Could This Stop GameStop?

What publishers would like you to think.

A recent 9th Circuit Court of Appeals ruling could derail the used game business. The court has ruled, in the case of Vernor v. Autodesk, that software publishers have the authority to prevent the resale of their software to another user. The ruling directly contradicts previous court rulings that software could be resold under the "first sale" doctrine. (The "first sale" doctrine states that companies only have the right to dictate the terms of the first sale; once someone has bought the product it can be resold without constraint. This is what allows used bookstores to sell books, for instance.)

On its face, this could stop everyone from eBay to GameStop to you from selling a piece of software you bought from someone else. Of course, publishers hate the idea of used software, so they think this is a great idea. They've been trying to eliminate used game sales for years. You know those "license agreements" included with software you buy, that no one in the known universe has ever read? Those basically say you didn't just buy the software you just bought; instead you just have a limited right to use it for a while, and you certainly can't sell or transfer that right to anyone else, no way.

You can bet this ruling is likely to be appealed, so this may end up in front of the Supreme Court... if they choose to hear it. If not, or if the appeal is denied, then we may well see some publishers taking on GameStop and telling them to stop selling used games. Or, in other words, saying "you can't make a profit any more", which is they way GameStop will look at it. Ouch.

Of course, as packaged retail software becomes more of an endangered species, publishers will be moving to subscription revenue and non-transferable online usage rights (see EA's Sports Pass, where they charge you $10 to be able to play online... doesn't matter if you bought the game new or used). So the whole issue will be moot in a few years. Which is why GameStop had better accelerate their search for other revenue sources, and try harder to move online. And also why publishers had better move faster getting into digital distribution, or risk getting left behind in sales and revenue.

Of course, there's a simpler solution: Charge less for new games. If you were paying $20 for a new game instead of $60, you'd be a lot less inclined to look for a used game. Which is where the whole Classic game category came from; after a publisher feels it has exhausted the market for a game at $60, it drops the price to $20. Maybe they could sell even more if the price was lower to start... especially if it's a digital product without any hard costs to recover. Maybe Sony, instead of spending 5 years and close to $100 million to create 1000 cars and over 70 tracks for Gran Turismo 5 before releasing sometime in the hazy future, could just make, oh, 100 cars and 20 tracks and charge $40 for it, and release it in 2 years while spending only $40 million. Then sell other cars and tracks as they are completed, as digital downloads. Nah, what a dumb idea, trying to release a game quickly and minimize risk and capital outlay.

Yet another reason why software executives are having an uncomfortable time...