Game over for used games: How Xbox One and PS4 could gut gamers' wallets

In case you missed it, Microsoft unveiled a new game console the other day, the Xbox One. We now know a lot about it, but as with most game console launches, we were left with a few unanswered questions that my colleague Dan Ackerman summed up nicely in his "Unanswered questions about the Xbox One" piece.

It's the last one that seems to be generating the most controversy: "Will used games work on the Xbox One?"

Simple question, complicated answer
You'd think the answer would be a simple yes or no, but alas, it's murkier than that. It all started when Microsoft VP Phil Harrison described to Wired how you'd use a game disc to install the game on the Xbox One's hard drive. Once installed, the disc, Harrison said, was no longer necessary. You owned that game and could download it from your account at any time.

That sounds quite convenient on the surface -- and a good feature -- but it also implied that Microsoft had developed some kind of digital signature that locked a specific game to a specific user account, which in turn would make it impossible to install a used game locked to another person's account. And that had folks calling foul. Was Microsoft taking an anti-consumer stance?

As the questions mounted in the hours after the launch event, Microsoft issued the following statement (via the site of Xbox Live head honcho Larry "Major Nelson" Hryb):

We know there is some confusion around used games on Xbox One and wanted to provide a bit of clarification on exactly what we've confirmed today. While there have been many potential scenarios discussed, today we have only confirmed that we designed Xbox One to enable our customers to trade in and resell games at retail. Beyond that, we have not confirmed any specific scenarios. Another piece of clarification around playing games at a friend's house -- should you choose to play your game at your friend's house, there is no fee to play that game while you are signed in to your profile.

Nothing like mixing a little specificity with vagueness to stir the pot. And take note of the wording. Nowhere does Microsoft say that the Xbox One will play used games. Rather, the company says, "We designed Xbox One to enable our customers to trade in and resell games at retail." I'm not sure exactly what that means, but my snap translation is, "We're going to allow some sort of economy for used games to continue, but it may not work the same way it does now."

Would you get a credit for a game you traded in and then have it removed from your account? Could you only trade in a game toward the purchase of a specific other game or games (from the same publisher)? How would games be valued? And would buyers of used games have to pay any additional fees?

Who knows. But as my colleague Dan said, "It's no secret that every major video game company would like used games to go away, largely because they don't get a cut of any of those resale dollars. The Xbox One gives Microsoft a chance to reboot the idea of how game sales work."

Oh, and by the way, Sony faced similar questions when it teased the PlayStation 4 in February. While Sony, too, claimed it would allow for used games, it remains unclear what caveats might be attached to the use of those games. Since Sony's event was much more of a teaser, the company wasn't grilled as aggressively as Microsoft has been. I suspect Sony will encounter tougher questions at the PS4's true unveiling at E3 in a couple of weeks, especially if it doesn't fully explain what the company has in store for used games.

While it's hard to say exactly what "potential scenarios" Microsoft is weighing, the bigger question is what happens if the used-game economy is altered, perhaps radically, to the point where it's essentially gutted? Will it hurt the game industry or help it?

The $60 question
Sure, there are people out there who don't mind paying $60 for a game, especially a premium title that they plan on playing for months. However, for a lot of folks $60 is a lot to spend on a game, especially with very few truly special titles being released these days (by special I mean something exciting and fresh, not polished retreads), and more and more consumers are turning to mobile (smartphone, tablet) games that cost less than $5 -- and sometimes don't cost anything.

Don't get me wrong, I appreciate the effort that goes into making these games; some of the work being done is incredible and many premium titles cost tens of millions of dollars to make. But a lot of games end up disappointing simply because there's a been-there-done-that feel to them. Plus, because you can find good mobile games for so cheap, people inevitably expect more from a $60 game.

That said, one of the open secrets of the gaming industry is that many people don't really pay $60 for a game. They use trade-in credit at GameStop to buy games or simply sell games after they play them on Amazon or eBay for a good fraction of what they bought them for. If you play through a AAA title quickly enough, you can usually sell it on Amazon for $45 or $50, meaning you only spent about $15 to $20 to play it, including tax.

