrier: you only have a month to make your case. When games come out and try to fit in the end game stuff after launch… Nope, you got a month, and guess what? You’re gonna be running like a monkey on meth amphetamine for the course of that month, so you won’t have the time to cram it in. You’ll be running around and fixing whatever thing went horrible wrong at launch.

“And something always goes horribly wrong at launch.”

 

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Inafune says Japanese industry has “gotten worse”

Mega Man creator Keiji Inafune says it’s a “shame” that game industry in island nation has fallen further, believes Kickstarter is one “fantastic” option to revive the market.

The Japanese game industry has “gotten worse,” according to Mega Man creator and former Capcom director Keiji Inafune. Speaking with GameSpot today at PAX Prime, the outspoken critic of the Japanese game scene lamented the state of the industry, but said developers have options to turn things around.

“Ultimately, it’s probably gotten worse than when I was talking about it before. And that’s a shame,” Inafune said through a translator. “But there are options out there. And there are many options that Japanese independent developers can pursue to gain more control, to own their own IP, et cetera.”

“And Kickstarter is one of those fantastic options,” he added. “And so, one of the reasons why I was interested in doing this Kickstarter wasn’t just because potentially being able to connect with the fans, but also potentially being able to show other Japanese independent developers that there is a way, that there are options.”

Yesterday, Inafune announced a Kickstarter campaign for Mighty No. 9, an all-new classic-inspired side-scrolling game. The project has drawn strong initial interest, with more than $650,000 pledged of its $900,000 goal. Funding closes on October 1.

Though the Japanese industry has fallen in Inafune’s eyes, he remains of the belief that there are “still lots of great solutions” to bounce back. If developers have “great content” they will be able to get consumers to “stand up and listen and support it” to help improve the Japanese industry, he said.

 

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Free-to-play coming to every major EA franchise – Moore

Again, here is another company that wants to shove their ideas down our collective throats without giving us gamers a choice on how WE want to play. I guess there will be some company willing to take my money in exchange for a game where I can freely play offline by myself when I want. If EA moves in this direction, it surely will not be them. Read below on what Peter Moore had to say.

COO Peter Moore lays out EA’s priorities, says “We don’t deliver offline experiences anymore”

Electronic Arts is banking on free-to-play in a big way. Speaking with Engadget at Gamescom over the weekend, EA COO Peter Moore said the publisher’s goal is to let players interact with their franchises no matter where they are, what they’re doing, or how much money they have in their pocket.

Moore emphasized EA’s existing free-to-play efforts with its most successful franchises, Battlefield and FIFA, but said the company is looking to expand it well beyond those two.

“The ability for you to be able to interact with those franchises on a free-to-play basis is going to be part-and-parcel with every major franchise we do now,” Moore said.

Another point of focus for the company is online functionality, as Moore has made clear in the past. The executive has championed moving the company from a seller of retail disks to a provider of “games as a service.”

“We don’t ship a game at EA that is offline,” Moore said. “It just doesn’t happen. And gamers either want to be connected so their stats and achievements reflect who they are, or you want the full multiplayer experience on top of that. We don’t deliver offline experiences anymore.”

When asked if the company would be supporting new hardware like the Nvidia Shield or Ouya, Moore took a step back to provide a peek at the company’s priorities. The top priority for EA right now is the console market with the ramp up to next-gen debuts from Sony and Microsoft, Moore said. Right below that is the mobile space with iOS and Android development, then free-to-play PC titles. Moore said offerings like Shield and Ouya “kind of sit on the periphery of that,” adding that the company has no plans to get involved right now.

As for the Oculus Rift, Moore said that the peripheral market was a challenging one, but that much like with the aforementioned alternative consoles, EA will keep an eye on them to see if it’s something consumers want. And if the demand is there, then EA will be as well.

 

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The Fast-Growing Latin American Games Market

Okam Studio co-founder Martina Santoro on the perks and pains of the fast-growing Latin American games market.

