But I’ve already paid!! Sony innovates around willingness to pay

In teaching business strategy I spend a bit of time discussing the thorny issue (for firms and scholars) of willingness to pay.  A huge challenge for firms is successfully offering a product or service that customers are willing to pay for, and at a price that allows the firm to make a profit.  There are numerous dimensions in terms of product attributes that customers might consider, and all within a context of competing products and services, and inevitable spending constraints.

One possibility I hadn’t thought about much until today is the issue of a firm’s capacity to alter the product itself post-transaction.  I do live in the vain hope of added benefits (flight upgrades, additions of secret superstar acts to concert line-ups, or a hidden track on a CD), but I wouldn’t expect a firm to actively remove a feature I had already paid for.

Sony have done just that. This week they dropped a bombshell, announcing that they were removing a feature of their Playstation 3 gaming console, namely the scope to run other operating systems through the console. Their rationale is that this will prevent game hacking, but this is not like a patch fixing a software shortcoming, but rather the wholesale removal of functionality.

I am curious as to the legality of altering a product offering ex post, and also to the likely damage to the firm’s reputation in terms of the customer perception of their product offerings.

If I can’t be sure I can keep what I paid for, surely what I’m willing to pay for this gamble will fall?

Thanks to Rui for bringing the announcement to my attention.

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12 Responses to “But I’ve already paid!! Sony innovates around willingness to pay”

  1. Jesse Says:

    I hope they get sued into the stone age if they really try to pull this crap.

  2. ggchappell Says:

    via Newshacker

    Something I wonder about: For various reasons (e.g., the 2005 CD rootkit episode) the name “Sony” has very negative associations in my mind. Even before reading this article, if I were in the market for a game console, I wouldn’t get a PS3; that “Sony” on the box is a real turn-off. And there might be lots of people like me.

    And so I wonder whether this move of Sony’s might very well be strategically sound. I don’t know whether it will achieve whatever goals Sony has, but I suspect that it will not offend very many customers. The people it would offend are people like me; but they already stay away from Sony, and so do not own a PS3.

    On the other hand:

    > I am curious as to the legality of altering a product offering ex post, ….

    So am I.

  3. Marcus Hoyne Says:

    If I understand the position correctly, then it is as follows:

    1. People who purchased an old PS3 had a feature on the console that allowed them to choose “Other OS”

    2. The “Other OS” feature can be used for certain benefits (both legal and illegal) but the most recent version of the PS3 does not have this function;

    3. Sony will be releasing a firmware update that owners of these consoles can choose to accept or reject. If they choose to accept it then they will lose the functionality of the “Other OS”. If they choose to reject it then they will not be able to play certain games or watch certain blu rays that require the most up-to-date firmware.

    I make no comment about the commercial wisdom of this decision but I have to say that I think that anyone that could be bothered taking on Sony about this would not have any serious prospect of success in either Australia or the UK. To succeed, a purchaser would have to demonstrate to a court that there was an implied terms in the contract between Sony and the customer that (a) Sony would always keep the consoles updated wtih the latest firmware and (b) in releasing such firmware updates it would not diminish the functionality of the console. It seems that they would need to demonstrate a term to such effect even where Sony can say that its view is that the update is necessary to protect against piracy.

    In order for a term to be implied, in a contract, a person has to show the following (BP v Shire of Hastings (1977) 180 CLR 266):

    (1) it must be reasonable and equitable;
    (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;
    (3) it must be so obvious that “it goes without saying”;
    (4) it must be capable of clear expression;
    (5) it must not contradict any express term of the contract.

    These second implied term that I have suggested would need to be implied would not meet the requirements of (2) or (3).

    The position might be quite different if the user had no option but to accept the firmware update. However, that appears not to be the case.

    Marcus Hoyne
    Barrister

    • davk Says:

      Hi Marcus,
      You are looking at this issue through Contract Law. You have failed to examine it through Consumer law.

      In Australia, we have the Trade Practices Act of 1974, which has specific protections against products that are marketed with specific features, and not being able to fulfil these functions. What is interesting in this case is that the product did originally satisfy all advertised features, but Sony then changed the product so that it is now not capable of these features.

      It will be interesting to see how this plays out. It is near unheard of for a manufacturer to force a feature removal on their customer base. No matter what choice is made, the product is reduced in feature capacity. You either update and lose features, or you do not update and lose other features.

      I think there is a great chance that Sony will lose this, if pursued in the courts.

  4. R Says:

    I guess the tides have turned?

    http://digihub.theage.com.au/node/1627

    • Andre Sammartino Says:

      It’s a pretty backhanded apology from Sony: “We are sorry if users of Linux or other operating systems are disappointed by our decision to issue a firmware upgrade which when installed disables this operating system feature.”

  5. okey Says:

    all the ppl complaining about the removal of “OS” did you all read the terms and condition when you first powered on your ps3or during system updates? SONY has the right to add or remove any function in line with SOFTWARE LICENSING AGREEMENT that you accepted. this is not the case of hardware, to the guys that wrote about buying a bicycle and buying a car with premium sound system,remember that there was no agreement between u and the seller about his right to add or remove functions.there are clear differences between buying hardware and software unless in some extreme cases.

    • Nigel Stewart Says:

      I was interested in a PS3 for three purposes – games, blue ray, and as a linux MythTV front-end for various TVs around the house. Without being able to stream from other MythTV backend DVR(s) I’d still be interested in the PS3 for games, but it would likely be along side other box(es) for streaming DVR, photos and internet content.

      It’s a shame Sony have alienated the Linux and Open Source Software world with this move, but it’s not all that surprising considering other things that have happened. There is a reason that Sony didn’t invent the iPod or the iPhone.

      I would be severely unimpressed to have invested in multiple PS3’s for Sony to now turn around and say it’s a games and blue-ray only machine.

  6. Marcus Hoyne Says:

    Davk

    I spend my whole life litigating the TPA. The TPA does not “has specific protections against products that are marketed with specific features, and not being able to fulfil these functions”. What it has is protection against companies representing that is products has certain functions and the product not having those functions (ss 52, 53). Hence, you would have to run an argument that, by marketing a product with certain features there was an implied representation that the product would always be updated (through the firmware upgrade – you need to allege this because you do not have to accept the upgrade) and that, as part of that updating, no functions would ever be removed even if removal was believed to be necessary to protect against piracy. Good luck!

    • davk Says:

      Nice point, but it still does not cover the fact that features are removed even if you do not accept the update. All access to the Playstation Network, and even the ability to play some existing games, are not possible unless the update is applied. Therefore these “features” have been effectively removed, without any update being accepted.

      That, my friend, is a likely deception. This product was advertised as being capable of running other operating systems, and also of accessing the Playstation Network. It was bought with the belief that it was capable of both. Now, Sony have introduced an update which makes the system capable of only one or the other, even without accepting the update. Section 52 has been contravened.

      The strange thing is, this update does nothing to prevent piracy. It is essentially impossible to play a PS3 game through Other OS, for many technical reasons. There are plenty of PS3 experts that can back that statement up. If and when it is possible to pirate PS3 games, it will be done through the Sony game os. The update does nothing to stop that.

  7. Games PS3 Says:

    Thank You for the Great Article. 😀

  8. Dead DRM Says:

    Technically Sony have stolen this feature that people have paid for.

    This is exactly the the behavior everyone expects of Sony.
    I even heard a customer when being shown a Sony PC saying “But it’s a Sony”

    Why any one would spent an extortionate amount on a BlueRay Player when Sony can disable it remotely.

    They also disabled features on the PSP, no wonder no one will touch it with a bargepole .

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