Posts Tagged ‘video games’

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

March 31, 2010

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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Revenge of the Rock Band

December 22, 2008

Much has been written over the years about bargaining power issues within the music business. Record labels have consistently been portrayed as exercising an unhealthy level of control over the livelihood of their signed artists. The rock pantheon is littered with tales of bands and songwriters ripped off by the greedy “man behind the desk with the cuban cigars” (as Tim Rogers would put it).

With the big labels’ declining control of recorded music (due to filesharing etc), emerging artists have deemed them less relevant. Artists have some scope to got it alone using myspace and direct contracting with distributors.

It looks like the emergence of the various successful video games built around playing along to your favourite tunes – i.e. Guitar Hero, Rock Band (and their various sequels) – have pushed the power balance further away from the big record labels and towards the musicians themselves.

As this article discusses, the game producers are most interested in dealing with the artists, and the record labels appear to be holding little sway inslash getting their artists’ tracks on the games. Also, it would appear that most of the bigger royalty streams here (use of image, bandname, and the publishing of what is, in effect, a cover rather than the original recording) reside outside of most artists’ contracts with their record label (i.e. it is the artists and their publishers who are getting much of the cash from this).

So, record labels can only sit around and hope that a band’s presence within the Rock Band playlist might significantly boost record sales. The labels have very little bargaining power with the games companies. As an analyst says in the article:

“There are literally probably 2 million songs out there, and fewer than a 1,000 were used in these two games combined in these last two years…If Warner wants to say we’ll take our 20 percent of the market and go away, a lot of bands are going to leave the label if they think they can get better exposure by being on these games.”

This is another instance where a whole link in the Value Chain has been disrupted by technology and shifting consumer behaviours. The record labels underestimated the impact of digital download technology on their sales. And now they look to have missed the boat on potent promotional tool which they should have had in their arsenal. Watch this space for artists taking back even more control in the future…