MoneyWatch Tech

Electronic Arts New Online Videogame Tax Risks Pushing Away Its Loyal Fans

By Damon Brown

Updated on: May 12, 2010 / 3:45 PM EDT / MoneyWatch

Used game sales have been on the rise, taking money out of publishers' pockets, and now Electronic Arts (ERTS) is intent on combating the trend by taking money back directly from its customers.

Starting with its EA Sports label, EA will charge gamers on used products $10 to play online -- the lifeblood of its billion-dollar franchise, including John Madden Football, and a basic service for which the console publishers Nintendo (NTO), Sony (SNE) or Microsoft (MSFT) don't even charge. The ballsy -- but dumb -- decision won't even begin to recoup money lost to used game sales and, if pursued further, will push customers to competing sports franchises from 2K Sports and Sega.

Here's Engadget:

For a while now game companies have been waging war against used game sales, most recently resorting to DLC unlock codes in games that can only be redeemed once, making the used purchase less attractive. However, EA Sports has escalated this practice right out of the stratosphere with its new "Online Pass" feature. Basically, the original purchaser is bestowed online functionality, added features, and bonus content, out of the kindness of EA's heart (and a fun-to-enter redeem code), while a used buyer will get a 7 day trial of those things, and then have to pony up $10 if they want to keep at it. Yeah, you heard that correctly: you'll have to pay $10 to play FutureMadden: Robots in the Red Zone online if you bought it used. The first title to get this special treatment will be Tiger Woods PGA Tour 11...

The gains from this risky move? Minimal. The chances of it hurting EA Sports sales? High. Let's break it down.

Electronic Arts can have only three reasons for charging the customer extra:

Make up for money lost on used game sales
"Entice" players to pony up for retail game
Put a dent in GameStop's (GME) used game sales

First off, the $10 per person won't even begin to make up for the money lost on used game sales. The average new game retails for $60 and, according to video game industry insider Steve Perlman, $27 goes to the publisher. Let's say a consumer buys a used version of the same game, which EA sees no part of, and pays the publisher $10 to play online. EA has now received about one-third of its usual fee.

Second, the ruthless move won't entice more players to buy the game new. A used version cost anywhere from 10% to 90% less than the retail version. The average gamer is a 35-year-old male, but the younger generations are still the lifeblood of the game trade -- and they don't have much money.

Finally, EA's strange strategy won't put a dent in GameStop's used games-fueled sales, which, in Q4 2009 alone, were $3.52 billion, close to the $3.49 billion of Q4 2008. Electronic Arts' $10 initiative is only being discussed in EA Sports, and only confirmed for Tiger Woods for that matter (perhaps the last game that needs a controversy right now), so we're talking about a subset of a subset -- a fraction of the video games available at GameStop. At this point it isn't enough to make a change in either coffer, but it is just enough to be irritating to consumers.

Electronics Arts has already lost the number one third party publisher position to Activision (ATVI), an adversary that, despite recent controversies, just signed the extremely profitable Halo developer Bungie to an exclusive 10-year deal. This is one of the worse times for EA to pull an ineffectual stunt like this.

Related: