Microsoft publicists put on their dog and pony show reveal of the upcoming Xbox console yesterday, the Xbox One.
Amidst the press puffing were a few kernels of fact, kernels which are popping into corn all over the place.
One of the most interesting things to be revealed wasn’t part of the planned presentation, it came out of the Q&A afterwards.
On the new Xbox One console, which offloads a lot of information to ‘the cloud’, when you want to play a game for the first time you install the whole thing on the hard drive of the console. Once you’ve installed it, the disc is of no further use to you. You can toss it, or file it, you won’t need it to play.
Now, that was an interesting fact, and immediately spawned questions on whether a 500 gig hard drive was going to be large enough to accommodate all of the games a player might own (even with the cloud), but it wasn’t the surprise reveal. They were up front about the cloud and the install, as though always having to be on the internet and not needing the disc in the console to play were big advantages I had always wanted.
The surprise reveal came when someone had the guts to ask what that meant for used games. If the entire game is installed on your hard drive and tied to your Xbox Live account so you are “free to play it anywhere, on anyone’s Xbox when you sign into it”, then what does that mean for used games?
Microsoft, what is to prevent someone from installing the game that they can now run without the disc, and selling the disc to a used game store?
Well, they weren’t glad that question was asked, because the answer, the official answer, is that if you want to play a game from a disk on your system that someone else already registered, you will have to pay Microsoft a special fee.
That’s right. If you buy a used Xbox One game, you will have to pay Microsoft to be allowed to play it. If you borrow a game disk from your friend to try it out, you’ll have to pay Microsoft.
Oh, but it’s all okay, because if it’s really your friend lending you the game, you can just log into your Xbox One as HIM, and play the game with appropriate permissions on HIS account.
I guess people borrow games differently these days than when I did. I don’t recall having my buddy over for a sleepover camping in my living room for a week because I wanted to borrow his Halo 2.
Now, that fee could be anything Microsoft decides. No way now of knowing what it might eventually be, what structure it might take. The system isn’t even out yet. Maybe they’ll have one set fee, maybe there will be a higher fee based on ‘premium’ games or on games exclusive to the Xbox franchise, maybe there will even be a time decay structure so the longer a game is out in the world from it’s date of release, the less the fee would be.
“This game is two years past it’s born-on date. You are free to play.” Blech.
Who knows? Maybe if the stink reeks enough before launch, they’ll drop it to a token fitty cent, get the worst of both worlds, too low to generate much revenue, enough of a fee to outrage people that a fee exists.
The point here is that with that one announcement, they have killed any possibility that I or my family will ever buy one.
We won’t buy an Xbox One because we are not early adopters, and we don’t have to play the latest content to feel like we’re keeping up with the gaming joneses.
When my family buys a console, we buy it only after it has been out long enough to have a decent selection of titles available at a used game store on the cheap, and after most of the software bugs have been worked out. Typically, we’ll hold off until there is a really nice ‘Black Friday’ sale over Thanksgiving, or some other serious cost savings to getting it.
See? I am not the target market Microsoft is pitching to, so what I think shouldn’t make any difference to their marketing plan. Their game will be a hit or a miss the first year entirely without our dollars stirring the shallow end of the pool.
The key point is, if we buy a game console, and we have friends with games we could borrow, or we find a good deal on a game that got decent reviews at the used game store or online, we’re good. We do our gaming on the cheap. We just don’t have the inclination or the capability to spend thousands a year on games.
Any console that will charge us extra money, whatever that amount may be, just to install and try a used game is doomed.
Gamefly is a service that is the Netflix of games. It’s a pretty cool option, one I’ve looked at for when our son gets old enough he wants to start playing some of the same games his friends inevitably will. Likewise, if we want to try out a game on the Wii or PS3, you can rent games for a day or two from the local Redbox dispenser.
We’re not going to rent a Gamefly or Redbox game and then turn around to pay Microsoft their ‘rental use’ fee before we play it. Just, not going to happen.
And the idea we’d do the teenager route of dropping $60 or more on every new game that comes out that sounds cool? Man, that’s something kids with disposable income do, not us.
But here’s the thing.
Whether you like the idea, hate the idea, or dislike it but think it’s inevitable, don’t make the mistake of thinking this is the result of “greedy corporation lusting after your dollars.”
I know the tendency will be to paint Microsoft as evil and greedy.
Please, be original. before you jump on the hater bandwagon, take a moment to think about what drives these kinds of decisions for them.
Microsoft, along with all other publicly traded corporations, are responsible for reporting their revenue streams, profitability and plans to their shareholders.
Like it or hate it, the market has set expectations. Your company must not just be profitable, it must be more profitable than your previous year.
You literally cannot simply make money, or be profitable, and survive. You must have ‘growth’, and that growth is defined by making more of a profit, or ‘profit before income tax’, then you did the previous reporting cycle.
You must grow to be successful in the market, because the market said so. If you simply continue to be really profitable each quarter, then your earnings to shareholders are ‘flat’, and the market will count you as a failure to dump.
There is a lot behind all this, but in the end the core metric is simple to understand. A stockholder takes $1000, and buys a block of stock in some company that makes widgets or game consoles or whatever, and that block of stock was valued at that moment at $1000.
From then on, so long as you own that block of stock, you can make money one of two ways.
One, you will get paid a few cents on the dollar each quarter based on how much money the company made as profit. Those are your earnings, for owning the stock.
