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What if next-gen consoles kill the online pass?

The online pass has quite a short history and was introduced with a fair ammount of criticism. What happens if the online pass vanishes over night?

Budgets for developing and marketing AAA titles are increasing. You need bigger development teams or multiple studios working on a single project. You need to bring your title to a worldwide market and that’s why you need really big sales, not just one or two million units. There are many quality titles out there that have underperformed in terms of sales, as they haven’t met those numbers that companies hoped for. It’s a situation that has dire implications for publishers all over the world. There are counter measures though, some taken by the console manufacturers to restrict piracy or second-hand sales and some taken by publishers themselves. One of these fairly criticised measures, albeit a succesful one, is the famous online pass.

The online pass has a short history and was introduced with a fair amount of criticism. Its purpose, its reason d’etre, is the high percentage of second-hand sales. Throughout this opinion piece we’ll see how it’s all connected and what happens if the online pass vanishes over night, as it could be deemed unnecessary in the near future.

In a perfect world, every gamer buys one unit, either by preordering it, or by acquiring the game after its launch. We are not living in perfect world though, so there many possibilities out there that make our beloved publisher’s life rather difficult. There two main disturbances affecting sales today. One is piracy, when a consumer simply doesn’t pay for the content, and there are second-hand sales, when the publisher doesn’t get any revenues at all because the transaction usually takes places between two other third-parties, companies and/or people. The reason a publisher thinks they have to get some cash from second-hand sales is the object of this particular transaction, which is not a physical, but a virtual one. You’re not selling a product, you are licensing the use of that product and thus every subsequent “sale” it’s sort of a sublicense.

Before software, there was real estate. It’s a common practice there and it’s called sublease, but there is one notable difference. The real estate market can go up and down, so if you are subleasing an estate and you’re charging a higher rent, you could be forced by your original agreement with the owner to share the profit. This is never happening in the gaming industry. A second-hand game will never be sold for a higher price (unless it’s a collectible, but most second-hand games are not). This means there is no profit to share, so the publisher should be and really is left out of this transaction. This is where the online pass enters the scene as some sort of insurance or hedging against the potential loss coming from a second-hand sale.

The single-player part of a game is usually associated with a low replay value. There are exceptions, but they are few and confirm the rule. On the other hand, the multiplayer component is the one associated with a high replay value, so offering a solid experience reduces the possibility of second-hand sales. Piracy is also low, as the key attraction of the title is something pirates cannot duplicate. Series like Battlefield are thus recording a huge number of sales. Call of Duty could have gone the same path, but Activision has chosen not to sell online passes, but season passes which is a totally different proposition. Its their multiplayer component that attracts gamers and you cannot get it unless you buy the original game.

So, if you look at the publishers using these online passes, you will notice that most of them are selling AAA multiplayer heavy games. That’s why the system is used mostly by Electronic Arts, Ubisoft, Sony Computer Entertainment and Warner. Interesting enough, Microsoft never (to my knowledge) used the online pass for its exclusive titles. THQ used it for its their UFC titles and Activision tried it with Prototype 2 (accessing RADNET required an online pass priced the same 9.99 USD, as all other online passes).

Let’s recap and look at the premises of an online pass:

1. It is used to restrict second-hand sales.

2. It is used to allow access to multiplayer features.

3. It is used by big third-party publishers (with one first-party exception).

4. It is used only for AAA titles that sell a lot of units (hence the increased possibility of second-hand sales).

5. It is available for a standard low price (9.99 on the US PS Store).

Now let’s look at some scenarios that can make the online pass obsolete and I’d like to start with Activision who has found a very interesting way to avoid its use.

1. Online pass vs. Season pass

Why should you sell a 9.99 USD online pass when you can sell a 49.99 USD season pass? This must be the best way to make an online pass obsolete. Activision delivers good quality content that ships after the game has launched and it charges for it almost the same price as the full game, which in case of Call of Duty: Black Ops II retails for 59.99 USD. It’s like selling the game twice, without the cost of developing it the second time around. There’s no reason to sell a second pass (online pass), as the game relies heavily on multiplayer and records strong sales each year.

So, two passes are too much for consumers. Charging a premium for high-quality DLC can cover for the lack of online passes if you convince enough players to further invest in your title.

