Xbox Live 360.com. Games and Games.

As the first LGJ that's been 'on site' from a conference, this week's column makes some commentary on a statement Jason Holtman, Director of Business Development / Legal Affairs for Valve, made at the Game::Business::Law Conference:

Most pirates are grumpy, underutilized customers.

Read on!

Now that I am back, I can address the Silicon Knights case, which unfortunately came to light during my brief break. The full complaint can be found here. Due to my slightly delayed response, many sites have already published their analysis of the complaint, and most of the major issues have been addressed. I personally think Gamasutra did an excellent job breaking down the actual complaint in their article.

There are a few issues, however, that I don't think other sites have adequately discussed.

1. If the allegations are accurate, this could result in a huge boost in licenses for id's new id Tech 5 engine and Valve's Half-Life 2 engine. The reality is licenses for engines sell just like any other product, and bad publicity hurts sales. While Epic may have fixed many of the Unreal 3 issues through Gears (at least in the Xbox 360 context), developers may be concerned about ongoing support for the engine, and may remain wary once Epic starts taking early orders for the seemingly inevitable Unreal 4 engine.

2. If Silicon Knights's engine is viable, I expect others will use it as well. In fact, I could see Microsoft possibly adapting it as an answer for their developers. The Halo 3 Engine, while impressive, will likely remain unlicensed (just as the prior Halo engines have not been used by other companies). With the SK Engine, the licensing seems more like an option, especially with so many companies complaining of the high development costs for the next gen consoles.

3. While this suit may be new for the game industry, it's relatively common in general. This is, at its core, one of the simplest contract disputes. Party A promised to deliver a good in form X, and Party B alleges that good arrived in form X-1 and Party A never fulfilled their contractual agreement. While this is a gross oversimplification, it is the core of the lawsuit.

4. While many have been quick to claim that Silicon Knights's demand for profits from Gears is over-reaching, it is actually quite common. When a company is unjustly enriched at the expense of other companies with whom they have a contract, damages are often taken as the best estimate of the unjust enrichment. If Too Human had launched close to the same time as Gears of War, would Gears have enjoyed such phenomenal sales? Maybe, maybe not. Was there a defined benefit in both publicity and sales for Gears as a result of having little competition? Almost certainly. Would Too Human have been competition? Most likely. Could the market then have supported full sales of both games? More likely then than now since fewer games were available for the Xbox 360. These are the kinds of questions that go into an analysis of unjust enrichment damages. Assuming Silicon Knights can show that Epic neglected the licensees in order to work on Gears, the Gears profits will become some measure of damages. While it seems unlikely Silicon will receive all of the profits they demanded, a substantial award for Silicon would not be out of the ordinary.

Those are just four comments on the case. It will be fascinating to see what results in the court, or the pre-trial settlement.

Last evening, my second Xbox 360 died, approximately 7 months after it arrived. I had a launch console, which died about 8 months ago, and was replaced by the recently deceased refurbished console. I know what you are thinking, "Join the club." Or "Yep, and it seems Microsoft is never going to tell you why."

However, Law of the Game is a site about video game law, and while my second dead Xbox 360 may seem like it has nothing to do with the law portion of that description, it works as an interesting lead in to a short post on the law of warranty and the concept of consumer protection.

The concept of a warranty is simple enough: Someone selling a product assures the buyer that of something. In a typical consumer transaction, the assurance is generally that the product will work for some period of time or is free from defect. Warranties can be express (written) or implied (imposed by law on all sales). Express warranties must be available to the consumer pre-sale, according to the Magnuson-Moss Act of 1975, a Federal Law. The FTC has a fairly complete consumer guide for written warranties.

We all know what the Xbox 360 warranty says, it's right here and here. It is the second variety of warranties that are more complex, the implied warranties. Implied warranties are imposed by law, and vary from state to state in the US and country to country abroad. As a result, I could spend the next year just trying to lay out the complex worldwide warranty matrix and still not finish the task. So, instead I will briefly mention two major forms of implied warranties: Merchantability and Fitness for a Particular Purpose.

Merchantability implies that the goods are what they say they are, and they conform to the standards of trade for that item so that they can be used as expected for that item. So, when sold, an Xbox 360 is warranted to be working, packaged and assembled in a uniform way, and able to play Xbox 360 games and DVD movies.

