Tag Archives: Economics

Gaming and the Election 5: American and Global Economic Problems

So. Obama won. The Republicans got routed. But what does that mean?

Okay. It means a lot. It means an awful lot. Since my wheelhouse is supposed to be “the intersection of politics and gaming”, though, it might be a good idea for me to take a stab at what it means for gamingSo I’ve put together a short series speculating on how the Democratic triumph (which, honestly, is what it was) is going to change and/or be reflected in the future course of gaming.

Now we get to the economy. Prepare for many words…but nowhere near enough. I’m still thinking about doing a big Nightmare Mode feature about this issue.

5) Remember Clinton? It’s still the economy, stupid.

Identity issues are important. But the big lesson of the election may well be that the economy is universal. The only reason why it was even as close as it was had to do with dissatisfaction with the economy; the Republicans lament that social conservative outbursts made it less and less likely that people would vote for them as time went on. The economic conservatives in the Republican coalition are furious that an election that they saw as a “gimme” turned into a rout.

Whether that’s true or not, the fact is that the American economy just isn’t doing well right now. That’s very slowly changing, but there’s a lot of reason to believe that it’s going to be very slow indeed. More than that, it’s going to be uneven; there’s a gap growing between the wealthiest Americans and the “99%”, and that gap isn’t going anywhere anytime soon. It’s also not just an American phenomenon; doldrums are happening in pretty much every part of the world that isn’t directly pumping out oil.

The results of the election may help with that, but they probably won’t. The president has something resembling a mandate, but the House is still controlled by a Republican party that owes its control of the chamber to the Tea Partiers. All of the other issues and recrimination is only likely to redouble their commitment to financial and economic conservatism, which means that any sort of stimulus is unlikely. In fact, if the “fiscal cliff” isn’t averted, America could be staring down a second recession. The only way that that will be averted, unfortunately, is with the kind of revenue-generating tax increases that the modern Republican party simply cannot accept. So things aren’t looking promising.

(That’s not a figurative “cannot”. That’s literal. If any of them try they’ll get destroyed in the only elections that worry them in a Gerrymandered house: Republican primary battles. Grover Norquist’s anti-tax pledge hasn’t gone anywhere.)

How does that affect gaming? Well, gaming is expensive. Really expensive. For all that publishers regularly whinge about the cost of production, the simple fact is that laying out sixty-plus for a five- to six-hour-long game with maybe two hours of truly engaging content is almost ludicrously pricey in a world where consumers are facing huge financial challenges. Why do you think so many PC and mobile games are free-to-play? “Free” is about all that users can afford!

(And, please, don’t go on about how they can afford smartphones and PCs. Being willing to lay out ten times the cost of a game for a device that has a thousand times the utility and entertainment value isn’t hypocrisy, it’s financial sanity. Besides, most smartphones are bought using plans.)

Gaming, as a hobby and as an industry, requires a strong, healthy, prosperous middle class. Even the free-to-play games require “whales” that are willing and able to outlay significant sums to make up for all those free players. Some might be wealthy, but I suspect that the truly wealthy aren’t likely to be spending their time playing F2P games in the first place. No, many F2P players are going to be middle-class people who are willing to fork out for something they or their children love. Nothing wrong with that…but they have to be able to do it first.

That’s the reason why console gaming is having a tough time. It’s not really about budgets and whatnot. It’s not about a lack of innovation. It’s actually straightforward: people aren’t going to be able to buy new consoles or many new games. When they DO buy new games, they’re very conservative, so they tend to pay for  tried-and-true franchises and  accessible, multiplayer-focused games that can add a tremendous amount of value to their purchase.

You wonder why Call of Duty sells well to the “core” audience each year? It’s a series they know, it’s got predictable gameplay they generally like, and it’s got a gigantic and reliable multiplayer community that generally includes their friends. The better question is why it wouldn’t sell under those conditions. It’s all network effects and path dependency.

Sure, consoles still sell. But it isn’t necessarily for gaming. They’re becoming convenient Netflix Boxes, and Netflix’s monthly-fee model is one of those models that DOES make sense in a recession-strapped economy filled with people who are trying to stretch their dollars. That doesn’t even help console manufacturers; a Netflix Box ain’t one that’s paying them those sweet, sweet platform royalties. Frankly, if the economy doesn’t change, things look pretty dire.

If things turn around and American incomes even out a bit more, then things might be different. Dedicated consoles and dedicated console-style AA or AAA games are worthwhile, and the price to create them is only going to go down as the tools become more and more accessible. Not every genre or game can or should be an el-cheapo mobile-style game or a social F2P game. There’s still hope, but only if these trends reverse.

As to whether they will…well, it really depends on whether or not everything remains deadlocked. A complete victory for either Romney or Obama could have changed things. I believe that Romney’s plan would have changed everything for the worse, but at least it would be a change. As it is, American government is still divided; there’s still going to be a House controlled by Republicans that owe their jobs to the tea partiers and serve at the far right’s pleasure, arrayed against a Senate and White House controlled by emboldened Democrats.

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Diablo and Local Toronto Gaming Stuff

Hey, folks. Just a quick note to say that I kinda want to do more of this sort of thing; writing about local Toronto gaming stuff instead of simply doing broad discussions that everybody else is doing. I’ll flag it with a “Toronto Gaming” category and tag.

