Wednesday, September 29, 2010

Why Does NPD Hate The Game Business: Calling Them on Their Bullshit Edition

NPD has a problem. Their value is based on accessing and protecting a data set while their access continues to shrink and the data points continue to grow. They like to tell us they are able to track physical game sales, but they do not have access to sales data from our biggest retailers. Until recently they never covered on line and when they did they found their previous reports were wrong. Now they chose to issue a report relating to the console DLC market when they have no access to sales data. I, along with any one who sat in a room with a publisher in the last year, have better information on the DLC market than they printed. Just in case their assessment of only 6% of the market actively downloading did not ring hollow to the publishers currently showing a solid return on DLC, they highlight:
"Internet connectivity is an important feature across multiple devices:
60% of e-reader owners cite it as their favorite feature"

Excuse me while I call them by their first name, boneheads, 100% of e-reader owners are buying 100% of their books via download and Amazon alone reported selling almost 50% more e books than hardcover.

Based on the report's citing of only 6% of consumers downloading content, the headline grabbed across the web is screaming "DLC is not working." An innocent reader may assume the number is the result of tracking - probably because NPD built its brand on accessing sales point data and tracking real sales - but it is really the result of a survey. Of whom? The consumer population. Does the overall percentage of the public matter, if our industry, and others, are profiting? The report indicates 75% of U.S. consumers aged 13 and older did not connect or download content in the previous three months. Who cares? 61% of Netflix subscribers download content, Apple distributed billions of apps, Kindle and Nook owners download millions of books - surpassing hardcover sales and in our little old corner of the world, consumers download millions of demos, millions of additional levels and millions of XBL/PSN only games. But they should not listen to me. Look at their own report indicating 50% of PC sales are DOWNLOADS. Enough sales are occurring in all of these areas to make each sector profitable. Measuring and reporting on the downloads as a function of population is akin to saying 100% of Chinese residents did not purchase an Xbox 360 game last year. They would be right, but we still have multi billion dollar console industry.

NPD's is acting like the bully in the school yard. They want the consoles to open up the stores to them. Nothing wrong with that. We want the same thing. If Microsoft and Sony released sales data publishers and financiers would be able to forecast sales and make commitment to build and expand the market. I can not tell you how many publisher meetings are dominated by anecdotal data and a bunch of fingers sticking up into the air trying to divine the winds of the download market. But I do not see publishers forcing the console companies' hand by publishing negative performance reports. Just like NPD's flawed report last spring, this report is read and misunderstood by financial analysts who value our companies based on future performance. If they read only 6% of consumers download, rather than the real percentage of console owners who are downloading and the number of dollars spent by those console owners, they could dramatically understate the value of our companies and our future. Thereby hindering access to capital and interest in the industry. If they do not believe me I am happy to allow them to sit in on any one of my meetings.

If you are not NPD, please click through to another page and your regular blogging will continue after this private note to NPD.

Fellas, wake up. You got our attention, but there is a difference between good attention and bad attention. Telling the word our market sucks is not a good way to encourage Microsoft and Sony to let you into their tents. Grow up, think, cooperate. We in the game industry are the hand that feeds you and you should not bite it. I paid thousands of dollars for your report. Not anymore, I am done and I am not alone.

Sunday, September 12, 2010

Appeals Court Holds Used Game Sales Are Illegal?: Light At The End of the Tunnel Edition

I am not going to go into again, I already did here, here and here, so take my word for it. Selling used games is harmful to game innovation. While publishers are engaged in a arms race against the ever growing number of used game sellers, the industry may be saved by the courts. In Vernor v. Autodesk The 9th Circuit Court of Appeals just ruled a properly worded EULA will preclude resale of software.

In the Vernor case, Vernor purchased copies of Autodesk software, did not open it, and resold it on ebay. Vernor contended he was protected by the first sale doctrine because he did not make copies, and did not open the box and become bound by the EULA. The court held otherwise and found Vernor a licensee of the software and therefore bound by the agreement which forbade resale.

Games and other software are legally resold under the first sale doctrine. In 1908, when contemplating the resale of printed, coyprighted works like books or music, the U.S. Supreme Court determined the rights of the copyright owner were exhausted after the first sale. The material's purchaser was allowed to resell the work, so long as they did not make or retain copies. The court did restrict the ruling to works which were sold, not licensed, hence the new ruling. Put simply, if a person is an owner, first sale applies. If they are a licensee, it does not. Without the protection of first sale, software cannot be resold.

The determination of ownership or license is made by the written agreement provided with the software. Specifically the Vernor court described the test as

where a transferee receives a particular copy of a copyrighted work pursuant to a written agreement, we consider all of the provisions of the agreement to determine whether the transferee became an owner of the copy or received a license. We may consider (1) whether the agreement was labeled a license and (2) whether the copyright owner retained title to the copy, required its return or destruction, forbade its duplication, or required the transferee to maintain possession of the copy for the agreement's duration.

The court tells us, if the right words are contained in the big mess we button through at the beginning of a game or other software installed on our computer, Gamestop cannot resell it. The binding part of the decision, the holding provides:

We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions.

The best way to ensure a place behind this shield is to exactly what the court said. The court ruled in Autodesk's favor because it's EULA reads:

Autodesk retained title to the software and imposed significant transfer restrictions: it stated that the license is nontransferable, the software could not be transferred or leased without Autodesk's written consent, and the software could not be transferred outside the Western Hemisphere. The SLA also imposed use restrictions against the use of the software outside the Western Hemisphere and against modifying, translating, or reverse-engineering the software, removing any proprietary marks from the software or documentation, or defeating any copy protection device. Furthermore, the SLA provided for termination of the license upon the licensee's unauthorized copying or failure to comply with other license restrictions.

This all seems so clear. We are saved, right? Not really. This decision was made by the Court of Appeals for the 9th Circuit. While this Circuit hears many technology cases and the judge has a history of decisions not being overturned, the court is only one of 13 Circuits in the United States. Unless this case is raised to the Supreme Court for Appeal, it will be binding only on cases brought within the Circuit. It is only persuasive in other Circuits. If another Circuit rules the other way, it would be up to the Supreme Court to determine who prevails - if they are willing to do so. This may take a very long time. The actions giving rise to this case occurred in May of 2005. The first court ruling on the case found first sale applied and Vernor could resell. It was only after the appeal, five and a half years from the action, we know the outcome - unless there is another appeal. However, it gives us hope and as an industry we should embrace the decision and establish a standard license for out software.

If the EULA's do not include the Vernor court's magic language, change it. This will pave the way for The ESA, or individual publishers to bring an action against used game retailers to stop the practice once and for all.