The borders of the gaming industry are frequently drawn around the US, Europe, and Asia, but there are lots of developers–and potential customers–beyond those lines. Martina Santoro, co-founder and director of Buenos Aires, Argentina-based developer Okam Studio, has been trying to convince people of this. Santoro has been digging up research on the Latin American market specifically, and presented her findings in May at the Ottawa International Game Conference.

Speaking with GamesIndustry International last week, Santoro said it was a difficult process because there are only a few people really researching the Latin American market at the moment, but some of her findings suggest there should be a lot more. Santoro said there are about 60 million smartphones in Latin America, half of which are regularly used for gaming. On top of that, the region has shown the fastest smartphone growth in the world. And in terms of spending power, the Latin American market is comparable to China. According to Alta Ventures, China’s population of 1.3 billion commands an average disposable income of a little over $2,200 per person ($2.9 trillion in total). The population of Latin America is less than half that, about 594 million, but commands an average disposable income over $4,700 ($2.8 trillion total).

“The amount of mobile devices [in Latin America] is doubling every year,” Santoro said. “The biggest market is still Brazil, but it’s amazing how in countries like Argentina, Chile, Mexico, Bolivia, Peru, Colombia, the access to information and the internet is growing very, very fast. I wasn’t really expecting that.”

Martina Santoro

Unfortunately, the biggest attractions of the Latin American market–its growth–goes hand-in-hand with its biggest challenges. The gaming industry there is still young, and it lacks some of the infrastructure one might take for granted in a more established market. The single biggest challenge Santoro pointed to is payment methods. Credit cards aren’t as ubiquitous in Latin America as they are in the US and Europe, and even for those with credit cards, paying for content from another country can carry surcharges. Billing directly to users’ carriers isn’t a viable alternative, partly due to infrastructure issues and partly because telecom companies can require an exorbitant cut of revenues for games purchased that way. Publishers have been working around the issue to date with tactics like selling pre-paid cards in drug stores and super markets or having people pay by SMS, the same way charities might collect donations here. These hurdles impact the business model, which in turn impacts the games being made. For example, game developers have had to learn that designing games that rely on impulse purchases isn’t nearly as effective in Latin America.

“[W]e’ve had companies that have grown a lot for big projects and then needed to downsize…For a strong industry, we’ll need more projects to come in and maintain the studios.”

Martina Santoro

Piracy and localization are two more concerns publishers have had with working in Latin America, but Santoro said both situations are improving. Digital distribution and the free-to-play business model have both helped cut down on piracy, and Steam in particular has proven more successful than many retail stores in the region. As for localization, Santoro said companies are starting to put more effort into the task, and are being rewarded for it. One faux pas she sees less these days is the use of Iberian Spanish instead of Latin American Spanish.

“For many years, the products for here were dubbed by Spanish people,” Santoro explained. “So gamers, especially hardcore gamers, preferred to buy games in English directly from the US. So when big studios did their marketing research, the results said that Latin Americans weren’t spending money on games. But the fact was they were; they were just spending it in the US market.”

For Latin American developers, the industry’s youth can be seen in the difficulty of educating new hires. Santoro said there’s plenty of talent in Argentina, but there are few academic programs to shape them into professional game developers. And without colleges teaching how to do this for a living, people might not even consider development as a possible career.

“On the human resources side, in Argentina it’s pretty hard to tell your parents you’re going into the video game industry,” Santoro said. “If you studied programming, then it’s something your parents think is good because you’ll work for a bank or something. But it’s difficult when you tell your parents you’re going to start a video game studio and make games when they don’t have a clue what you’re going to do. My mother doesn’t know what I do. She doesn’t get it. She accepted it after a time, but not everyone knows it’s an option to make a living out of this.”

One more problem Okam and other Latin American developers have had to face is the at-times inconsistent flow of available work.

“We’re trying to create an industry, so it’s been hard to get the projects going in a very fluid way,” Santoro said. “So we’ve had companies that have grown a lot for big projects and then needed to downsize. Stuff like that happens all the time. For a strong industry, we’ll need more projects to come in and maintain the studios so people can grow and get more experience.”