To give an example, I bought a used copy of BioShock Infinite (Xbox 360) for right around $30 at GameStop shortly after it was released. With my PowerUp reward points, I downloaded a coupon good for $20 off a used game, and got an additional 10 percent discount off the used game for being a "Pro" member. The total, with tax, was a far cry from the $65 or so I would have had to pay for a new copy.

If I'd played it through quickly, I could have actually traded it in at GameStop for right around what I paid for it. And if I had sold it on Amazon or eBay (disclaimer: I don't sell games on Amazon or eBay), I could have probably gotten $45 to $50. (The price for the standard version of the game has recently dropped to $39.99).

Of course, the bad part of all this is that the game publishers get no money from my transactions. Having seen used copies of books I've written up on Amazon selling for a fraction of the "real" price, I'm well aware of being on the creator end of things where the author doesn't get a dime on a used copy sale. It sucks, but then again, someone might not have taken the chance of buying the hardcover in the first place if it weren't possible to resell it after reading it.

In the gaming world, the current system obviously isn't ideal for game publishers and clearly benefits retailers like GameStop and Amazon that have built nice businesses around the used-game market. After all, GameStop wouldn't constantly be encouraging its customers to trade in games if it weren't a lucrative market. Sounds good to me to have a customer trade in BioShock Infinite for $30 and then sell it back to customers for $50. (Note that GameStop's stock is up 88 percent over the past year.)

But if you pull the rug out from under the current system, it could do real damage to the gaming industry. In the personal example I gave, I bought a used copy of BioShock Infinite. It happened to be the last one in the store. In many cases, because the difference in price between the used copy of a AAA title and a new copy is pretty small, a lot of people end up buying the new copy (particularly when no used copies are available), choosing to put their existing trade-in balance toward the new game. So trade-ins definitely fuel sales of new copies of the game and people bank on the fact that they can pull a few older titles out of their collection and get some money for them to put toward a new game.

GameStop CEO Tony Bartel told Forbes recently that it puts $1 billion in trade into the market and 70 percent of that money goes back into new game sales. "It's a recognized way to make these games more affordable," Bartel told Forbes. "All three new platforms understand that."

Addressing concerns that neither the Xbox One nor the PS4 would play used games, which could be very detrimental to his company's business, Bartel said, "Both Sony and Microsoft have said games can be resold, and that's exactly what we anticipated."

Unfortunately, Bartel left out one small detail: while he said you'd be able to resell games, he didn't say anything about being able to buy used ones. I'm not sure if he did that intentionally, but that's the way I'm reading his quote.

Steam the dream?
For the publishers, anyway, the Steam model seems much closer to their ideal. Despite its talk of discs, it seems clear that Microsoft would prefer to move to digital downloads, with it being the retailer. That's the future, although some of these games are huge and many consumers are stuck with slow Internet connections, bandwidth caps, or both.

One of the appealing things about Steam is the digital locker aspect to it -- your games are stored in your account and you can download them again when you get a new computer by simply logging into your account (GameStop and EA, among others, also offer digital lockers). Another attractive aspect is all the deals Steam offers. Many of the bargains are on older titles, but there's certainly plenty of quality stuff for reasonable prices, and some interesting indie stuff.

The problem the publishers face is that games are simply too expensive at $60, particularly for a digital download. Often, you get no discount for downloading the digital version, so there's no incentive to buy it when you can pick up the hard copy instead and later trade it in, sell it, or simply swap with a friend for another game. You'd think that if publishers wanted to tamp down the used-copy sales, they'd push people toward digital downloads with pricing incentives. But that would also upset the relationship they have with retailers, so you're left with a backward-looking market.

The long and short of it is that if publishers, Microsoft, and presumably others want to do away with the used-games market as we know it, the pricing for games is going to have to change. At this time, we don't know exactly how much new games for the next-gen systems will cost -- prices could very well go up for AAA next-gen titles -- but they ultimately need to go down, not up.

Somehow I doubt that will happen. But if it doesn't, fewer people will buy games when they're first released. Some will wait till the price drops (as the price for BioShock Infinite did).

But many more will gravitate toward spending their time -- and money -- playing cheap mobile games. Or maybe not getting a new console to begin with.

Watch this: The all-new Xbox One

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