Market Overview

Five Reasons Why Xbox 720 WILL Play Used Games

Don't believe the rumors.

Yesterday, Kotaku published a story about a game industry source who claimed the next Xbox (unofficially referred to as Xbox 720) will not play used games. Aside from the obvious question – how in the world will Microsoft (NASDAQ: MSFT) ever pull this off? – the concept of banning used games is absurd.

While it is wholly possible that Microsoft is or has considered the idea of a used game ban (and shared that info with Kotaku's source), there is no way that the company will ever follow through with the idea. Here's why.

5. Online Pass Codes Suck

Gamers – and by “gamers” I mean the primary (and most loyal) group of consumers who keep the industry afloat – hate the silly online pass codes that come with select multiplayer games. The idea is simple: if you give new buyers a one-time use code to access online content, the value of the game will be reduced if/when it is sold. Consequently, the person who buys the used copy of the game will have to pay $10 (or whatever the fee may be) to the publisher for a new activation code. This way, the publisher still profits.

But that small profit gained from these codes is not worth the many problems that they have caused. They damage the rental experience. They prevent consumers from sharing games with family and friends. And they create a financial barrier to consumers who cannot afford to buy new games.

Further, by requiring consumers to enter an online pass code, publishers are essentially forcing legitimate (paying!) customers to jump through hoops before they can enjoy their games. And sometimes the codes don't even work! That is ridiculous.

4. Gamers Aren't Ready for a Download- or Online-Only World

Technologically, there are three simple ways to prevent used games from entering a new console: (1) require players to be connected to the Internet at all times, (2) require them to sign in every time they want to play, (3) eliminate discs altogether and convert to digital distribution.

All three of these options have been a total failure. Consumers do not want to be forced to sign in or stay connected while gaming unless they are playing online. Single-player games (or multiplayer games with single-player campaigns) should never require an Internet connection. Under no circumstance is this justifiable. Not even iOS is that strict – users can access their collections of iPhone, iPad, and iPod Touch games regardless of their online connection status.

3. No More Sharing, No More Sales

By attempting to kill off the used games market, Microsoft would effectively prevent consumers from sharing games with family and friends. This would be a disaster.

When Bob Gamer buys a great new game, what's the first thing he does after checking it out for himself? He takes it over to a friend's house. If the game is really good, his friend is several times more likely to buy it now that he has played it himself.

When Halo 2 came out, some experts estimated that Microsoft had three players for every copy sold. This made sense because of the game's extensive split-screen multiplayer options, which encouraged friends to come over to each other's houses to play the game (which no doubt included some sharing/borrowing). As a result, Microsoft had three times as many prospective buyers for Halo 3!

This is not limited to the Halo series. For every additional person who plays a particular game, the number of potential buyers increases for the sequel. This is true for movies and TV as well, actually. Without video and DVD rentals (a subset of the used market), Austin Powers would have been a total flop. But the rental market introduced Austin Powers to millions of additional viewers. Consequently, Austin Powers 2 made more money in its opening weekend than the first film made in its entire run at the box office.

2. Piracy Would Reign Supreme

If Microsoft attempts to stop consumers from selling their games for credit (which they typically use to buy brand-new games), how do you think they will respond? How might Joe Frugal, who prefers to buy used, respond? By stealing, of course.

It already happened with music, simply because it was easy. It's sort of happening with movies (good films still do well at the box office, thankfully). It could happen with textbooks. And it could happen with games as well.

1. Microsoft Knows Better

Every year, hundreds of millions of dollars are poured into the game industry via GameStop (NYSE: GME) store credit. To GameStop shoppers, store credit is as good as cash. To game publishers, it literally IS cash, because GameStop must pay them for whatever consumers buy. In this circumstance, the retailer only profits if it manages to sell the used games it bought from consumers. Lucky for GameStop, used games are a hot commodity.

This really angers the game industry. “They're stealing our work!” publishers say. “They're taking our sales! We don't profit from used games, and that's not fair!”

What a load of crap. If it weren't for GameStop and the $800+ million in credit handed out to consumers each year, nearly $1 billion in annual video game revenue would be lost. Most used games are traded in for new games and new consoles. Greed might be blinding some publishers on this issue, but not even they could be foolish enough to think that quashing the used games market would be worth the loss of $800 million.

And what about the consumers who only buy used games? Does the game industry really want to shun them? One of my friends in college did not usually buy new games. He was a casual gamer, so he didn't care about having the latest Battlefield or Call of Duty on the day they came out. He was, however, happy to be an early adopter of new technology, particularly game consoles. Thus, he spent $400 on a brand-new Xbox 360, knowing he could buy a bunch of used Xbox 360 games for $30 or less.

One year later, he spent $150 on a new Halo package that included the game, a helmet-shaped DVD case, and some other goodies. He bought it because he “just had to have it,” he said.

In 12 months, he added $550 in revenue to Microsoft's bottom line. And he was just one a customer. A used game customer who may not have bought an Xbox 360 without the option for buying – and playing – used games.

Publishers who denounce the used games market are essentially denouncing my friend and the millions of other consumers who support the industry.

Microsoft may not like the used games market, and may secretly wish that used games would go away. (My advice: make better games! If they're good enough, no one will want to sell them!)

But Microsoft will never, under any circumstance, ban used games from the next Xbox.

Follow me @LouisBedigian

Posted-In: gamestop Microsoft used games Xbox 360 Xbox 720News Rumors Tech Best of Benzinga

 

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