GamesBeat

Analyst: ‘Highly unlikely’ that Microsoft blocks used games on next Xbox

We’re in the that weird part of the console cycle where everyone knows new hardware is imminent, but no one really knows what to expect. That means every rumor, report, and speculation is ripe for headline news as gamers hunger to absorb every piece of information about the next PlayStation and Xbox home game consoles.

This morning, Edge Online reported that the next Xbox would require a constant Internet connection that would also block used games from functioning on the console. This would take a huge chunk of revenue away from retailer GameStop, which specializes in second-hand games. It would also force many gamers to change their game-purchasing habits.

That’s if the Edge report is true. So far, GamesBeat hasn’t verified the rumor, but we wanted to ask some game-industry analysts if they think this is a likely (or smart) move for Microsoft.

“I am quite suspicious that Microsoft would divulge their strategy to any developer,” Wedbush Security managing director Michael Pachter told GamesBeat. “I have spoken with several people who allegedly have development kits, and none would confirm to me that the ‘always online’ feature was apparent in the specs they have access to.  Clearly, none of these people is supposed to acknowledge that they have dev kits, so I tried to avoid putting them on the spot. Several people told me that they had ‘heard’ the same rumor about ‘always online’ independently of the Edge article, and none of them had heard anything about the blocking of used games.”

The Edge article also suggests that physical games for the next Xbox will ship with one-time-use activation codes.

“While an online connection gives Microsoft the capability to validate every piece of software placed into its console, it doesn’t logically follow that they must do so because of that connection,” said Pachter. “I am fine with the theory that they may do so, but the article stated it as a foregone conclusion, based upon a conversation with ‘sources with first-hand experience.’ None of those sources is in a position to know what Microsoft’s strategy is, and I assure you that even Microsoft hasn’t yet determined its ultimate strategy. They are still thinking about a variety of functions.”

Other analysts voiced an equal amount of skepticism.

“It’s highly unlikely,” R.W. Baird analyst Colin Sebastian told GamesBeat. “They may have the capability to prevent resales, but Microsoft needs retail support to sell hardware, and many of their core gamer customers trade a lot of games.”

The idea is that blocking trade-in games would anger GameStop, which then wouldn’t help the manufacturers sell the next round of hardware.

Another analyst found a problem with requiring an Internet connection.

“As of [the first quarter of 2012], our surveys showed that in the U.S. 30 percent of Xbox 360s weren’t connected to the Internet at all,” IDC research manager Lewis Ward told GamesBeat. “Now, this percentage has probably come down a bit, but if Microsoft does launch its next-gen Xbox 360 this holiday season — as I expect [it will] — they could be limiting their own addressable customer base by approximately 25 percent — and that [number is even] higher in developing nations.”

In January, GamesBeat reported that Sony patented a way to prevent used games on its next console. Many analysts believe that both companies possess the capability to deny gamers the capability to play second-hand games, but most are dubious that either company would implement that functionality to its fullest potential.

Unless Sony or Microsoft are (illegally) colluding to block used games, neither knows how strict the other will be. It’s a roll of the dice to prevent preowned games because if the other manufacturer doesn’t, then gamers may flock to the system that has the most purchasing options and cheapest games.

“Sony has to blink first, on Feb. 20,” said Pachter. “Microsoft has the luxury of seeing if Sony makes a mistake — and can exploit that mistake.”

Feb. 20 is when Sony will reveal “the future of PlayStation” at an event in New York. Most industry observers believe this is when the company will announce the so-called PlayStation 4.

“If one platform [blocks used games] and the other does not, then a huge competitive advantage goes to the platform that allows trade-ins,” said Sebastian.

“If Microsoft got rid of all used games and Sony allowed them, I think it would be a significant competitive disadvantage for Microsoft,” said Ward. “We already know Wii U supports used discs. I think it would be risky if one console [manufacturer] shut off used discs entirely and the other two allowed them.”

Then what’s stopping Sony and Microsoft from announcing equally strict bans on prepurchased software? Well, it’s considered an anti-competitive practice, which is highly illegal. Pachter believes we can rule that out as a possibility.

“Neither of them is stupid enough to ban used games on their own, and neither is evil enough to collude together to do so, especially since the benefits of a used game ban [primarily helps] publishers, and not the console manufacturers.”

Whether or not it’s evil, it’s also bad business. Neither company wants to draw the wrath of gamers and consumer-advocacy groups.

“It would anger gamers and retailers,” said Sebastian. “Which doesn’t seem like a constructive way to begin a new cycle.”


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