Online Passes: Why They Are a Good Thing and Why They Are Here to Stay

Giuseppe Nelva November 1, 2011 1:00 PM EST

Every time a publisher announces that a new game is going to have an online pass, or any kind of content locked behind a one-time code made to encourage sales of new copies (or to discourage sales of pre-owned copies, depending on the point of view), the whole internet explodes in a festival of wailing and hair pulling.

Of course the most sensationalist among our friendly neighborhood journalists will join the mourning, or better, they will encourage it, fueling the fire and pushing all their media weight into increasing the drama as much as possible, because, as you very well know, controversy generates traffic, and traffic generates revenue.

While the usual gamer isn’t required to know the real reasons why online passes exist, and a displeased reaction to something seen as an additional cost is natural, a sizable percentage of journalists know those reasons very well, especially the most experienced ones, but some still try quite hard to paint developers and publishers in the worst light possible, in order to keep the cash flow generated by controversy and drama running.

The fact is that, not only are online passes not as bad as some would like you to think, but they are actually a beneficial implementation. Even more than that, they are a necessary countermeasure that is here to stay, no matter how much people protest and express their indignation about the preposterous attempt by businesses to generate revenue from a product they provide. Mind you, online passes will actually spread further one way or another, so we better get used to the idea.

Angry already? I wouldn’t be surprised, especially after the indoctrination campaign by that sector of the media that did every possible effort to paint developers and publishers as the “evil corporations” out to eat your soul. Because, you know, your soul is yummy.

But let’s give a look to some numbers, shall we?

During the fiscal year ending on January the 29th GameStop earned $2,469,800,000 (yep, you read it right, two and a half billion dollars) from the sales of preowned software and hardware, corresponding to the 26.1% of their total annual revenue. Pretty nice, isn’t it? Wait until I tell you the actual profits.

The gross profit from those pre-owned sales is $1,140,500,000, corresponding to 46.2% of their total annual profit. The fact that pre-owned sales amount to 26% of their revenue, but 46% of their profit, should be quite telling already on how naive some people are in buying their pre-owned games, and in selling their games back to them, but that’s only marginally relevant to today’s topic, so we’ll leave that for another editorial.

What is relevant is that GameStop (quite obviously) didn’t develop those games. They didn’t publish them. They get such large profits on them simply because they didn’t have to do much else than picking them from your hands, giving you much less than their value in return, checking the contents (normally not even that accurately), putting a few ugly stickers on the cover, while applying a draconian markup in the process, and placing them on a shelf again.

They built up a nice little secondary market on which they offer exactly the same product as the publishers, spending much less to generate such product, resulting in the ability to sell that product to you at a lower price, despite a much higher mark-up. This, ladies and gentlemen, is what most civilized people define as unfair competition.

Those two billion and a half dollars of revenue are taken away from the game development industry and go to inflate the coffers of GameStop, without being reinvested, in turn, in the gaming industry itself. It’s a massive black hole that sucks funds out of the pockets of the publishers, significantly reducing their revenue. Reduced revenue automatically means reduced ability to invest into new games and into keeping development studios afloat and game designers into their jobs.

If you were surprised by the high number of development studios that close every year, and by the amount of those hit by large numbers of layoffs, be surprised no more. Now you know why (or at least one of the reasons why).

The problem gets even bigger if we consider that GameStop is only one of the businesses that deal in preowned sales. There are others, and each of them takes a further slice of the revenue that normally would go to publishers, and through them, to developers.

So the situation is as follows: Developers and publishers face an increasingly big secondary market that they have no means to compete against, since it offers exactly the same products at a more convenient price. Given that they are businesses, and businesses aren’t exactly keen on going out of business (please forgive the horrible pun), they have to defend themselves.

I can already hear someone saying that they should just lower their prices. Wouldn’t that be a very convenient and ideal solution? Too bad that, as most ideal solutions, it doesn’t have much of a footing in reality.

