ANALYSIS: Xbox One – How Microsoft might positively reposition pre-owned games

Yes, that’s right. A headline with ‘Xbox One’ ‘positive’ and ‘pre-owned’ all at once. Am I crazy?

You may well conclude after reading this that I am.

And certainly, you’ll have little cause to expect much sense from the second-hand game storm surrounding Microsoft’s ambitious new Xbox One console.

So far, it has swung back and forth between ‘messages’ as it clarifies or re-clarifies and then de-clarifies what its take on pre-owned games is.

Right now, we know this: A new licensing model around discs and content mean you have to install games and let Microsoft tie them to your user login on Xbox Live, but the device is ‘not built to block pre-owned games’.

Make no mistake, the unknown grey area between these statements – Xbox has promised an update further on – has been a right old mess.

But allow me for a moment to play devil’s advocate on the situation, give Microsoft the benefit of the doubt by stripping out the confusion about the strategy away from the actual strategy.

Still with me? Thanks for sticking around.

Here’s what I’m wondering: assuming that Microsoft knows just how important the pre-owned model is to retail, maybe the real story here is that Microsoft isn’t trying to kill pre-owned.

Control it, maybe, but not kill it.

What if it is trying to turn used games into a more profitable business that keeps publishers happy but doesn’t alienate retail by converting the model to one where retailers participate in the trade off software licences, not discs? A model which, in turn, could eliminate the stigmas around ‘second-hand’ games?

We know that Xbox One will require you to install newly purchased games on your machine and register them with the Xbox Live server-brain. You can also take that disc to a friend’s house and, provided you log in, you can install and play it with them. The main thing is that the licence is locked to your account, not the disc or the console. So, if you want to sell the game on or trade it in – which lots of users currently do as they can’t afford to always by new games – you transfer the licence back to Microsoft, to another user, or to a retailer.

It’s still the trade-in model, but with a new digital licence element. The licences would be moved or tracked through software installed at retail level or accessed via the web.

Go a step further: each game disc could even be manufactured with a unique authentication licence serial number attached to it.

That’s not entirely unfeasible has Microsoft has already explained that licences can be locked to your account, and also removed from them.

Assume that this is somewhere near how that works and, despite the faff involved, there are three huge shifts.

PRE-OWNED MARGINS GROW?

If retailers are selling a licence, not a disc, they no longer have to price their stock based on its condition. That’s the second-hand market’s achilles heel: it is used stock, the disc might be scratched, the manual may be missing, the box dented.

But Microsoft has already had the instruction book all but abolished. If you want a nice box or new disc, buy it new, or a collector’s edition.

Digital licences aren’t about any of that – they are about allowance. The 90p-to-produce disc doesn’t matter, its contents are rendered inert without the activation.

So retailers go from selling a thing to selling access. And they probably will be able to, if they want, sell that access for a higher price than they currently do – because the current model relies on condition and functionality. If you’re just selling access, where you sell someone the right to download a game, the price changes immediately. (They might actually be forced into this, too – which is the most likely version of this scenario, to be honest.)

Under this theory, retailers would probably be selling less used games as the new model will just deter consumers from pre-owned anyway.

But the ones they do sell might get the change to sell game licences priced close to RRP. The model will be changed irreparably, but the bigger, final result is that the swift price erosion that happens in the physical market because of the mix of new and pre-owned stock goes away.

(Even if the margins don’t grow in execution, at the very leas, raising the RRP gives Microsoft the scope to milk the pre-owned model for the money that publishers have so often said second-hand games ‘steal’ away from them.)

PHYSICAL GOES VIRAL?

But the ideas of trackable discs or trackable software licences gets me wondering further.

Gamer A can take a game to Gamer B’s house, either on disc or just by logging in and downloading it. But when Gamer A goes home Gamer B can’t play it. So what happens next?

If the game was any good, Gamer B might want to buy it. With an Xbox Store sat on their TV with a beckoning buy button, they might just buy the game they hadn’t bought there and then, at full price from the Xbox Store direct. (The option to go to a retailer and buy a new disc on offer or a second hand version with a slight reduction will be there too – and will still be relevant to kids without credit cards or those wanting to trade games in for other games – but broadly convenience will likely win out here.)

Plus, trackable licences coupled with the pseudo-always-online functions would be adored by publishers.

Publishers will be punching the air love to see where their discs go and how they are used. To see how social recommendations work and whether it leads to purchases. And find out just how important (or not…) the second-hand market is.

Currently, publishers know how many they have pressed and shipped, and then they have to wait and see how many are being played through Xbox Live logins. In-between they might get some retail figures or download stats. But they don’t know if all the discs are being used, they have no accurate numbers. A digitally-supported physical model would change that.

PIRACY DECREASES?

Very little has been said about piracy on Xbox One, even though it is – as most of us know – something that does happen on the current Xbox platform and something Microsoft of course wants to end.

Today, regular system updates and added multiplayer have been a deterrent, at least.

But authenticated licences would promise to totally squash piracy. If you can’t install or access a game without authenticating it with the official Xbox mother brain server that’s another point in this model’s favour.

Plus, short of stealing someone’s face and voice, it’s clear the new Kinect and Xbox One’s home page sign in process is already designed to not just make the experience more personalised for users, it is another way to stop hardware and software access being compromised.

WILL THIS REALLY HAPPEN?

Sure, this pre-owned scenario is a bit of dream-work on my part.

I half-wonder if MS will just be tempted to ignore that possibility and skip straight to the other two elements, which is locking users to their purchases like on a smartphone, but using the portability of discs to drive some trackable virility as described above amongst players who share games.

Certainly, publishers would be delighted with those elements, even though it limits consumer choice and drives a knife into specialist retail perhaps not a mortal wound, but a deep scar that just kills off part of the model as the industry shifts to a more digital centric focus).

But many of us think this would be a mistake. And although Microsoft has insisted there is a solution, it just doesn’t want to talk about it yet, so all we have are assumptions and speculation.