Why Microsoft is killing the second-hand game market

We revealed yesterday that Microsoft’s next Xbox will only play games while connected to Xbox Live, in the process eliminating the second-hand game market as it exists today. It didn’t take long for gamers to reach the agreement that such a manoeuvre represents a mistake of horrendous proportions. So why would Microsoft risk pulling a move like this? The company has yet to make any official comment on its next-generation plans, but we can go some way toward piecing together its motivations, starting with its decision to position the next Xbox as an always-online device.

In making its next console rely on an Internet connection, and by tying games to consoles, Microsoft will immediately eliminate the potential for pirated software. If you’re trying to play a game and your console isn’t talking to the closed network that is Xbox Live in precisely the right way – because the game code is somehow illegimate – it simply won’t function. Crushing piracy this way would represent a victory whose stature in the eyes of Microsoft’s publishing partners shouldn’t be underestimated.

Having a consistent online connection also means that Microsoft can provide a more stable target environment for developers and publishers by pushing firmware updates at the same time to all of its users rather than only a proportion. The days of publishers being forced to manufacture game discs containing operating-system updates will end – with Microsoft hardware, at least.

Beyond security and standardisation issues, a key motivation for Microsoft is the fact that the preowned market has long been an annoying tick on the back of game publishers and developers, and not only because when consumers are faced with such an appealing range of cheap options, it reduces the opportunities for new games to sell. The chief gripe among publishers and developers is that they see no revenues from sales of preowned games. It’s a standpoint that earns no sympathy with consumers, who want to be able to do whatever they wish with their possessions, but in changing the rules in this way, Microsoft immediately becomes a preferred partner to game publishers.

There remains a possibility that Microsoft will allow publishers to sell pre-owned game activations via Xbox Live, in much the same way that, right now, buyers of certain second-hand Xbox 360 games with online components can pay to access features such as online play. Rather than eliminating the second-hand game market, this would simply transform it into something from which publishers and developers could benefit. Looking at it optimistically, the revenues being re-routed into publishing and development would provide additional investment opportunities for new games, so what at first seems like simply bad news for consumers may end up being beneficial in the long term.

Yet online activations for preowned games would still prove devastating to the value of physical copies sitting on shop shelves, and therefore bricks-and-mortar retail as a whole. Let’s say that a game costs £40 new today and then £25 second-hand. If, with the next Xbox, online activation of a preowned game costs £25, what does that do to the value of the physical disc? And what, then, does that do to the value of game retailers, accustomed as they are to earning such a large proportion of their revenues from secondhand game sales? Suddenly a space-consuming rack of 200–300 preowned titles looks like a miserable proposition in terms of retail value.

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