Publishers cannot lower the prices, as producing today’s AAA games has massive costs (and massive risks), and businesses need to actually turn a profit in order to survive and prosper. They cannot work at a loss just to manage to compete against GameStop and the rest of the preowned business gang. And even if they could, it wouldn’t work anyway. GameStop and the gang could easily reduce their prices as well by paying less for the preowned games they buy from you, or even just by cutting a little off the massive markup they apply.

No matter how the publishers try to compete, they simply cannot win, as they have to shoulder much higher costs than GameStop does, so they simply have no way to offer their products at a competitive price in comparison. No matter how low they could go. GameStop can go lower.

Since they cannot compete with the preowned gang on pricing, publishers have to find alternate ways to defend their business. Last time they had to do this, it was when the PC market started to take a severe hit from piracy, and the result is that now the vast majority of PC games have unique activation keys that almost completely prevent any organized resale, without even mentioning more draconian DRM we already know too much about.

Of course piracy and the preowned market are two entirely different issues under the moral and legal point of view, but what about their practical effect? When a game is pirated a large number of people can enjoy that game without paying a dime to the publisher and the developer. Sounds familiar? I bet it does, because it’s exactly the same thing that happens when preowned copies of the same game are sold.

So now the gaming industry pulled out this online pass solution, keeping part of the content of each game locked beyond a one-time code in order to encourage users to buy the games new.

This is actually a rather mild solution, as it still allows people that are so inclined to buy preowned games and enjoy most of what they offer, giving them the possibility to purchase the pass separately in order to get the full experience, saving money with the used copy, but still providing the publishers, and through them the developers, with the revenue they deserve for the enjoyment they provide.

Of course, as mild as this solution can be, many still don’t like it. Who doesn’t like to get the same product for less? Well, though luck on this one.

A classic argument against online passes and similar implements is that other industries survive without cracking down on the preowned secondary market. It makes sense on the surface, but of course it’s missing some crucial elements.

The first problem is that almost every product, due to wear and tear or to extended use, loses its mint condition, and as such part of its value. That means that many chose to buy those products new, in order not to pay for something already worn or in less-than-ideal conditions, making the market of used goods much less relevant to the industry as a whole.

Video games are a different pair of sleeves, as they are nothing else than data. No matter how many people play them before you, as long as they don’t scratch the disk with a screwdriver or don’t turn their 360 upside down while playing, you’ll always be getting the same product, whether you buy it new or preowned, with the result that many more people buy used games, creating a much relevant impact on the industry.

To put it down simply, video games lack that loss of condition and value that make the preowned market much less damaging to other industries. Online passes introduce exactly that differentiating element, making sure that when you buy a pre-owned game you’re puchasing something of lesser value, exactly as you were purchasing an used car or a second-hand coat.

The only industries that are in a similar condition to the gaming industry are the music and film industry. They really cannot be compared, though, as they aren’t entirely based on the sales of CDs and DVDs. They have large alternative revenue sources like theatrical airings, TV and radio licensing and live performances. The gaming industry doesn’t have any of that, and its revenue is based only on sales, again making the preowned market much more damaging, as it severely impacts the only sizable source of income publishers have.

But besides all the rage, the tears and the feeling of somewhat being “wronged”, how does the online pass business really affect us gamers? Not really as much as some would like us to believe.

We still have plenty options: we can buy the game new (I know, I’m being Mr. Obvious here). We can still opt to buy preowned and enjoy a large part of the game while saving as much money as possibile. We can buy it preowned and then purchase the pass separately, still saving money, unless we’re buying it the day after launch and the price still didn’t drop. And, just so you know, if you’re buying a game preowned when the price is still just a few dollars under the MSRP for a new copy, you’re getting ripped off, hard (not that in other cases you aren’t, but in this one it’s really blatant).

