Economics of Gaming: Pre-Ordering

Before I address this topic, I have to come clean about the “question.” Basically, I was curious about why anyone would pre-order a game in an encroaching digital future. I was also curious if companies are really required to offer them anymore. Initially, the reasons for pre-ordering were two-fold. Firstly, it was a way for companies to generate income in order to finish productions that were financially tight. Secondly, and more importantly, it allowed publishers to evaluate the potential distribution of physical copies. If a million copies were pre-sold, then more than a million should be made. If fifty copies were pre-sold at a single Best Buy in Vancouver, that Best Buy would receive at least that many, while the EB Games across the street which only pre-sold 5 wouldn’t even receive half of Best Buy’s ration. That last point was double-layered: involving both where to distribute as well as how many units to produce. So, as you can imagine, it can be confusing when current and future systems are boasting digital download that any of the latter even matters. Supply is infinite, but if we were addressing basic economic theory, this argument would fall apart because publishers aren’t abiding by that.
Publishers want money, and will cut every corner, commit every trick in order to maximize that. This includes offering pre-orders for digital downloads for a game no one knows anything about. What does that say about the company? Hell, while we’re at it, what does that say about the consumer? Would you pre-order a car you had never even seen? At the very least, people ask for photos, a detailed history. With games like Destiny, you have little to no gameplay footage, only rumors, promises, and nothing else outside of the pedigree of its publishers.
So in that, I should have asked Michael Pachter, “Do pre-orders serve their original purpose and are gamers foolish for still buying them?” But I didn’t, and I realized in my original composition, that I couldn’t fit everything. And I was personally interested in the reasons companies do it still over the gamers’ motivations for buying them. Since I don’t know when to shut up, I compressed probably a bit too much and, considering I still wanted to inject the Destiny controversy into it, replaced the meat of the question with the word “ethical”, which is not a subject to bring up to a hard-line businessman like Pachter. Suffice to say, I was embarrassed when Pachter judged the question utterly stupid. I apologized openly on the forum and expressed my satisfaction that Pachter still addressed the point I was trying to get across. Now if only I had done so as above, I might have avoided his further comments.
I know Pachter is what you’d call a shock-host. He gains his attention primarily through his crass attitude and unflinching business standards, which precludes the injections of ethics, something I’m very much conscious off being what I like to call a social economist. And yes, even asking about the original purpose of pre-orders, he would say they are serving their original purpose because that purpose was to make money. So how do you inject layers into a complicated question?
It’s why I hate Twitter, only posting comments to it when they happen to comply to the demands of the service. The responses posted under the Pachter’s video ranged from anger against Pachter for negative comments made against those who preorder to anger against Pachter for belittling a fan. Some even defended the question, muddled articulation or not. I was actually quite impressed at the number of people standing up to defend me and or the question being asked. Even though I realized the wording of the question was in error, I began to realize more and more that the target of the question was the bigger error.
It might shock you all to know, but I don’t live off the sales from my DEM publications. I have a day job which provides the brunt of the income I use to procure food and shelter. In that vocation, I’m surrounded by electronics, and I’ve been doing it for a long time. Through my history of electronics retail (including management), I’ve sold virtually every gadget ever mass produced, with an enthusiastic focus on video games and movies. I’ve worked the launch of every single game console since the Nintendo 64. I’ve sold every brand of PC starting with the 386 (it was a Tandy). However, as I’m not the president of the company in which I work for, I’m forced to deal with a hierarchy, an order populated by people like Pachter. When I hear him speak, it’s like he’s channeling one of a dozen people I’ve previously encountered that have assumed a position of authority. One could say this attitude is necessary to reach this echelon, but I’ll also state that the reason why I’ve encounter so many different versions of Pachter is because their positions are entirely replaceable.
Yes, despite not being a CFO, a VPD or a DM, my position is high enough for staff, financial reports, and loss prevention, but low enough that when the skimming begins, the blade often passes over my head. I’ve seen the rise and fall of district managers and even vice presidents, and many of them share not only Pachter’s outlook but dominant character traits as well. The fact he occasionally plays games instead of hunts like my employers seem to often do is his biggest saving grace…that and the fact that Pachter actually has experience in the gaming industry and if you know the details of my employers, you’d know that they lack any such skill. It’s not like they’re totally wrong in everything. For example, despite resistance and continued flag waving, physical game sales will be dead by the next console generation, and store sales reflect this…in the same way that many people fight the losing battle to defend brick & mortar gaming stores.
It’s a hard but realistic truth. To quote Robert Downey Jnr. (who was quoting someone else but who cares), an optimist says the future is uncertain while the pessimist is always right. The same goes for Pen & Paper RPG sales, which despite a recent upswell, is still on the decline. The ratio of physical copies sold in the PC market to digital downloads is an overwhelming skew to the latter. And despite (potentially) offering optical drives in the upcoming new generation of game consoles, those drives will soon be as vestigial an organ as 3.5” floppy drives were to PCs a decade ago. Within a few years, the percentage of digital downloads for consoles will soon match that of the PC market. The writing is on the wall. With major game publishers being backed with hundreds of millions of dollars, why in the world is anyone pre-ordering? I got utterly screwed last year when I pre-ordered Mass Effect 3 from Amazon, only to wait a week after the launch for my copy to arrive. I didn’t guarantee shit. About the only consoles that still could benefit from pre-ordering are Nintendo and Playstation portable devices, a market I may add which is also in a severe decline…which results in fewer games produced and thus, a justification for pre-ordering. Oh what a vicious circle.
