Joshua Rand Kagan, Attorney-At-Law

The Emerging Market for Used Video Game Discs: Nothing to Fear Here

I used to work for a video game publisher here in LA, so it’s not unusual for video game-related news and cases to come across my desk. But over the last few days I’ve seen an unusually high amount of commentary from all different corners of the industry about used game sales. I don’t think this is as big of a problem as those commentators have suggested.

The Issue of the First Sale Doctrine

The First Sale Doctrine as codified in the Copyright Act¹ permits a purchaser to transfer ownership of a particular copy of a copyrighted work as long as no additional copies are retained. Game discs qualify for this,² and so they can be freely sold. Historically, this has never been much of a problem for the industry. Unlike novels and videos which are often used once and then archived, consumers have traditionally resisted selling their used games because it’s a different kind of product. But now, with companies like Gamestop building retail businesses that aggressively promote the sale of used game discs, the situation has changed significantly. Some publishers and developers fear that an overly powerful secondhand games market could strangle the industry by cutting off consumers’ demand for new game discs. With new games costing as much as $30 million to develop in an industry that employs around 100,000 Americans, it’s not hard to understand that fear. On the other hand, novelists and movie-makers have been dealing with the First Sale Doctrine for ages, but those industries have managed to survive even with the proliferation of lending libraries and video stores.

Digital Downloads as a Work-Around

One potential solution would be for the industry to move more toward digital downloads. Some of the most successful games in recent weeks, such as Braid and the highly anticipated Capcom title Mega Man 9, have found tremendous success as downloadable games on platforms like Nintendo’s WiiWare, Sony’s PlayStation Network, and Microsoft’s Xbox Live Marketplace. Many developers have also found success on Apple’s App Store, a service that puts application and game downloads at the fingertips of iPhone and iPod users. The use of digital downloads has a number of advantages to the industry, one of which is that downloaded games are typically locked to a single device through the use of DRM, cutting off the First Sale Doctrine at its knees.

DRM Problems

But moving further into downloadable games also has serious consequences for the industry. While mainstream gamers have generally been accepting of DRM, with services like Nintendo’s Virtual Console reporting sales on the order of 10 million games sold per year,³ critical demographics such as the 18-35 year-old male group have expressed dissatisfaction with the DRM restrictions placed on popular games like EA’s Spore. With the entertainment sector moving increasingly away from DRM, it’s not clear that the video games industry would benefit in the long run from increased reliance on a dying technology.

Storage and Bandwidth Problems

Another more important problem is that the storage and bandwidth limitations of game consoles don’t always meet the needs of today’s cutting edge games. For example, most games for the PlayStation 3 ship on Blu-Ray discs that can hold up to 50 GB each. Some recent games such as Konami’s Metal Gear Solid 4: Guns of the Patriots have already managed to fill these discs. Delivering games this large over the Internet is impractical with current technology because they would take far too long for players to download and would occupy too much space on game consoles’ hard disks.

There’s no denying that this situation puts the industry in a tough spot.

The Best Solution: Leverage Games’ Perceived Value and Add Replayability to Game Discs

I think that the best solution here would be to make some small changes to the nature of mainstream disc-based games. One of the things that distinguishes a game disc from a novel or a video is that, in many cases, once a novel or video has been used (i.e. read or viewed) once, there might not be a lot of perceived value to the consumer in using the product again. That’s why there will always be a sizable block of consumers who rent many DVDs but don’t buy any. But the video game industry can be different by crafting products that retain their perceived value even after they have been enjoyed once.

One way to do this is by providing gamers with experiences that go beyond a typical “single player campaign” experience. Nintendo’s Metroid series was a pioneer in this area; they contain items and areas that are not essential to finishing the game, but that greatly enhance and change the nature of the game if the player chooses to explore. Vivendi’s Diablo series is similarly innovative, with dungeon layouts and discoverable items that are randomly generated each time the game is played, presenting the player with a slightly different experience on each playthrough. Some other recent games have begun to emphasize Internet multiplayer capabilities that pit players with (or against) other players from around the world. This creates communities in which players build perceived value in the game over time. It also encourages players to push sales of those games through word-of-mouth advertising because players know that the more people have the game, the better it will be. Finally, another solution is to make available new content in the form of downloadables. These can be offered to players for free simply to drive sales even as the game gets older, or they can be sold to players in the form of revenue-generating micro-transactions. It’s worth mentioning that a gamer who has invested even a few dollars in game-related micro-transactions is probably far less likely to ever sell his copy than someone who has invested nothing other than the purchase price.

Americans spent nearly $19 billion on video games in 2007, and that number is set to look even better once 2008 comes to a close. Over the past two decades we’ve watched this industry adapt dynamically to a number of consumer and technological trends such as Internet piracy and the emergence of the “casual” games market. In every case the industry has emerged stronger than it was when it went in. I wouldn’t lose sleep over the emergence of a used games market.

Save your fear for Capcom’s upcoming Resident Evil 5 launch instead. If it’s anywhere near as good as its predecessor, when that hits in March 2009 I think we’ll all be having a few zombie nightmares.

1. 17 U.S.C. § 109 [↩]
2. Vernor v. Autodesk, Inc. 555 F.Supp.2d 1164 (W.D.Wash.,2008). [↩]
3. http://uk.gamespot.com/news/6185358.html [↩]

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