State of the Industry: The Business Model

It's no secret that the gaming industry is in trouble. We consumers have spoken with our wallets. We want better graphics, better stories, deeper online interactions, more replayabilty, and Hollywood production values. We want all of that, but don't want to pay more, and we want the option buy and sell used. Something has to give... but it isn't consumer rights.... it's this silly business model.

Currently, the potential profits for a particular title are limited to launch window sales and, occasionally, DLC sales. If games are going to require Hollywood budgets, then the business model should resemble the Hollywood, multiple revenue stream approach.

1: The non transferable experience

Movies hit theaters first. Movie goers are willing to pay a relatively high price for the chance to see the movie on the big screen. And there's no value to be had later, once you use your ticket, it's worthless.

The video game equivalent to theatrical releases would be timed exclusivity to digital download services. Games should launch on PSN and XBL at least 3 weeks before they hit the shelves. Gamers who purchase games this way will be losing their ability to participate in the used game market in exchange for early access. The value provided with this method needs to offset the freedom lost. To sweeten the deal and reward their loyalty, these gamers should get a season pass for all future dlc. Down the line, when this particular title's MSRP drops and it loses its trade in value, these gamers should receive a physical copy of the disc in the mail (more on this later).

2: The retail release

Some movies don't become profitable until they are available on dvd. Some people prefer to wait for dvd release instead of going to the movies. Some prefer to rent movies instead of buying.

All of these will hold true when games are available at retail 3 weeks after launch. Only the most feverish fans will be buying games online at launch. Those who prefer to wait will get the same experience we're used to now, physical disc, gamefly, rentals, used gaming, paid dlc, etc.

At this time, publishers should also start offering games for digital rental. For a couple bucks, gamers should have full access to games for a limited time period. If they like the game they can rent again, or upgrade to a full digital license. This way rental profits would go to developers and publishers instead of middle man dealers. Win-win for consumers and publishers.

3: post release

There comes a time were even the best movies can be found for two bucks at the bottom of the bargain bin. At this point Hollywood is no longer profiting from dvd sales because they are being sold used and titles are being pirated. But they STILL manage to make money by airing the movie on network tv.

Remember when I said those who bought the game digitally at launch should get the disc in the mail? Now's the time. Don't worry about folks transferring or trading the disc, at this pointthe disc it isn't worth anything anyway. Publishers have already made all the money they are going to make on disc sales, and they are done with new dlc. This is just a customer service that adds value to digital sales and ensures that those most loyal customers will be able to play their games 20 years from now if they want.

What's the gaming equivalent to airing a movie on TV? The online promotion. Got a sequel coming out? Sell the original online at a dramatically reduced rate. Or Release a free extended demo. Hell, give the whole game away for free, but turn loading screens into full fledged commercial breaks (your getting the game for free, so quit your whining).This is where publishers should use technology and get creative. Use this old outdated title to reel in a few bucks and/or generate excitement for your new title.

There's no doubt that used game sales hurt publishers. When Gamestop sells a used copy for $55 bucks, while the publisher gets $0, you can't argue with the fact that new sales are being cannibalized. But the key to fighting them isn't anti-consumer drm, it's finding organic ways to keep games in the tray. Also publishers need to reduce the emphasis on the need for new sales and find ways to make a profit throughout the entire life of a title. I think my proposed model addresses all of those issues.

Do you see any potential flaws or pitfalls? Do you have a better idea? Discuss.

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