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EA's Online Pass just the beginning
Shaun Conlin takes a look at EA's fresh used games initiative, which locks out the online components of pre-played games unless the bargain shopper ponies up another $10.
Posted May 13, 2010
Used games sales have long been a bone of contention between publishers and retailers. While consumers are free to trade in or otherwise sell a purchased game after playing it through and tiring of it (or just needing the money), there is no mechanism for the game's publisher to reap a royalty off this secondary sale or trade.

However, most game retailers - with a spearheading GameStop at the forefront - make a killing from used-game sales by offering scant in-store credit on used game trade-ins, maybe $20, then marking up the "pre-played" game to $50. A huge profit but still 5 - 10 percent less than the same game purchased new; 20 - 30 percent less if the game is significantly aged (by 6 months, say), and maybe at 80 percent (or "at cost") a couple years down the line should the inventory sit so long.

Publishers argue that pre-played game sales put a big dent in ROI (return on investment) as they see no revenue from these pre-played game sales (if they could figure out a "certified used" game program like the auto industry enjoys, they would). The rebuttal, of course, is that publishers charge too much for games in the first place and, furthermore, have the audacity to flout their planned obsolescence by hyping sequels slated for this Christmas. Of course, if games cost less to begin with, they'd sell more (people have already indicated a willingness to pay $50 but not $60, no?) while reducing the incentive to trade-in for yet less credit. There are some big brains in the games industry, however, and they've likely crunched the numbers differently, and so the status quo remains - for now.

Consumers, meanwhile, have little sympathy for game publishers - and no particular love of trade gouging retailers either, for that matter, save the convenience of clawing back a bit of credit on a game that cost too much to begin with.

And after all, Joe Consumer can buy a music CD or DVD movie (hell, a car, yacht, house or failed Banana Republic) and expect to own it, frame it, cherish it, or tire of it and sell it used at the next garage sale along side the Slap Chop and dog-eared Ludlum anthology... why should a dopey game - a fleeting hunk of digital distraction purchased with hard earned cash to begin with - be any different?

Because it's the digital age, that's why. The world of pay-as-you-go, buy, buy again, don't own it, rent it from "the cloud" commerce is upon us. And game publishers are in the business to make money (or just not lose money, these days). And game publishers aren't stupid. Well, the ones that don't tank aren't, anyway.

So it follows that EA Sports, the once mighty publisher that has been hemorrhaging with losses in the hundreds of millions as of late, has launched a new scheme to reap some supplementary revenue out of pre-played game buyers while also dissuading the practice in the first place. But it's also a scheme that hints at a new sales paradigm where used game sales evaporate completely.

Introducing the "Online Pass," a one-time activation code bundled with all forthcoming EA Sports games for Xbox 360 and PlayStation3, including the imminent Tiger Woods PGA Tour 11 (and likely all Madden, NHL, NBA and FIFA games with an 11 after them). Basically stated, with this "Pass," you can access the online components of any new EA Sports game, including multiplayer sessions, virtual leagues, tournaments, etc. Without an Online Pass: bupkis online.

Rest assured, if your PS3 is stolen or your Xbox 360 blows up (could happen), your one-time code is linked to your user ID (or "gamer tag"), not the console itself.

Rent the game and you're given 7 days worth of Online Pass for free; a trial of sorts, in case you like the online components so much you'll buy the game for keeps (one of the few reasons game publishers tolerate rentals in the first place).

Buy the game used, however, and you'll have to pony up another $10 to buy a fresh Online Pass, a new code. Well, after the same 7 day freebie expires, that is.

Sounds harmless enough - big brain smart, even - except that a pre-played EA Sports game at $50 plus another $10 to access what is usually the more long-lasting components of the game, the online bits, well, that's $60 used, isn't it? Same as new. You'd buy the new one, right?

