How EA Sports' Online Pass Will Change the Used Game Marketplace
Once the millions of dollars and hundreds of thousands of labor hours have resulted in a finished, big-name console video game, how do publishers and developers earn their money back? From gamers like us buying titles at a store.
However, not all purchases are created equal. This is why Electronic Arts announced on Monday the continuation of its value-added online program, now called the EA Sports Online Pass. It appears to be much like programs in Mass Effect 2, Dragon Age: Origins and Battlefield: Bad Company 2. Mass Effect 2's Cerberus Network, for instance, grants access to free add-on downloads, including weapons, armor, and short missions. This is a project that is reportedly referred to within EA as Project Ten Dollar. Gamers who purchase one of EA Sports' catalog of games this summer receive a code in the package which, after being inputted into the game, allows you access to bonus features. Since the code is only good for one use (and one PSN or Xbox Live account), if you don't buy the game new, you have to pay $10 for a pass of your own.
Or, at least, that's what it looks like on paper. While the Cerberus Network in Mass Effect 2 really does provide extra content on top of what you pay $60 for, the catch to the EA Sports Online Pass is in the fine print: "bonus features" that your code unlocks in EA Sports' 2010 games include basic online and online dynasty modes previously available for free in all EA Sports games. For NCAA Football 11, for example, your Online Pass helps unlock "Online Multiplayer Modes such as Online Play Now, Head-to-Head, Online Dynasty, and More." The same goes for EA Sports' Madden, NHL, NBA Live, and Tiger Woods franchises; other games still have details to be announced.
Keep in mind that this is, for Xbox 360 owners, on top of the yearly Xbox Live Gold account fees that you would need to be able to play online in the first place.
This is a continuation of a policy from last year where codes packed in with new copies of games provided access to advanced online multiplayer modes; for NCAA Football and Madden, for example, these were the online dynasty modes. If you didn't buy your copy new, you had to stump up $10 for a code.
Electronic Arts is, essentially, adding a major incentive to buying a game brand new for $60. Don't buy it brand new? You can't play online. You need to either pay $10 for a pass, or make use of a single 7-day free trial available for your Xbox Live or PSN account for each title.
Why does this matter? If you're reading Silicon Sasquatch, I'd imagine you may care far less about sports games than your humble author does. You might have never purchased or played an EA Sports title before in your life. But you do care about rising costs in games and, I would imagine, how to prevent them. Madden has traditionally been one of the top-selling games in the United States, and the FIFA Soccer franchise is one of the best-selling games throughout the rest of the world, especially in Europe.
The major reason EA is looking at this as an alternative way to make money? For the quarter ending December 31, 2009, EA lost $110 million on total net sales of $1.24 billion. They sold more than a billion dollars worth of games, but still lost over one hundred million dollars. That's in just one quarter last year.
Though EA would never come straight out and say it, a leading reason why they're doing this is GameStop. While EA lost $110 million in one quarter last year, GameStop made just over $9 billion in sales for their whole year. While this doesn't take into account things like paying employees, taxes, or other liabilities, that's still a lot of video game sales. Dig into the numbers a bit more, and you'll find that, despite used video game sales being only 26% of the total for GameStop, they represented almost half of GameStop's profits — $1.12 billion.
That's a lot of money made by selling used games. Those "used" games sitting right next to newly-released titles, but priced roughly $5 less, represent a huge area of profit for GameStop, but just as large a drain on publishers like Electronic Arts. While new games made up the largest amount of GameStop's revenue, the money they kept on those sales was only 20% — roughly half — what they keep on used-game sales.
I am at kind of a loss as to how to react to this move by EA. As a gamer, it's a little upsetting: EA is essentially holding a key feature of their games for ransom, and while it may not effect my buying habits (as I tend to buy EA Sports titles brand new), it will definitely affect others I know. I sense that a lot of people may not know enough about the fine print to realize they're getting a raw deal if they do go into GameStop and buy the cheaper used version for $5 less. For gamers who buy new copies of EA Sports titles, whether from Best Buy, Amazon, Wal-Mart, or GameStop, all that changes is having to input another code; however, it's a potential deal-breaker for more casual gamers looking for a good deal.
However, as a business student, I understand EA's dilemma. They're hemorrhaging money, despite good sales and high-profile titles, and they need to find a new way to make sure they don't continually lose money. This is a way to receive at least a small kick-back from used-game sales, and encourage $60 new-title sales. It's also a shot across the bow of GameStop, who have to know the jig is up when it comes to their high-profit-margin used game market.
If EA sees this program as successful this year — and I would define "success" as anything but a sharp reduction in sales — then expect to see other publishers, namely Ubisoft and Activision, start to try and implement similar plans into their own games. And that could spread a problem that may haunt more than just sports gamers.