Fitness for a Particular Purpose is more specific. A merchant in this case must know that the consumer is planning to use the item for something specific and tells the consumer that the items are fit for that purpose. Say I went into a furniture store asking for a table to support a very heavy (200+ pound) TV set. If the salesman told me that a particular table would work, and it in fact collapsed, there would be a violation of the warranty.

Neither of these implied warranties are of much use, unless your system is dead out of the box. Moreover, they typically apply to the merchant (the place you bought the item), not the manufacturer.

A related issue is the concept of a deceptive trade practices acts. Deceptive trade practices are pretty much what they sound like (an action that in some way deceives the consumer about the product), and they are also a state by state action. In fact, some states have a long list of industry specific violations in addition to the general violations. It would be a bit of a stretch to apply this as well, although some concept of a failure of represented quality might be applicable, although Microsoft has generally admitted Xbox 360 failures, which may preclude this option.

There are probably potential other causes of action related to the Xbox 360 failures, but these are the ones that seem to appear on the message boards the most.

I would also like to take a moment to point out another legal issue related to the Xbox 360 failures: Fraud. Going to Wal-Mart (or other retail store), purchasing a console, and then returning your broken console is fraud. While it may seem like an easy fix, just don't do it.

Microsoft has encountered an interesting problem with the 360. The failure rate is high, but so are sales. What is a gamer to do? Hunt for weeks, if not months, to get a Wii, which I admit I enjoy thoroughly but is a little short on software until some of the big releases later this year (Metroid Prime 3, Smash Bros. Brawl, Mario Galaxy). Buy a PS3, which is even more expensive than the 360 and has, for the time being, a weak software lineup. Or buy a 360 and play some quality games until it fails, which seems a near certainty, at which point you might be under warranty, might have to pay for a repair, or might just buy a new console. It's quite an odd problem, and one I certainly wish Microsoft would resolve. Unfortunately, sales don't seem to be suffering enough for Microsoft to really take notice. Not that I blame the consumer, since I'm just as hooked as most everyone else. This issue, though, is also one that I cannot remember happening to this degree with any other console. In fact, I have never had another console in my collection fail, including my launch PS2 (which did have a notable failure rate).

What is a consumer to do? Unfortunately, short of a product recall (which seems unlikely given that it has not happened yet and safety is not the issue) or a class action suit, the individual consumer is likely stuck. Why? The cost of an action against Microsoft would be astronomical, and more than likely, they will just settle before any court could place any actual fault on them in order to avoid future, similar suits. This speaks to the failure of consumer protection on the whole. The Xbox 360 user base is vocal and adept at using the internet, so this issue is well known and widespread. Who knows what other products may present the same result to a less technically savvy group. On the flip side, I am certain that other products that work well are being unduly burdened by consumer protection attempts. It probably balances out in the grand scheme of things, but is unfortunate in many particular instances.

And so I, like everyone else, will be once again calling 1-800-4-MY-XBOX and hoping for the best. At least this time, it is in the off season, rather than right before a major game release (my last console was being repaired during the Gears of War release).

Alternate Reality Games (ARGs) have become quite popular as promotional tools, especially in the wake of the success of I Love Bees (the Halo 2 release ARG). However, there's a flip side to the ARG concept.

The unfortunate truth is that even in the most carefully choreographed ARG, the players can end up harassing people who aren't affiliated with the game.

Case in point: The Halo 3 ARG (starring "Adjutant Reflex") yesterday resulted in hundreds of calls to Michael VanderZand. I suppose it was lucky that he's a fan of the Halo games and Red vs. Blue.

In any case, while the annoyance may only be temporary (a few days, maybe weeks), there isn't much of a recourse for the victim. And more than likely, the cost of forcing any such payment (for time lost, annoyance, cellular phone bills, etc.) would likely exceed the amount to be recovered.

Just as a common courtesy, I really think the people who run the ARG, be that the game company or a private ARG production firm, should build in a cost to compensate people who do get temporarily steamrolled by the flood of ARG players (who, I must admit, are really into these games, and I think their dedication is quite remarkable). For example, I think it would be appropriate for the powers that be to offer to pay for the lost cell phone minutes (and/or for overages on that bill) and maybe offer a free copy of Halo 3, since Mr. VanderZand is a fan, and really took this pretty well.

It's really not asking for a lot, just a little responsibility for the ARG, since it does have an effect in the real world. I don't know for certain if this hasn't already happened (and it very well might have), but these type of situations are something to think about in planning an ARG marketing event.