Of course, used-game retailers will likely drop the pre-played price by as much as $10 to compensate, so you'd still save $10 buying a used game and a new code (this is assuming you want to play the online portions of the game), but it's not the retailer that's going to eat that loss: it's you, the game trader. Where GameStop and friends might have given you $20 for a trade in, they'll now give you a measly $10 for a Pass-less EA Sports title so they can still enjoy that $30 markup. Trade it in too late, like after the next iteration's date has been announced, and you're going to get $4 in credit for the 8-month-old, $60 game. That's almost not worth it for you, and you can bet EA is counting on that non-worth. And because we're talking EA Sports titles here, games which have next to zero trade in value after the new annual version comes out, then Online Pass is an effective, temporary dissuasion for the game trader; obsolescence takes care of the rest. Score one for EA Sports in that battle of the no-royalty used games biz.

GameStop is waxing ecstatic about the plan, insisting that Online Pass is good for business. "GameStop is excited to partner with such a forward-thinking publisher as Electronic Arts," said Dan DeMatteo, Chief Executive Officer of GameStop Corp, but his teeth were likely clenched with seething. Then again, with a thousand games released each year, the lack of re-sale revenue from yet-another Tiger Woods game isn't going to sting much. For now, it's business as usual with a wee hiccup.

EA Sports is waxing ecstatic about GameStop waxing ecstatic. "We're delighted that GameStop is offering their support of this program," said Peter Moore, President of EA Sports in a statement. His teeth probably clenched to suppress a cackle of victory, mwah-hah-ha style.

Because this isn't the end of the story, just this chapter. The Online Pass at just $10 seems a trifle expense in the pre-played sports game segment. Consumers, particularly those accustomed to trading in the old for partial credit on the new every year, will relent, perhaps even warm to the new status quo.

Next up, it's conceivable that EA will apply the Online Pass strategy to all EA games. An Online Pass experiment known as the "$10 Project" already ran with new sales of EA's Dragon Age: Origins and Battlefield: Bad Company 2. These saw an impressive 70 percent of new game buyers activating the online components of the games, with second hand coupon access listed as "a low single digit percentage," meaning none too many pre-played copies made their way to market. Then again, those are particularly excellent games with gobs of online reasons to not trade them in...

Too, paying for extra game content is slowly becoming the norm. Things like extra levels, characters, scenarios and new hats for 5 Iron Barbie used to come available to aging games for free to keep game owners engaged, or sold as a boatload of new content on-the-cheap, generally known as an "expansion pack." But lately, the industry, EA Sports in particularly, has been rolling out "micro transaction" offers to keep aging games fresh; $5 for the Spyglass Hill course in Tiger Woods 10, for example.

So while we're conceiving the conceivable, this author predicts that by 2013, the Online Pass will be the norm for all EA games, not the exception - other publishers will likely offer something similar, too. Furthermore, the actual game disc-in-a-box will be cheap, say $25 (retailers still need something to mark up, after all), and carry no date demarcation like NHL 2013, but instead just "NHL Core" or whatever, which you buy once and keep for years, never trade in or sell used. The Online Pass will cost $30 or $40 per year and include all the usual roster updates, new stats and league re-jiggery, even tweaks to gameplay mechanics "as consumers demand" in sports games, entirely new adventures, weapons, characters, vehicles, etc. in non-sport games. EA will call this "premium online content;" consumer will call it "the online stuff we've come to expect without having to pony up $60 every year."

And picture this: Battlefield: Bad Company Core, $30. Bad Company 3 Pass, $30; AK-47 for Barbie, $10. Total sale: $70. Used game, priceless, because there aren't any, because you need Bad Company Core to access Bad Company 4, coming in 2013. Or something like that.

Okay, back-up prediction: if not 2013, then all this will be the norm for the new generation consoles (which might be out by 2013, anyway).

Again, with the big brains in publishing being big and all, this has probably been considered already. With a reported 18 months of R&D to implement the new Online Pass business model for EA Sports titles, it seems likely that the strategizing didn't stop there, it's only the beginning; that online, "cloud based" access to new/relevant content will greatly reduce production costs on a game that doesn't need to be rewritten and repackaged every year, merely augmented. That spells profit. That's not even a big brain idea; it's a no brainer. And it pretty much kills GameStop's huge margins on pre-played games but lets the retailer carry on as, you know, a retailer.
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Newsroom Notes
EA's Online Pass just the beginning

File Under:
Analysis, Editorial, PlayStation 3, Xbox 360, EA Sports
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