Also, really happy with the response to my piece on Diablo and economics over on Nightmare Mode. Being able to contribute to Patricia Hernandez and Tom Auxier’s site has been an honour; they’re both excellent writers that I respect a lot. Only thing I’d add to it is what I said in comments: that the issue with Diablo is that it’s a deflationary economy, at least at lower levels. Gold comes in, Gold goes out, but good gear sticks around indefinitely. That’s going to lead to prices going down as more and more goods are being sold to chase a stable amount of cash.

I’ve heard that it’s different at the high end when you hit Inferno. I had an interesting twitter exchange with Stephen Keller on that. He’d said that Inferno is actually wildly inflationary. I don’t have any experience with that, or at least not a ton. What I’d say in response is that the two problems are linked; the dispiriting nature of acquiring gear at lower levels probably has a lot to do with the lack of people who are getting new gear at the higher end. If people drop out, their gear is going to drop out with them, unless they decide to cash in once-and-for-all with the real-money auction house. The few left over at Inferno aren’t going to be enough to contribute the volume of gear needed for price deflation to happen.

If people were playing through to Inferno, we’d likely be seeing the same thing happen there.

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Will Killing Game Resale Kill Consoles? Kyle Ormand Says “No”

…thing is, I feel like he kinda wants to say “yes”.

Okay, go read this piece in Ars-Technica from Kyle Ormand. It’s about how blocking the use of used games—a rumored feature on the next set of consoles—won’t be disastrous for console game. I disagree, obviously, but was interested in what he’d have to say. What I found was a fairly balanced piece, but I honestly couldn’t figure out why Ormand was concluding that these things wouldn’t be an issue, when what he’s actually saying adds up to “disaster”.

I’ll go to the first section and show you what I mean.

One thing many publishers and used-game opponents seem to minimize when arguing against game reselling is that the mere existence of an aftermarket for games helps support the demand for new games. After all, you’re much more likely to shell out $60 on a game the day it’s released if you know you can get $20 to $30 back if and when you plow through it in a week. Eliminate the sellback option, and that same new game becomes that much harder to sell to a significant part of the audience, lowering demand and sales (or, alternatively, forcing publishers to lower the asking price for new games).

On the other hand, in a world where used games simply don’t work on your console, some segment of the market would be forced to pay full price for titles that they would otherwise buy in the form of a cheaper used copy. This would in turn increase the amount of money going to publishers and developers, compared to a world where used games are siphoning off some of those direct profits.

It’s hard to know exactly how big these countervailing effects would be, but we can try to estimate. Using Gamestop’s annual used game sales revenues of $2 billion as a basis, Wedbush Morgan analyst Michael Pachter suggests that the retailer is paying out roughly $1 billion a year in store credit for used games. Most of that money is plowed right back into new game sales, which Pachter says could be “driving overall games sales up around five percent or more.” That sounds like a big chunk of the new game market’s nose to cut off just to spite the used market’s face.

“It’s impossible to know the balance, but the cannibalization of new game sales from used games is most definitely largely offset by the purchase of new games with used game credits,” Pachter told me.

This doesn’t read as “things will be fine”. It doesn’t even read as “things will be good”. Ormand correctly points out that the main (I’d argue only) reason why the current $60 price for new games is sustainable is because people aren’t actually paying that price. What they’re paying is that sixty dollars minus however much they get for selling it on to someone else. They’re paying a net price of $50 or $40 or whatever to get the opportunity to play the game new without the hassle of rental or buying used.

So let’s go back to basic economics. There are far more people who are going to be willing or able to pay $40 for a game that aren’t going to be willing or able to pay $60. There’s going to be a lot of people who aren’t willing or able to pay $40 for multiple games, too. If the price goes up to $60, they might buy one game, but they won’t buy others. That’s great if you’re the guy selling that one game, but it ain’t much comfort for the guy selling the others. That’s why Ormand and Pachter both correctly point out that used-game buyers helps prop up the new-game market. Maybe not for the CoDs of the world, but everybody ELSE benefits.

Ormand mentions there will be profits from people who will be forced to buy games new. I don’t buy it, and it feels like he doesn’t either. Any additional revenues from forcing people to buy the games new have to be balanced against the “no resale” effect. Most people’s threshold for game-buying isn’t going to be based on idle desire, but firm limits on their entertainment dollar. They can only spend so much!

Think about it. As important as games may be to you, as vital an element of culture as they may be, they STILL have to be balanced against your other needs and desires. You still need to pay for shelter, for food, for warmth, for electricity, transportation, clothing, and all the rest…and you’re still going to want to pay for access to other cultural products and services as well. Games compete with movies, television, music, theatre, and all the rest. All that babble about “movie prices mean games are a better value proposition!” aside—now nonsense with ubiquitous five-dollar VOD movie rentals—people aren’t going to completely blow these other things off for games.

No, there are LIMITS to what you’re able to spend on games, especially with the middle class withering on the vine. Getting rid of resale won’t change those limits, so it’s actually quite unlikely that revenues will increase. They might concentrate, as a smaller and smaller number of big-name franchises scoop up more and more of those single-game buyers, but not increase.

Ormand’s quite aware of this, I think. Most of that section—only one of several, but all fitting this pattern—talks about the downsides of losing resale, not the upsides. It’s not a bad piece, mind, but that’s why I was a bit baffled reading it. What this article’s really saying is that losing resale is going to have terrible effects on the industry and on gamers. So why make the article about how everything will be fine, when all the available information suggests that it’ll be anything but?

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