Out in the grand expanses of the world wide web, there are really two competing models of IP licensing in the MMO world. The first is followed by the vast majority of games, including the ever-popular World of Warcraft. The other is a more recent development employed by Second Life. After explaining these two in brief, I would like to propose an alternative "middle ground" which could significantly alter the MMO landscape. This IP model is accompanied by a brief discussion of a relevant business model which is closely related.

The World of Warcraft Model

I term this the "World of Warcraft" model, but it historically begins more in the Ultima Online age. The model is basically as follows: The developer provides all content, which is licensed to the user. The user has, basically, no rights under this model. In short, no matter what it took for you to get that Blackfury, the item is merely "on loan" to you from the developer. You can never truly own it. This model is the most popular because it protects the assets of the developer, specifically all the intellectual property that went into the game you're playing. After years of development, most developers don't want to chance anyone walking away with even part of their intellectual property.

The Second Life Model

The Second Life model is much different. In short, the developer provides the basics of the world, but it is up to the user to fill in the rest. The upshot to this model is the user owns their IP. The downside, on the other hand, is that to get a truly enveloping storyline like WoW, it takes a user developing one, not to mention the play mechanics to accompany it. For those seeking profit, this model is ideal. For those looking for an adventure, elsewhere would probably be a better choice.

An Alternative?

So, where does that leave the player? If they want an adventure, the WoW model is the choice, but they never truly have any interest in what they've accomplished. On the flip side, the SL model gives unlimited ownership, but no pre-written storyline to speak of. The alternative rests in an argument eBayers made for years while selling vitrual goods they did not truly own.

The alternative boils down to drafting a license in such a manner that the player does not own the item he has acquired, rather his effort to acquire it salable. In terms of drafting, there are two likely ways to create this system:
1. Establish a license that acknowledges player effort and allows the sale of player "effort" vis a vis the sale of items.
2. Draft the license in such a way that each individual game property is granted based on a license that is transferable only between players.

Of course, to continue to exert proper intellectual property controls over these licenses, the developer would have to implement something else. Specifically, an integrated real money auction system. Let's be perfectly honest: People are willing to pay money for characters and items in MMORPGs. Moreover, while the eBay ban has slowed the market, it has by no means shut it down. So, what is a developer to do? Police the market at a high cost?

The alternative here, of course, is to create your own auction. The business model is simple enough: Allow players to list, buy and sell items and characters. Provide for integrated exchange tools in the game. Use an online payment system to automate the process. Put in feedback. Then charge a transaction fee and you're making an even bigger profit off your MMO monster than your were before. While the coding may be difficult, the reward could be enormous. And such a system would not further entangle your development company with the IRS, in case that was a concern. (Players would be on their own to report MMO profits to Uncle Sam, unless a regulatory change moves all MMO income from ordinary income to gambling winnings.)

Conclusion

In short, it is not beyond the realm of possibility for a developer to legitimize real money trades in games where they wish to retain the majority of the rights to the IP. It would take a concerted effort and more work than the creation of a typical MMO, but the potential profit from such a system seems limitless. Of course, a new, carefully drafted license as noted above would be an absolute must to be sure that the developer's rights are protected.

[Update: It would seem Joystiq is reading my mind today. In fact, Sony's StationExchange operates on a similar model to what I've suggested here. Check back in the near future for a more in-depth analysis of the Sony model.]

The Halo 3 Beta is well under way by now. My stats are here. I was one of the lucky players who got into the Bungie Friends and Family phase of the beta before the larger public beta began, and the contrast between those few days and the present state of beta play has been surprising. In fact, I'm once again stepping outside my typical legal commentary to make this post as more of a business model commentary.

The overarching problem with large scale online systems, be they online PC gaming, Xbox Live, Battle.net, Nintendo WiFi, or any others, is the interaction between the players. By that I mean a combination of circumstances:
1. Player Skill
2. Player Interaction In-Game
3. Player Interaction Out of Game
4. Player Language

Each of these elements can factor into the matchmaking scenario, and while great improvement has been made on many levels, there is still a vast realm of possible improvement in the business model.