Okam is working on a mobile game for the upcoming movie Foosball

Challenges aside, Santoro said she’s had some substantial advantages as a Latin American developer. Naturally, her team has a leg up making games targeted for the Latin American market, but Santoro said Okam’s location in Buenos Aires means the studio is well-suited to creating content for the North American and European markets. Part of that is that the city’s cosmopolitan makeup provides developers with an understanding of what works for global audiences, such as cultural tastes or sense of humor. On a practical level, Santoro noted Okam’s time zone is shifted four hours from San Francisco and four hours from London, making regular conference calls possible without requiring odd hours. There are financial benefits as well, with government tax credits and

“We are kind of cost-efficient,” Santoro admits. “We have highly trained professionals, and our costs for each of our team members is really low compared to big production houses in the US or Europe.”

That’s made studios like Okam attractive for foreign publishers looking to create less expensive games for their own markets, but Santoro says there’s a shift going on.

“We’ve been learning a lot on how to make games for other markets,” Santoro said. “Now it’s changing. Games in Latin America are being made for Latin American consumers, so it should be interesting to know what we’re able to do.”

Okam is currently working on a number of projects, including a mobile game for the upcoming CG movie Foosball, and another project based on Dark Horse Comics’ Dog Mendonça and PizzaBoy series about an overweight Portuguese werewolf and his unpaid intern.

 

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The Xbox One Question: Why Did Microsoft Do It?

Xbox One’s DRM has given Microsoft its toughest ride at E3 in years – but the logic that led here is understandable, if mistaken

The dust is settling on E3 2013 and by now you have probably read countless opinions about why Microsoft is wrong and how it “lost” E3 – along with a few lonely stalwarts arguing to the contrary. With the benefit of a few days’ hindsight on those explosive press conferences and a few tens of thousands of words of executive interviews to provide context, I’ve reached a slightly different set of questions. I’m less concerned with “is Microsoft doing the right thing” – it’s an argument that pits “right for consumers” against “right for a very narrowly defined segment of the industry”, and I know which side always wins those arguments in the end – and more intrigued by the question, “why is Microsoft doing this?”

“Nobody really believed that Microsoft would paint itself as a villain unless it was absolutely confident that Sony was going to be compelled to do likewise”

After all, we’re talking about a set of strategic decisions which turned what should have been the celebratory unveiling of a new console into a focus for opprobrium and dislike from press and consumers alike – and which subsequently overshadowed a reasonably solid E3 conference by giving a rival firm the sort of clear competitive advantage that just hasn’t existed in the console business for over a decade. Microsoft is not a company that hires stupid people. It remains one of the world’s richest companies and its staff are, on the whole, extremely intelligent people – so while the Xbox One may face an uphill struggle to regain consumer trust and rival the PS4 come November, the decisions which led us to this point were presumably made by intelligent, rationally thinking people. Rather than simply heaping further criticism on Microsoft, a task rather like dropping pebbles on the Himalayas, I’d like to try to understand those decisions a little better.

One key point, I think, is that Sony’s announcement that it was not pursuing an anti-resale or anti-sharing DRM strategy actually came as something of a surprise to many people. In the weeks between the Xbox One unveiling and E3, something of a consensus had developed that Sony must be planning a similar approach. Earlier statements confirming that the PS4 would play used games were reconsidered – after all, the Xbox One will play used games, it’s just that there’s half a page of caveats and footnotes accompanying that statement. Many commentators argued that Sony was simply doing a better job of dodging the question than Microsoft, while most of us simply hoped that whatever awful DRM system PS4 used, it would be less restrictive than Microsoft’s approach.

The reason that this consensus developed was that nobody really believed that Microsoft would paint itself as a villain to this extent unless it was absolutely confident that Sony was going to be compelled to do likewise. Who would do the compelling? Publishers, presumably – publishers who, we figured, had been leaning on platform holders to “do something” about second-hand games for years. Microsoft had made an internal calculation that Sony, too, would be forced to adopt this sort of system – we all therefore assumed that Sony, facing the same kind of pressures as Microsoft, would end up presenting the same unpleasant cocktail in a slightly different glass.