OR, you can play the market like a casino, and hope that the company will get some rocking good news, sound like earnings are going to go through the roof and be a ‘good investment’, and someone else will be willing to pay you more than you spent on your block of stock. A short term quick profit.
If a company experiences ‘growth’, if they keep making more money in profit each year, then their stock is considered desirable, and you could flip your block of stock next month for maybe $1200. You just made $200 for picking the winning racehorse, and bailing out before the company revealed they had a union strike in Malaysia and profits are going in the shitter next quarter.
If the stock continues to grow every quarter, and the earnings continue to grow for your block, then the perceived value of your block goes up. Ooh, this month my stock is worth $1500! I wonder what it will be worth next month. Microsoft, make me some money! More profits! Make people want my block even more, so I can dump it and make buckets of dough!
So, think about it.
Corporations are about greed because shareholders are about greed. A corporation must always be looking at ways to be come more profitable than they were a year ago, because if they don’t the shareholders will respond by dumping the non-performing stock, and when your stock price falls it be bad, yo.
If you invest or have holdings in a 401K plan, congratulations. You’re part of a huge shareholder block that distorts these things, too. 401Ks and pensions funds that represent huge numbers of employees have enormous power over the market, and they aren’t interested in what the product is, they want increased growth. So before you bitch about greedy shareholders, consider that you might very well be one of them, or at least are represented by one.
You financial pitbull, you. Grr!
It absolutely does not matter if a company made a billion dollars in profit last year. If you only make a billion dollars in profit this year, your earnings were flat and you are a FAILURE, your stock price will drop because you’re not an easy cash cow for day traders to flip your stock for easy profits, and the drop in stock price triggers all sorts of bad things.
“But… but we made a billion in profit last year!”
Yeah, but how much more than a billion will you make next year? You won’t make more? No growth for you! LOSER!
It is this core philosophy that drives corporations to look frantically at new ways to, sigh, ‘monetize’ their intellectual properties and any asset they can find. It is what drives automation, efficiency efforts, reduced benefits for employees, reduced headcount and layoffs, outsourcing manufacture to cheaper labor markets, and yes…
It is this kind of thinking that can drive a Microsoft to look at used game sales, and see that as money being left on the table.
Nobody in Microsoft was sitting over there, wondering how to screw gamers on a budget. There was little to no malice in this decision.
No, if you think about how the market game is played, you can see that for every executive, the drive is to come up with new ideas for getting as much possible profit and residuals out of their products as they possibly can, to continue to have growing profits quarter over quarter.
So, somebody had the great idea of designing the architecture of the system so that you’ve got your DRM on the ‘cloud’, someone can buy a game and register it to their Xbox Live account, and if someone else tries to use that same code, they have to pay. Makes no difference if the game disk was ripped or sold to a used store, Microsoft won’t care, because every time a code is registered, someone will pay.
Personally, I hate the whole idea, but I can see where they’re coming from. A new launch is costly, and they want to be able to show the shareholders that the new system architecture will result in more robust residual sales and reduced losses from theft or pirating.
I hate the idea, because I play PC games for the online experience, I play console games for the single player or multiplayer sitting in front of the TV experience. If I lose internet, your cloud based DRM just bricked my console. Screw that for a game of soldiers.
If you are intrigued by how shareholder concerns and business conditions in the market can directly impact the businesses that create the stories and movies we dearly love, I highly recommend the book “Disneywar” by James Stewart, a gripping account of the inner working of the Eisner-era Disney Corporation, written by a journalist that was given amazing levels of access for purposes of a biography.
James Stewart witnessed and accounts firsthand the events that led to the creation of Dreamworks, among other things. A fascinating book that takes the things we as gamers and geeks love, and shows you the money matters and profit driven concerns that shaped them. Considering they now own the Star Wars and Marvel brands, the book is even more relevant to us geeks today.
As a side note, you’ll also learn the secrets behind the Disney VHS and DVD timed release strategies.
In conclusion, I think the Xbox One media event just confirmed for me that this is not the console I’m looking for.
At the same time, I don’t think they’re being greedy and hateful to gamers. I just think they are allowing the real need to please shareholders and increase profits any way they can to drive their design, and it’s gonna bite them in the butt in the long run.
There isn’t one. We have a market economy, and for small businesses, the holy grail is to take a company public and hope the stock will go through the roof, make you as the owner a millionaire overnight, and then you turn the company over to the people who have to start riding the shareholder accountability train.
Companies that are not publicly traded don’t have to cater to market pressures. Smaller companies can actually be satisfied with flat growth so long as they can make payroll and expenses, and reinvest the rest into improving the quality of their products and even, and this may shock you, provide better benefits and wages to their employees.
You sometimes hear of these companies out there, where the owner pays employees great wages and benefits, and still makes lots of money for himself, and turns out a great product or service. They are the exception, not the rule, but they are out there.
Things are rarely as simple as they seem, and sometimes understanding the system, what it is, and seeing how it pressures others to act as they do helps us see what we can expect.
It looks to me as if in this case, Microsoft is feeling their position as the number one selling game console with the 360, and is looking at ways to increase revenue streams with the next launch rather than consider that if they do things like this, they may lose the crown, along with a big chunk of market share, to someone else that is giving away the store to bring in more customers.
Comments and criticisms and opposing points of view very welcome!