Take the Halo 3 Beta as an example. There was a short Friends and Family (F&F) beta that took place before the larger pool of invitees entered the fray. Specifically, these players had to be invited by Bungie directly, or have the proper connections to be invited (for example, the staff at Rooster Teeth made some invitations available to site members if they offered to "help test something" during the right time period). And as a result, the Halo 3 Beta F&F play was some of the most enjoyable online gaming I've experienced in any game. And that goes back as far into online gaming as I can remember. I played Diablo on Battle.net when it came out, I played Ultima Online back in its prime, I played CounterStrike online in its early days, and I (of course) played some Halo 2 online when it came out. None of them (or any other example I could give) provided the kind of experience the Halo 3 F&F did. It was the ideal mix of the four elements:

1. Player Skill
Everyone was good. I will readily admit I was not anywhere near the top of the players in the F&F, although I will also admit this was the first FPS I had picked up since PREY last summer. However, the skill level wasn't too skewed in the other direction either. This does speak well of Bungie's new matchmaking formula, but it wasn't the skill that really made an impact on me, it was the other three elements.

2. Player Interaction In-Game
Politeness. Teamwork. Two words that most people do not expect with online gaming, or at least not where a real sense of competition is retained. However, the F&F beta proved this was not only possible, but can occur in excess of 90% of the time with the right mix of players without sacrificing any element of the competition.

3. Player Interaction Out of Game
The general feeling in the game was mirrored in the dead time between matches. Every round ended with a genuine (or at least genuine sounding) "Good Game." If someone asked a question about a gametype they had not seen, they generally got a good answer. And of course, when there was some banter, it was always good natured.

4. Player Language
This is not about the native language of the player. Rather, it has to do with the profanity and terminology of the player. While I've grown to expect a certain level of internet slang and profanity online, the F&F was quite the opposite. People spoke in real English without using profanity every other word. It was really quite remarkable.

Of course, the F&F period has ended and the larger beta is going on right now. I've logged a few more hours in all of the game types (rumble pit, team slayer, team skirmish). The Beta is now populated by far more of the "typical" online gamers. Bad sportsmanship (in victory or defeat), extreme profanity, and general unpleasantness. In fact, I don't even typically plug my headset in anymore.

Is there a solution to this? There must be people who genuinely want to play with other polite players. One person has suggested that Bungie open up a special playlist to F&F participants only. While this may be a solution, I think a broader solution might better serve the gaming community. That is, some sort of monitored division of the gamers at large. Microsoft's different Xbox Live groups (professional, recreation, underground) initially looked like this kind of division, except they don't seem to actually do anything. And player reviews can only subsequently avoid players.

A potential solution might work like this. Take an initial group fitting the criteria, say the F&F Halo 3 Beta group. Allow others to play into the group, and have user reviews remove those who don't conform to the code of conduct set up for the group's operation. While it may sound exclusive, it could allow gamers who enjoy a certain level of politeness to band together and not be forced to deal with the general population. Participation would be voluntary, and players could even have the option of playing the general public rather than the group if they so choose. Think of it as a hybrid between the unrestricted pool of Xbox Live and the overly restrictive DS/Wii friend code system. Moreover, it could be expanded to include preferences on other factors, such as native language, age group, or locality.

Is this possible? I'm certain it is, but it will take a company with the initiative to implement it to make it a reality. Generally, I think most gamers will appreciate it. I know those who prefer the more polite play of the F&F beta would.


Just as a side note if anyone at Bungie happens to read this, Team Slayer shouldn't be included in the Team Skirmish gametypes. There's an option to only play Team Slayer, so if I've picked Team Skirmish, I expect Capture the Flag or King of the Hill or Oddball or VIP. But that may just be my opinion.

Let’s Talk About Machinima is a 3 part series. The first was Machinima from the perspective of the Machinimist. The second tackled Machinima from the point of view of the game developer. Finally, the third is a bit of a forward thinking proposal on Machinima.

Part 3

“So, Where is Machinima Going?”

While I make no claim to being the Nostradamus of the machinima world, I do believe I have a model that could simplify machinima for both the machinimist and the developer, while protecting everyone’s rights and hopefully letting some start-ups make money without having to take out a second mortgage (or sell their game collections on eBay). Of course, what I’m proposing will likely take the backing of a major machinima operation like Rooster Teeth or Machinima.com as well as the cooperation of a few game studios. Think of the proposal as taking the next step past what Machinima.com has built to date.