2. Hardware/software restrictions

If console manufacturers restrict second-hand sales at some point in the future, the online pass will die. The difference is that console manufacturers can and will restrict the entire game, not just its multiplayer component. Sony is already using the online pass system (Uncharted 3, God of War: Ascension), so this comes as some sort of confirmation that they are content with it, so they don’t plan to restrict second-hand sales just yet. PS4 will be launched this autumn and we already know that Sony will not block second-hand sales (as it was confirmed by Shuhei Yoshida). On the other hand, Microsoft who has never used the online pass could very well do it with their upcoming next-gen Xbox. We had Ian Livingstone talking to MCV, Durango XDK leaks and multiple other sources indicating that Microsoft could go down this path.

So, if the hardware will not allow for second-hand sales to happen, then it’s again game over for the online pass. Those not using it will not miss it, but those using it could see this as a restriction. Maybe their customers were happy getting a cheap second-hand game, while paying for the online pass to access its multiplayer. If they won’t be able to do it any more will they buy the game in the first place? Steam is thriving and obviously you cannot resell your digital purchases, but maybe you should be able to. If Apple is looking into it (as one of their patents confirms they are at least interested to find a reasonable way to do it), then maybe other companies should do the same thing.

3. Leader’s choice

If Microsoft with their next Xbox restrict second-hand sales and make the online pass obsolete, what can third-party publishers do about it? Take Electronic Arts for example. They publish their games on many platforms, but most people still compare PS3 and Xbox 360 versions. What if the online pass will not be required with the next Xbox, but Sony will allow it on the PS4? Would you get the PS4 version of a game as you can still resell it afterwards?

For first-party publishers and their exclusives such differences are not important, but a big publisher like Electronic Arts has to level the field. Since they are forced to avoid it on one platform, they will probably kill it for the other one. This means that even if Sony allows online passes on the PS4, Electronic Arts could very well decide not to use it anymore. And if Electronic Arts gives up the online pass, why should other third-party developers continue using it? Why should anyone else use it?

4. Freemium focus

If you look at the structure of freemium games you will notice that all of them have some sort of multiplayer component, even if it’s as small as a worldwide leaderboard. This is not the time and place to discuss the freemium business model, but if we place both of them face to face, then you will immediately notice that freemium cancels the concept behind online passes. On top of that, we expect PS4 and the next Xbox to be more connected than ever and have their social components emphasized. This means that freemium could be here to stay, at least for the upcoming cycle of consoles.

So, companies are looking into ways of making freemium games accessible via next-gen consoles, meaning they are showing increased focus with this business model versus next-gen distribution channels like SEN and LIVE. Is freemium compatible with the online pass? NO!

5. Indie focus

Both Microsoft and Sony intend to play this card effectively. The advantages of indie games for them are quite clear. Indie devs can concentrate on delivering small but concentrated gaming experiences and publish directly through the platform owner, while big third-party publishers can deliver those AAA titles that sell millions of units. I’d say we are going to see more and more quality indie games out there and this is a good thing. Do they need online passes? No, they don’t. They usually don’t sell millions and their price is smaller compared to those AAA titles from established franchises. They are cheaper and second-hand sales are almost absent due to their mostly digital publishing policies. At some point in the future, if a second-hand sale system is in place, developers could get some more revenue out of their products, but this is definitely not happening today.

So, as companies focus more and more on indie games, the online pass will not make its way in, but a second-hand sale system could help devs boost their revenues (and we know at least one company looking into it).

Conclusion

Can next-gen consoles kill the online pass? Yes and no. They will kill it if their manufacturers decide to restrict second-hand sales. If at least one of the manufacturers decides to leave this door open, then other third-party manufacturers will decide if its better for them to continue or not and they’ll probably kill it in the end. This doesn’t necessarily mean they will lose money over it. There are other solutions in place that can help them boost their revenues and nobody will shed a single tear when the online pass dies.

The only question that’s left to answer is this. Is the online pass death a good thing for the consumer or not? You could be inclined to say that it is and at first this is how it looks like. On the other hand, if this means not being able to sell the games you’re not playing any more, then it’s more of a give and take situation that should be treated on a personal level. Individuals in high income regions cannot care less, but as console manufacturers and publishers are trying to expand in lower income regions this could become conflict that’s not so easy to solve. For the moment though, it looks like it’s a good thing and let’s just hope these publishers still play fair and use their common sense or else it’s them who are going under, not us the gamers.

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