“Most publishers have hastened to distance themselves from an online pass requirement, which is making Microsoft look rather isolated “

Well, they didn’t. Sony’s policies for boxed games on PS4 hasn’t changed an iota from PS3 (or Vita, or PSP) – the games aren’t locked to a console or an account and they’re region free. Publishers can implement an “online pass” style system if they wish, but most publishers have hastened to distance themselves from that requirement, which is making Microsoft look rather isolated (though I don’t believe for a single second the protestations of innocence from publishers claiming they never asked Microsoft to implement stricter policies for second-hand games). Whatever pressure the platform holders came under to implement this kind of strategy, only Microsoft blinked.

This could be an outright miscalculation on Microsoft’s part – they could simply have failed to hold their nerve in the face of partners who threatened to withdraw software support from a console that didn’t fight back against the “menace” of pre-owned sales (and sharing, and swapping, and lending, and all those other nice things humans quite enjoy doing with their friends and colleagues). That would be embarrassing – it would suggest that Sony’s announcement about not beefing up its DRM came as a huge shock to Microsoft, and is probably causing some pretty angry scenes in Redmond meeting rooms right now.

However, I think there’s a cultural difference at work here too. I suspect that within Microsoft’s culture the notion of “restricted licensing, not outright ownership” is viewed as uncontroversial and mundane. I suspect that there are quite a few people at Microsoft wondering what all the fuss is about, and far more who are just waiting for the “vocal minority” to quiet down and go away, confident that the “silent majority” is perfectly comfortable with everything that Xbox One is doing. Many big companies end up being a bit of an echo chamber, reinforcing viewpoints through ongoing repetition rather than exposing them to healthy external challenge, and Microsoft is no different.

Those viewpoints are borne out of two mistaken assumptions. The first is that people are already familiar with the idea of licensing over ownership. This is an assumption that’s not uncommon within parts of the games business and it arises from thinking in terms of technicalities, teasing apart arguments to find flaws in the surrounding logic rather than tackling the wider point or understanding the full perspective. This focus on technicalities to the exclusion of a broad understanding of a wider picture that includes complicating factors like sentiment and public opinion is a common flaw in the games business, as well as being easy to identify in other parts of the technology and entertainment businesses.

This is important, because technically, every piece of entertainment or software you have bought for years has been licensed, not purchased outright with no strings attached. Every game, every album, every movie – they all come with an end-user license agreement or some other form of terms and conditions, pages and pages of (mostly unenforceable) legal nonsense which outlines the idea that you haven’t bought a product, you’ve licensed something for use in a very specific and restricted set of circumstances. The lawyer’s perspective, the geek’s perspective and, I suspect, Microsoft’s perspective is that this is already the status quo, Xbox One is simply enforcing it and everyone apart from a few noisy people on the internet should be happy.

“Consumers fight back when an actual restriction is imposed, not when a sneaky piece of legalese implies a restriction that nobody attempts to enforce”

The problem is that that argument began with the words “because technically” – which usually signals an argument which will prove to be logically flawless yet utterly at a tangent to reality. The fact is that while lawyers and the denizens of company boardrooms have become accustomed to this idea of licensing over ownership, consumers absolutely have not – because so far, it has mostly just been legal jargon that their eyes skim past, without actually changing how they interact with someone. Sure, that CD says you can’t have an unauthorised public performance, but it doesn’t stop you playing it at a party. Yes, the DVD says you shouldn’t copy it, but it can’t actually prevent you ripping it to your laptop to watch on the train. Absolutely, that game says it’s only for the use of one person and unauthorised resale is banned, but I can still physically take the disc out of the drive and give it to a friend or put it on eBay. The people who have grown accustomed to licensing restrictions are only those who seek to impose the restrictions; actual consumers have yet to feel the cold hand of these restrictions on their day to day behaviour.

