Wednesday, March 17, 2010

Markets in Everything: A Coffin for Your Dead Xbox 360

If your Xbox 360 gives you the Red Ring of Death, at least give it a decent burial.

Okay, so this isn't actually for sale (yet).

An Inefficient Ruling: Severed Fingers are now the Manufacturer's Fault

A man in Boston won $1.5 million in a lawsuit against the manufacturer of a table saw for failure to include technology that would detect the presence of fingers or other human flesh, which resulted in severe injury to his fingers.

The main problem with this ruling is that it assigns the burden of avoiding injury to the wrong party. The party that can avoid injury at the lowest cost is the person using the saw--he or she can simply be careful. It costs nothing more than going a little slower and paying more attention. By contrast, the inclusion of this technology would almost certainly be expensive, raising the price of a table saw significantly, and still would not eliminate the risk of injury (it would apparently result in small gouges rather than severed fingers).

Another problem is that it creates a disincentive for companies to develop these kinds of technologies. Flesh-sensing technology apparently does exist, and could be used on saws, but if failure to include it on all saws creates a large legal liability, then it might no longer be in anyone's interest to put it on any saws. Consider another example: The airbag was invented long before it was ever used in a car. Suppose that, one year after the airbag's invention, one could sue automobile manufacturers for failure to include them after being injured in an accident. This would give manufacturers two perverse incentives: to include airbags before they are fully tested (possibly causing more accidents), or to avoid developing airbags in the first place.

Depending on how the table saw case turns out in the end (I would not be surprised if the damages were reduced on appeal, or if the entire verdict were overturned), there are several possible outcomes that could occur:
1) Manufacturers stop selling inexpensive saws, and sell only high-end saws with flesh-sensing technology.
2) Manufacturers sell low-end and high-end saws with the flesh-sensing technology, resulting in more expensive saws for everyone.
3) Manufacturers continue to sell low-end saws without the flesh-sensing tech, but charge more for them to reflect the higher liability they represent to manufacturers.

Anyway you look at it, the consumers of low-end saws suffer from this decision (except, I suppose, for those who are unwilling to take care to avoid injury, and who would prefer to pay more to get a low-end saw with flesh-sensing technology--surely a very small portion of those who would buy table saws).

Tuesday, March 16, 2010

Why a Long-Term Business Model is Difficult for Some Games

Consider multiplayer video games like Call of Duty or the Battlefield series, and pen-and-paper role-playing games such as Dungeons and Dragons. They both face a similar problem: After the initial publication of the basic game, which (if the game is successful, as these have been) sells a huge number of copies, there is little additional revenue.

Suppose all 400,000 people who want a copy of Battlefield: Bad Company 2 buy one. EA Games loves all the revenue this brings in, but now faces nothing but costs, possibly for years, as EA Games has to pay to maintain game servers (through which players connect, or on which players actually play the game together).

When Wizards of the Coast releases the fundamental Dungeons and Dragons rulebooks--the Players Handbook, the Dungeon Master's Guide, and the Monster Manual--the basic rules are now available to all players. The players and the game master/dungeon master/referee (or whatever you want to call him or her) can use their imagination to create adventures and characters to develop the rest of the game. Again, once the basic rules are released, the publisher brings in a lot of revenue, but after that it slows to a trickle.

In both cases, publishers try to find ways to sell more stuff to the players. Developers of video games release Downloadable Content (DLCs) or expansion packs. These are additional maps or new game modes that make gameplay more interesting and diverse. The danger of these for multiplayer games, however, is that they can splinter the player base. Only players who buy the game can play together; any individual player worries that if he or she buys the expansion pack or DLC, few other people will buy it, rendering the new content useless. Few people operating servers enable the additional content, because they do not want to limit the number of people that can play on the server. This coordination problem becomes a self-fulfilling prophecy: few people buy the expansion pack because of fear that few people will buy the expansion pack. Therefore multiplayer game publishers face a risk if they rely on DLCs and expansion packs to bring additional revenue. It is difficult for them to make additional profits from this content, so players may be stuck with stagnant gameplay.

Publishers of pen-and-paper role playing games also want additional revenue after the initial sales of rulebooks. This is usually done by selling "modules", or pre-written adventures (for those dungeon masters who don't have the time or imagination to create their own), as well as books detailing "campaign settings", the worlds in which the games take place (e.g., The Forgotten Realms, Dragon Lance, Eberron, Greyhawk, etc.). Again, these are only useful to gamers that cannot create their own settings. Publishers can also release additional rulebooks, which create new options for players (The Fighter's Handbook, The Bard's Handbook). Again, these are not necessary for players and dungeon masters with imagination, and they may not even fit the campaign setting being used.

In both cases, the result is lumpy income for the publishers: They get a big pile of revenue upon initial release, and then a small stream after that. Would it be possible to smooth this revenue over time? There are some possibilities, some of which are in use.

For multiplayer video games, the publisher can require that game servers be rented. This helps cover the ongoing costs of the game (developing patches and running any necessary central game servers), and allows the developer to more closely monitor and maintain the online game system. Another possibility is that the publisher could charge more for the initial game, but promise that the developer will release free DLC over time. Whether or not this works depends on the reputation of the developer. A developer like Valve Software could do this, as they have a long history of providing new free content long after a game's release. Publisher EA Games and the developer DICE, however, probably could not do this. They have a reputation for releasing buggy games which are slowly patched over time--sometimes there is free content, but often there is not (and sometimes gamers would prefer that the initial game be fully fixed instead). If this works, it does not smooth income over time, but it does avoid the coordination problem that comes with DLC and expansion packs for sale, allowing the developer to capture the revenue from their sale in the price of the initial game.

A final possibility for multiplayer games would be leasing, instead of sale. The publisher charges players a (probably low--maybe $5/month) monthly subscription fee for access to the game. The game gets upgrades over time. This makes the game much like a Massively Multiplayer Online Role-Playing Game, like World of Warcraft, except that this is a round-based action game, rather than a persistent-world role-playing game.

I think there are fewer solutions for pen-and-paper role-playing games. A leasing model would be difficult; leasing books is simply not practical. Leasing electronic versions of the rules is too susceptible to piracy. Charging a higher up-front fee and then providing free content isn't practical, either--the fee would have to be quite high to cover the costs of developing and then mailing out additional rulebooks, many of which would likely be of little interest to particular players and campaigns. Wizards of the Coast has instead revised the rules every few years, releasing D&D 3.0, 3.5, and 4.0. A danger with this, however, is that some players simply decide that the old rules were good enough, and therefore avoid the new books.

To summarize: Some multiplayer online games share lumpy revenue problems that are similar to those of pen-and-paper role-playing games. There are tools available to game developers to smooth this revenue over time, but pen-and-paper games do not have analogous tools available.