Microsoft stepped in a load of dog shit when news of fees to play used games and account-based permissions began to hit the press, and the lack of a cohesive message in this area has hurt the public’s perception of the upcoming Xbox One. The idea of the used game, at least as we understand it, may be coming to a close.

The surprising thing? That could be great news.
Figuring it all out

Microsoft still hasn’t given us all the information about how these policies will work, but we have some important clues to go on. We know that when we buy an Xbox One game at the store, we’re really just buying a license and a disc filled with the game’s content. It becomes a game as we understand it once the content is installed in our system, and we associate that game’s license with our Xbox Live account.

“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,” Microsoft’s Major Nelson posted on his site.

So you can play your games on another system, but you must use your account. This is good news for households with multiple systems, or people who like to game with their friends. It also means you can't “loan” a game to a friend anymore, as you’d have to give them access to your entire account. That’s not an appealing option for people who play often; giving up your entire account so a friend can borrow Tomb Raider isn’t the best solution to this problem.

For Microsoft, this isn’t a problem. If your friend wants to play the game, they can damn well buy it. And there is no indication of a “used” price anymore, if your friend puts your disc in their system, they can install the game, and then pay the full price to play it.

This is from Microsoft’s Phil Harrison, talking to Kotaku:

But what if you want to bring a game disc to a friend's house and play there? You'll have to pay a fee—and not just some sort of activation fee, but the actual price of that game—in order to use a game's code on a friend's account. Think of it like a new game, Harrison said.

“The bits that are on that disc, you can give it to your friend and they can install it on an Xbox One,” he said. “They would then have to purchase the right to play that game through Xbox Live.”

“They would be paying the same price we paid, or less?” we asked.

“Let’s assume it’s a new game, so the answer is yes, it will be the same price,” Harrison said.

-Kotaku

Keep in mind permissions work two ways: They’re both account based and hardware based. So you go buy Forza, you bring it home, is everyone who has an account on that box able to play it? “As far as I know the answer is yes. The answer is yes,” Microsoft’s Matt Booty told me. When you buy a game and install it on your Xbox One at home, your spouse and children will all be able to play using their own Xbox Live accounts.

So that should clear things up. You won’t be able to loan games, you can play your games on multiple systems as long as you install your account, and if anyone else wants to “buy” your disc, or the license to play the game on that disc, they have to pay full price. They're not charging you a fee to play used games, because there is no longer such a thing as “used games.” Just licenses.

But what about selling your games? This is where things get sticky.

“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,” Major Nelson stated. The fact he said retail is important, that seems to imply this system will somehow work at brick and mortar stores. But he might have spoken out of turn; it wouldn’t be the first time someone at Microsoft stated something about the Xbox One that turned out to be untrue.

Listen to what Harrison told Kotaku. “We will have a solution—we’re not talking about it today—for you to be able to trade your previously-played games online,” he said. What that likely means is that you’ll be able to trade your license for… something. Microsoft points, or credit towards another game, and Microsoft will simply remove the license from your account. Think about it this way: No used game is created from this scenario, it’s simply a license that is cancelled. That changes everything.

Based on this information, it sounds like you’ll be able to “sell” your used games, but no one except Microsoft will buy able to buy them. Microsoft becomes the entity that controls the entirety of the transaction, and no lower-priced tier of “used games” is ever created in this scenario. They simply give you some amount of something in exchange for turning off your license, while anyone who wants to play the game still has to pay full price.

Major Nelson's statement above seems to say that this system will somehow work at retail as well, but that doesn't mean GameStop isn't utterly boned in this scenario; they care about selling used games much more than they care about taking them in. The GameStop model only works if they get to pay you a low price for games they sell at a higher price. Microsoft's strategy seems to break that model in two. You buy every game “new” from Microsoft.
So why is this good news?

This is good news for a few reasons. The first is that piracy will likely be reduced. If the system phones home every so often to check on your licenses, and there is no way to play a game without that title being authenticated and a license being active, piracy becomes harder. You'll never be able to stop pirates, not entirely, but if you can make the act of pirating games non-trivial the incidence of piracy will drop. This is a good thing for everyone except those who want to play games for free.

"Based on this information, it sounds like you’ll be able to “sell” your used games, but no one will buy able to buy them. Microsoft becomes the entity that controls the entirety of the transaction, and no lower-priced tier of 'used games' is ever created in this scenario."

So piracy reduction, although not elimination, will likely be a solid byproduct of this system.

The next thing is that the used-game market all but disappears. GameStop may not be able to aggressively hawk used games for $5 less than the new price to customers under these new controls, which is great if you're a developer or publisher. Once that secondary market is removed you can suddenly profit from every copy of your game sold, and as profit margins rise it's possible we'll see prices drop. Some stodgy publishers will likely stay with the $60 model, but they're dead companies walking already. The smart companies will see this opportunity to play with pricing and see what works and what doesn't.

Without the used market sucking up all those sales and all that consumer money, it's very possible we'll see Steam-style sales on older or bundled games on the Xbox One. It's not a sure thing, but killing used games is going to free up a ton of money for companies to try new ideas in terms of sales and pricing. The people who get innovative and take advantage of this structure will thrive. The rest are likely to slowly choke on the new economics of game development.

It needs to be made clear, if all the studio closings and constant lay-offs haven't made this explicit: The current economics of game development and sales are unsustainable. Games cost more to make, piracy is an issue, used-games are pushed over new, and players say the $60 cost is too high. Microsoft's initiatives with the Xbox One may solve many of these issues, even if we grumble about it. These changes ultimately make the industry healthier.

Also, the idea of artificial shortages will go away overnight. The next time a GameStop clerk gives you shit about not pre-ordering, tell him to get stuffed; all you need to do is find a disc to install the game and then buy the license. Microsoft doesn't even need to host the game files at this point, one person could buy a copy of a game, everyone installs it and buys a license, and suddenly ten people have purchased the game, although GameStop only received income from one sale. Pretty neat / terrible, right?
So what does this mean

This means that the market for console games is about to change, and the economics are going to get very interesting, very quickly. Removing the concept of buying a used game will lead to more sales for publishers, more control for Microsoft, but it could also lead to changes in how retail sells games, where the margins can be found in this business, and lower prices across the board. There is a whole lot of “ifs” in this scenario though, and it's possible GameStop could leverage its clout to stop some or part of this, but I'd love to see how all this shakes out.

These aren't crazy ideas. You can't sell your games on Steam, nor can you buy “used” Steam games. The same with iTunes. And e-books, with some exceptions. So selling content that can't be resold or purchased used isn't weird, it's becoming the norm. What's innovative is that Microsoft may offer a way for you to get credit back for licenses you no longer use.

Of course, Sony also told us that we would be able to trade in our old PSP games for some kind of credit on the PSP Go, and then the company just kind of dropped the entire idea. At this stage in the game the situation is likely fluid, and could change at any time.

The possibilities are fascinating though, and potentially good for both gamers and publishers. I'm excited to see where all this goes.