Is 'Game Licensing' Coming With New Xbox?

Just after I wrote about Microsoft's new scheme for licensing Office to consumers last week, reports came out that it's planning something similar with the next Xbox.

If the reports are correct, Microsoft and Sony will take a dramatically new approach to licensing video games when they release their next consoles later this year, and will restrict the new consoles from playing used games.

Neither company is saying much about its plans, but I think it's time game players brace themselves for the change. I also think console-game companies need to lower the price of new games to make the new approach more palatable.

The potential end of used-game sales has been looming for years, with game publishers chafing against the practice because they believe it dilutes their sales.

It's controversial because game players believe they have a right to resell games they buy, just as they can resell a book, a painting or a music album.

This has traditionally been the case under first-sale doctrine in U.S. copyright law, but legal challenges in the last few years are tilting things toward software publishers.

A 2010 case laid the groundwork for blocking the resale of software that's licensed to users, in part because the publisher retains the copyright and is basically letting you use it for a fee. The Supreme Court is now considering another case, involving the resale of copyrighted works acquired overseas and imported into the U.S., that could further modify the notion of first-sale.

Despite the outcry last week from avid gamers, most people seem unfazed by limitations on the digital stuff they buy, or rent. They're increasingly buying digital versions of their books from, subscribing to software packages and watching movies on secure digital channels operated by the likes of Netflix.

Games are also moving toward digital distribution, which may overtake sales of physical games in the next year or two. Last year physical games sales in the U.S. fell 21 percent, to $8.9?billion, according to NPD research, while digital game sales rose 16 percent, to $5.9?million.

Video games tend to be at the leading edge of digital entertainment. These shifts in licensing and distribution suggest the next generation of games and game hardware may have just as much innovation around their business models as their graphics and game mechanics.

This will come into focus over the next few months, with Microsoft and Sony possibly driving the change with their new game hardware.

Spokesmen for Microsoft and Sony declined to discuss their plans with me last week. For specifics we'll have to wait for Sony to unveil its new PlayStation on Feb. 20 and for Microsoft to reveal the new Xbox later this year, probably at a game conference in June.

Meanwhile, Bellevue's Valve Software has been publicly discussing changes it sees coming to the business. Speaking at a conference in Las Vegas last week, co-founder Gabe Newell said his company thinks "there's going to be a fairly significant sea change in how we all think of what a game is."

Newell expects games to end up being part of a "connected economy" involving the exchange of digital goods and services. Valve is seeing this already in its customizable games where players are making up to $500,000 a year creating and selling add-ons to other players using Valve's platform.

This mirrors the broader trend toward "free to play" games that are cheap or free to acquire. Money can be made later when players pay to do things like upgrade characters or unlock new features.

Newell suggested the model could be extended to other digital goods, such as productivity software, with a basic version offered free and upgrades available from an open marketplace.

This is especially appealing to consumers because it lowers the initial cost of acquiring new content. Those who love the product and want more from it can be the ones to pay more.

I can't imagine that Microsoft, Sony and the big console-game publishers are ready to go there just yet, at least not with the blockbuster games that are a cornerstone of their business and cost $100?million or more to create.

But I'll bet we need to start thinking of game discs as fancy keys we buy to unlock games that are played primarily online. Hopefully, movie studios and book publishers won't follow suit and force us to log on and pay up for their finales.

The new version of Office provides a clue about where the console games are headed. Discs are available, but they can be used only on a single machine. A more attractive option, on the surface at least, is a digital version of the software that can be used on multiple machines and comes with a menu of online extras.

Perhaps the best way to get gamers to accept a new licensing model would be to lower the upfront cost of new titles. The variety of cheap-to-free games online is making $60 discs a much harder sell, especially on top of a $300 to $400 console.

Cutting the disc price to $20 or $30 even for blockbuster titles would offset the inability to resell the games and, if Newell is right, game companies would more than make up for it by selling add-ons and upgrades down the road.

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