Finally, there’s the smartest option for the spending-conscious that don’t think a game is worth the full $60 price tag. This option was available before and is still available, untouched by the dreaded online passes: we can just wait for the inevitable price drop and the many (just as inevitable) sales that will considerably lower the entry level for the game we want, purchase it then, get our online pass alongside with the discounted purchase, and walk out of the shop/web shop knowing that not only we saved our money, but we still supported the people that worked on the game that we’re going to enjoy.

In the end this is the real core of the whole issue. By purchasing a new copy of a game, no matter how discounted it is, you’re supporting the people that worked for years to bring you that game. By purchasing a preowned copy of the same game, you’re supporting only GameStop, or the retailer you bought it from.

By giving your money to GameStop, those dollars help them open new shops, underpay more employees, rip off more people and generally get richer, but it has absolutely no effect on the game development industry. To put it down simply, it’s as good as lost and gives you, as a gamer, no long-term advantage.

By purchasing a new copy, part of that money will still go to the retailer (with the effects mentioned above), but the rest will reach the publishers and developers. While some of that percentage will still help them get richer (yes, they’re businesses, they work to make a profit and all that), a sizable part of it will be reinvested in the cycle of the industry. It will be turned into resources that the development studios will be able to use to create more games that we will enjoy.

Ultimately, while purchasing preowned games may seem a great option on the surface, by purchasing new games, even if discounted, you’re doing the right thing under every point of view. You may not save as much money on the short term, but you’re supporting the right people and ensuring the continuation of your enjoyment of this hobby named gaming on the long term.

Online passes and similar contraptions do nothing else than giving you a nudge in the right direction, while still allowing you to chose differently if it really floats your boat (for some unfathomable reason).

I will go ahead and say that something that encourages customers to do the right choice and support the industry they enjoy is a good thing, especially if it’s a rather mild measure like this one, still allowing plenty of options for gamers to chose from.

For sure online passes are here to stay. Unless the preowned market completely disappears or the conditions of unfair competition that it causes are removed, the industry doesn’t have any other choice than defending itself in this way. If you’re hoping that all the wailing and media grinding will persuade the publishers to bend over and let GameStop and the rest of the preowned gang eat an increasingly large slice of their profits each year, you better not hold your breath about it, because it isn’t going to happen anytime soon, or ever.

On the other hand online passes are already beginning to have an additional beneficial effect.

When GameStop started providing online passes for Mortal Kombat and then Catwoman codes for Batman: Arkham City with preowned purchases, a large portion of the gaming press naively labeled it as a weird aberration. Reading those reactions the first thing that came to my mind is the popular meme “Not sure if serious“, as it seems extremely weird that seasoned gaming journalists wouldn’t be able to easily see the reasoning behind the move.

GameStop is, of course, getting those codes directly from the publisher. They don’t have little key generating machines in the back of their shops. Just as obviously they aren’t getting them for free. What’s happening is that GameStop is starting to notice that online passes actually endanger their preowned business, and is reaching out to publishers in order to purchase online passes and similar keys to sell alongside their used games.

To put it down simply, online passes are starting to hit the GameStop giant where it hurts, forcing it to shoulder the cost of the codes, giving some of their revenue from preowned copies back to the publishers, removing or at least partly amending, the situation of unfair competition that forced the industry to defend itself.

Thanks to the introductions of online passes and content codes, when you save your money by buying a preowned copy of Mortal Kombat or Arkham City at your local GameStop, you’re still supporting the industry and the people that worked on it, because GameStop had to pay them for the code printed on your receipt.

So if you hate online passes, your rage and protests shouldn’t be directed against the online passes themselves, as they are definitely having a beneficial effect. They should be directed towards GameStop and the rest of the preowned gang, to force them to shoulder the cost of the passes themselves and give back to the industry in the process, instead of sucking its blood like a vampire, and towards publishers to encourage them to strike the same deals Warner Bros. did, facilitating the shift of the cost of the passes from your wallet to GameStop’s.

Anger and disdain, especially when widespread, are a powerful force, but only if funneled in the right direction instead of going to fatten the controversy-driven wallets of the video games gutter press.