That’s why a strategy that was probably seen as simply “continuing the status quo” within Microsoft has provoked outrage from consumers who, yes, have “technically” been bound by these restrictions before, but have not actually had to contend with them for real. Arguing, as some have done, that consumers should have fought back before now, when these EULAs and licenses were first being introduced, is another “but technically…” argument – consumers fight back when an actual restriction is imposed, not when a sneaky piece of legalese implies a restriction that nobody attempts to enforce.

Of course, there’s another reason Microsoft may have seen Xbox One as an uncontroversial device – because we already accept similar restrictions when we buy digital software from Steam, the App Store, Google Play and their ilk. You can’t trade in your Steam games, so why are you so upset about the same restrictions being imposed to Xbox One?

Again, this is a conflict of “but technically…” versus real consumer sentiment. Yes, Steam applies these restrictions, but there are two key differences. Firstly, Steam applies them to digital products, not to physical products, and consumers have very different relationships with digital products (rightly or wrongly). Applying the same restrictions to physical products – to items which consumers feel that they physically own (“but technically!”) and feel that, as with any physical item, they have a right to keep, to give away, to sell or otherwise to treat as any personal possession since time immemorial has been treated – feels deeply unpleasant and grasping.

Secondly, Steam – like any store on a PC or a Mac – is a choice. I can buy software from Steam, but if I don’t like the terms I can also buy through many other routes. Steam is chosen by consumers because it’s the most convenient and often most cost-effective way to get games – it competes with lots of other channels, physical and digital. The same applies to iTunes, which dominates the music market but is entirely optional – you could buy all the music you want through other channels if you liked. I buy a lot of books on Kindle, fully cognisant that this is more restrictive than buying paperbacks, but accepting those restrictions in return for good value and superb convenience.

“Sony will end up selling digital software subject to fairly strict restrictions – all without having had to pick an enormous fight and look utterly black-hearted”

Xbox One doesn’t propose to let consumers make a choice (other than “not buying an Xbox One”, a choice a rather large number of consumers seem to be making right now). It intends to apply the same restrictive DRM to physical and to digital goods, treating them as one and the same despite consumers’ radically different relationship with them. Sony will apply strict DRM to digital purchases on PS4, just as it does on PS3 (and as Microsoft already does to digital purchases on Xbox 360), but consumers won’t complain vociferously because they accept this – it’s an option. If you choose to buy a digital game over a physical copy, you do so aware of the restrictions but feeling that they are outbalanced by the convenience or other factors. In extending those restrictions to physical products, Microsoft removes a choice that consumers have become very attached to.

So that’s what I think Microsoft’s reasoning was. I wonder if they blinked in a staring match with publishers in which Sony kept its cool – but either way, I think that the decision was informed by a culture in Microsoft which sees licensing restrictions as far less controversial than they are out in the real world. I think that’s a mistake, one which created a stupid business decision but which was not, in itself, based on stupid decision making – rather on intelligent people making a perfectly rational decision within a climate that warped their perceptions and understanding of the market they’re operating in. I suspect that those same intelligent people are today rather shocked by the backlash and while some will be seeking to justify their decision, the brightest and best will be thinking of the most effective ways to backpedal and limit or even reverse the damage.

The only aspect of the debacle that I find really crazy is this: this is a fight which Microsoft had no need to pick. As I mentioned, Sony will apply similar DRM to digital purchases, just like everyone else in every entertainment and software industry does. In the coming five years, more and more of the software published and purchased on PS4 will be digital software. The physical retail channel will remain, and it will keep the industry honest by providing a competitive pricing channel, but by and large, Sony will end up selling digital software subject to fairly strict restrictions – all without having had to pick an enormous fight and look like an utterly black-hearted villain for kicking the legs out from under physical, boxed games. Microsoft, too, will be mostly a digital business in five years. Was it really worth risking the company’s image and its product’s popularity with the core market, potentially undoing years of hard work at building up the Xbox business, just in order to hasten on that process by a few years? Was this not a fight that could have been won just by being a little more patient?

 

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