I admit to preordering. I did for X-Com because they offered a free copy of Civ 4. I did for Bioshock Infinite, a shit you not, ten minutes before the unlock. I’m sure there were pre-order bonuses, but they weren’t as tempting. But why do they do it…and why do we do it? Pachter claims that a company will find any reason to make money…but what does it matter if they make a sale before or after the product is released. We know the answer of course.
Because it could be shit.
And that’s the only reason. People want to have faith in something, be it a paranoia that they’re being watched by a god or government or in the belief that a game they wish to play will be good. So companies are experimenting with how much they can show of a game and still secure sales. Hell, how did Double Fine blow its Kickstarter goal out of the stratosphere? On their name alone. This is exactly what Activision and Bungie are doing with Destiny, with some pre-rendered levels and a couple pieces of artwork. Bungie literally stumbled into success with the first Halo. They also put out Oni, which was shit. They haven’t proved anything to me. Bioware, with a much more established reputation in my opinion, crystallized how a company’s quality can slip and how fast that fall can occur.
Is there a difference between pre-orders and Kickstarter? I think so but game companies don’t want consumers to think that. Kickstarter is a way to fund a project which would not exist otherwise. The producers are bound (dare I say ethically) to deliver on the goals they proposed when they started the project. With pre-orders, companies have no obligation to deliver on anything they promise, assuming they promise anything. Combine pre-orders with an utter lack of demos offered, and consumers are asked to invest money in projects that don’t require investment with no guarantee of a quality end-product.
Looking back at the mixed receptions of established franchises in recent months, I’m finding it more alarming when people claim they pre-order a game. Is your faith so unwavering? People pre-ordered Diablo3 and had to duffer through Error 37. Simcity customers had to suffer through a similar debacle. Those who preordered Aliens Colonial Marines had to live with substandard product pointing to an outright criminal deception on the creators’ parts.
On a quick tangent, some time ago, I ran series of articles discussing copyright protection. I argued my point that regardless of a creator’s opinion on unlicensed digital distribution, he is compelled to protect his IP less he lose what little rights he has when a serious breach does occur. I argued that some piracy can be tempered by allowing consumers to make an educated marketing decision about the product being sold. This is accomplished by showing artwork, gameplay, sections of the final product, and preliminary reviews. Some have even allowed free use of the game at an early stage in order to drum up interest.
This is the same for both book-based RPGs and video games, except most video games aren’t doing any of this. Many big publishers don’t release demos of their game. They don’t allow preliminary reviews. They instigate embargos that reviews cannot be published until the day of release while simultaneously ramming pre-orders down consumers’ throats. And if those pre-orders balance the production budget, what obligation does a studio have to deliver a quality product? Why bother trying to fix a broken game if it sells a million copies in a week. If it makes its money before the release, the obligation is to meet that release with no mention of the quality of the final product. It’s situations like this I’m not surprised people pirate games…
…Let me stress that…I’m not surprised. I still cannot endorse it, because as a game designer, I have to side with the publisher. But let’s be honest, the impact of piracy has never been properly measured. Various media giants once claimed the number is about 200 billion dollars lost a year. It sounds big…and it’s also completely untrue. More accurate estimates placed it at a more conservative 50 Billion. Yes, that’s still an insanely high number, one I believe — admittedly without data to back it up—is also inaccurate as it doesn’t take into account people who pirate and then buy the same product. It’s no shock that Mass Effect was one of the most pirated games of 2012. People vote with their pocketbook, as is the idiom and people will pay for products they believe in. Gearbox would’ve shot themselves in the foot if they released a demo of Colonial Marines…but releasing a demo does allow people to make an educated guess. It also forces companies to play fair.
This is why I simply can no longer pre-order games unless I have some guarantee of quality. But wait…how can I make a distinction between Kickstarter and pre-orders? It’s the final question which I can’t answer. Why am I willing to put faith and money into a Kickstarter project which may likely fail over a game published through a major publisher? I can only think in economics terms…in that a kickstarter project, at least the ones I’ve been following, is based on the ideal that the creators are wishing to fulfill their passion, and thus don’t follow the basics of economic theory WHATSOEVER. Simultaneously, major publishers are asking for pre-orders for games and not playing fair in allowing us to make an educated guess on said games. If there is a passion behind those titles, which I’m sure there is for some people in the development, it’s muddled and concealed behind the engine of commerce.
Am I a hypocrite? Good question. I post artwork, page captures from the final product, and occasionally open beta testing. But I don’t often send reviews copies before the release. That’s actually easy to explain. I don’t wait long after product completion. The time delay between final to publication of NeuroSpasta was about 48 hours. If I was involved with a video game project and I had some measure of control, I would feel obligated to make the best project I could. I won’t please everyone, but I hope to not be accused of misleading advertising.
By the way, the latest crowd-funding project I’ve backed is Hardware: Shipbreakers, by the creators of Homeworld, one of my all time favorite games flat out period. It’s an example of how to convey passion in a project.


Chris Dias

Chris Tavares Dias is the literary equivalent of that crusty burnt cheese at the bottom of the fondue pot. Some people claim he looks like Mathew Perry. He would like that to be true. It's not. In 2010, Chris co-wrote and created Amethyst Foundations, a 4th Edition setting based on the previous version under 3.5. It has received critical acclaim for integrating science fiction into classical fantasy. In August of this year, Chris was last seen staring at a dead raven that had fallen beside his car. Two months later, his watch and notepad were found in the stomach of a basking shark that had washed ashore off the coast of Florida.