A Modest Machinima Proposal

To boil this down to its basic level: YouTube for Machinima, but with a model by which the end user can actually make money. The site, for the sake of this proposal let’s call it NewMachinima.com, is the key to the entire proposal. It allows all users to upload video content. This content will be limited to machinima for which the site has acquired a specialized license. That content can then be classified by the uploading user as “free,” “donation,” or “subscription.” Free content is just that, free. Donation content allows people to choose to donate to the machnimist, but the content is still free. Subscription content is limited to paying subscribers. On the latter two, when payment is made, 70% goes directly to the uploading user. The remaining 30% is divided, with 15% going to the game company and 15% retained by the site. Of course, these numbers are variable, depending on actual application.

Why This Idea Works:

1. Developers Keep Their Rights

The most important thing from a developer’s standpoint is protecting their rights. Under this plan, the developer has issued a license, one time, to the site. They have avoided the fees associated with repeated licensing, but have maintained a license for the end user. They only have to police other video sites (like YouTube and Google Video) for possible infringers.

2. Machinimists Can More Easily Publish Works

YouTube already makes putting video on the internet easy, and that is not the main purpose of this site. The main purpose is to take some burden off of the machinimist in procuring a license to create their art. Moreover, with the engine appropriately licensed already, the machinimst will have little trouble retaining the rights to their portion of the work or registering a copyright.

3. Everyone Profits

The key problem with YouTube is they make money off your hard work. The key problem with posting your machinima independently without securing a license and charging for it is that you’re making money and the developer is both losing money and rights. This concept solves both of those issues. The machinimist can make money from his or her work. The developer makes some money for providing the license. And, of course, the website makes money so it can continue to provide the service (although ads may be a necessary evil, at least for the free videos).

So, when can we start?

The business model is right here, and it is relatively simple. In fact, I would be happy to work with anyone on a project like this. The difficulties, however, are not insignificant.

1. The group creating this site needs startup money.
2. The group also needs some industry connections to at least procure those initial licenses.
3. The legal work involved is fairly complex, so a competent attorney would be needed to coordinate the licensing.

Those are just the three main issues, as I’m sure a few dozen smaller issues will likely pop up in the interim while bringing this idea off the ground. However, properly executed, this could be the next step in the machinima evolution, bringing even more machinima content to the masses. And from here, who knows what the future could bring, be it Xbox Marketplace integration or something even newer and more revolutionary.

Can an independent developer create an MMORPG? That question has been poised, and was addressed at least in part by the recently held Indie MMO Game Developer Conference. One key issue, however, with rolling out any MMO game is server usage. MMOs are highly demanding, obviously, and typically require multiple servers as the user base expands. Depending on the connections available, these servers may need to be strategically distributed ad various points across the US and in other nations worldwide to avoid issues with lag that take away from the gaming experience. To date, this has either required a significant investment by the developer/publisher or volunteers with varied servers. A concept that has not yet been rolled out, accordingly, would be a franchise-type system for servers.

Franchising is what has brought a McDonalds to every nation of the world, among other things. The basic concept is this: A franchisor develops a business model, a “system,” which they license to franchisees. In return, the franchisee runs the business according to the model and pays a license fee back to the franchisor. Through this system, the franchisee bears an individual risk of loss smaller than the company would bear for rolling out the system to so many locations at once. Conversely, the individual franchisee stands to make substantial profit but does not have to generate an original business model or develop the brand.

This concept could be applied to MMORPG servers. Before I begin the outline of the system, I must emphasize that before anyone considers actually proceeding with a model such as this that they absolutely must consult an attorney because the Federal Trade Commission regulations on franchises are very specific, and no one wants to be caught in violation of those regulations or the corresponding state level regulations.

To simply state the model, an indie developer created an MMORPG. They then license the server end to various server providers at strategic locations in the US and/or other countries to minimize player lag. The server would collect the billing for its players, and in turn pay a percentage back to the developer. The developer has then earned the license fee and the royalty (the percentage of the sales) while the server owner is earning the remainder of the monthly fee.

Under this model, the developer could be free of the burden of maintaining servers on a day to day basis and could focus on additional development of the game. Conversely, someone with available server space could get an income stream for the future without having to develop the software. Moreover, a well crafted agreement could include options on future software, allowing those who enter in early the potential to secure a spot on sequels and new series by this developer.

There are many finer points to the exact agreement that would have to be worked out, but this structure, properly created, could be hugely beneficial. Rolled out on a larger scale, a publisher of indie MMORPGs could use a server franchise network to roll out multiple games at once. In any case, it is a possible way to rapidly deploy an MMORPG that is not backed by a mega-corporation with an existing server network.