A CFO Makes Me Throw up in My Mouth, Plus More From The Official DQ Copyright Law AdvisorThe post about the possible ramifications of the Vernor vs. Autodesk decision is postponed until Monday.
Julian Dasgupta sent me a link to an absolute eye-opener of an interview with Electronic Arts CFO Eric Brown. If you wonder about value to the consumer and its future, just get a load of these quotes:
Arguing that, despite a general decline in units shifted, games in the top 20 were actually selling more, Brown asserted that the online functionality of triple-A titles was leading to enormous revenues.
"Instead of selling one product with a unified $60 price point we see people buying a $60 disc and then bolting on hundreds of dollars of DLC. We're happy to have $500 worth of extra content to sell."
..."There'll generally be half a dozen different pieces of DLC available for a title, and GameStop's in a really good position to explain to the customer what the DLC is, what pack number one and five and four and six provides, because they have a staffing model and a customer service model geared exclusively to games.
"So we view them as a very important current and future market partner for all forms of DLC."
I've written about this in the past, but he described exactly where we're headed, unfortunately. Here's an advertising blurb from the future:
Your $60 purchase gains you exclusive entry into the downloadable content marketplace!
Look, publishers may deny this, but over time, more and more essential features of the game are going to shift from the core game to DLC. It's inevitable, and the only question is how far these guys are willing to push the envelope.
A reasonable guess: very, very far.
It's just math. Brown claims that "digital revenue" (DLC, presumably, based on context ) has a 70-80% net margin. Translation: putting content into the lower-net margin core game is for suckers.The only purpose of the core game is to lead people to the sacred forest of high-margin DLC.
Brown also inadvertently said something quite amusing. Take a look:
Brown felt that the $10 Online Pass – requiring second-hand users to fork out extra money for a code necessary to play certain EA titles online – could draw significant money from the used market, which he posited had grown by around five times over the last half-decade.
Let's see--when did game publishers begin raising prices by $10? Why, that would be at the launch of the 360, which happened almost exactly 5 years ago.
What an odd coincidence.
What's really funny here is that even with steadily dropping levels of value for the consumer, the big gaming companies are collectively losing a ton of money. In some industries--clever ones--when companies lose money, they try to provide more value to the consumer, not less.
Sadly, not here.
Moving on, I received another e-mail from Official DQ Copyright Law Advisor Nhut Tan Tran in regards to the Vernor vs. Autodesk decision, and it makes for excellent reading. Here you go:
1. The chances of a higher court affirming but narrowing:
Slim. This is a decision by the Ninth Circuit Court of Appeals. It ends here unless Vernor decides to petition for appeal, which is expensive. He also needs to cite error. Unless the EFF or some other organization steps in to help him, I don't see it. The only appeal he has is to the Supreme Court by filing a writ of certiorari and four Supreme Court Justices need to vote approval for hearing it. Those are very slim chances. Unless another Appeals Circuit comes up with a different decision on the same issue which causes conflict of law between the two Circuits, the Supreme Court probably won't intervene. Or they might, since it is a sexy Constitutional issue. Vernor needs to appeal, though, to give the Supreme Court the procedural means to intervene.
Second, the Ninth Circuit essentially punted the football on this. The decision rests on the interpretation of established copyright law and how licenses work. Like I said before, Nimmer pretty much explicated the problem and the judicial history is that a license rules the terms of the relationship with the consumer. This is not new, and Nimmer (which I agreed with on his interpretation) encapsulated it thoroughly. Lay people always cite the First Sale Doctrine like it's the "I Win" button for used games/software. It's not--it's what's called an "affirmative defense," which always can be overcome in the right circumstances. The Ninth Circuit basically stated in its decision that their hands were tied, and that it should be up to Congress to change the laws to accommodate the new distribution methods for creative works due to changes in technology.
2. Game Companies are already moving to the Licensing Model.
Modern Warfare 2 for the PC is only offered on the Steam platform. You buy Modern Warfare 2 and it's explicit that you only get the license to the game under the Steam Subscriber Agreement:
"Valve hereby grants, and you accept, a limited, terminable, non-exclusive license and right to use the Software for your personal use in accordance with this Agreement and the Subscription Terms. The Software is licensed, not sold. Your license confers no title or ownership in the Software."
It will not be hard for Activision to apply this format to console copies of Modern Warfare. The next one can be set so that you have to sign a click thru agreement before you play multiplayer on their servers. You can put a license agreement terms in the DVD, the case and the manual. It's not hard at all.
On Monday: what this all means.