On region lockouts

I and my brother have owned an Xbox 360 for almost two years now and up until today we’ve had no problems whatsoever. Neither of us is an overly avid player, especially I am not, so the system serves as a media center most of the time; for us it replaces a DVD player and by connecting my iPod to it I can finally listen to music from adequate speakers too. But occasionally, a hell doesn’t have to freeze over, we play games there too.

Now, Xbox games are extremely expensive in the Czech Republic. Unsurprisingly, the price difference between a Czech and American version doesn’t justify itself by any form of advantage, say an extended warranty or translation of the game (which is a common added value in case of PC games). We’ve realized after our first purchase that buying a brand new game from an official distributor will not be sustainable in the long run, even though we hadn’t planned on shopping much from the beginning. So instead of laying out $100+/a game for a new copy we’ve begun buying used games for a significantly lesser price, say $30 for a title. Buying used games carries with itself a risk that the disc might malfunction — because of its treatment by the previous owner– or the package as such might be incomplete — the manuals or original boxes and covers are often missing — but even if the costs negative externalities are added to the final price, one still buys a product with a good premium.

But from an economic point of view of a developer, this rational behavior is comparable to piracy, only that in this case the developer is receiving his share for the first copy. Once an original owner completes the game and sells it to someone else, he is causing an economic loss to the producer, because all the subsequent buyers take the non-variable utility of the game while compensating only the previous owner, not the original developer. It is a bit unfair.

So when Grand Theft Auto came out last month, we decided that we will buy a copy directly form an official merchant, thus thanking Rockstar for being such a good company. But I still maintained my economical thinking and bought the game from Amazon, which sells it for $70, rather than from any of the Czech outlets, which generally value the game at $120+. A common sense would dictate that an unaltered version for the same universal platform would function on any machine, regardless of where it was bought. Not really.

When one buys a DVD movie, he’s reminded that the disc is digitally locked to be played only in a certain region of the world (currently the world is divided into six regions I believe). It’s annoying that at first, one has to buy overpriced copies in his region, just because one byte on the DVD has a value of 2, which effectively prohibits it from playing on any DVD players which have the same byte with a value 1,3,4,5 or 6. It’s that simple. Thankfully, certain manufacturers of electronics noticed the ludicrousness and are now shipping their products without such protection, and there is also a plenty of software available if one wants to unlock his DVD drive in a computer.

The Xbox games come with a similar protection; the only difference is that it can’t be by-passed in any way. The games sometimes aren’t locked for any region, and if they are, the covers of the games don’t even feature an information regarding the region that copy is intended for, so if one’s buying the game from overseas, the probability of the game functioning can be determined by a simple coin-toss. That’s what happened in my case – the coin landed on its seamy side, which stood for “not working.”

Right now I have a brand new game in front of me. It has a good looking cover, inside it features a map of Liberty City and a nice booklet. Unfortunately, it doesn’t fulfill its primary purpose – it doesn’t work. I forked over $70 for a good that didn’t advertise it was proprietarily locked to North American consoles. It’s important to note that the increase in price in the Czech stores doesn’t increase profits for Rockstar, which has a comparable wholesale price for all regions. It only decreases the revenue and profits of the Czech game stores, but that’s perfectly acceptable in a supposedly free market.

What consequences will this have? First of all, I will sell the game on eBay to offset my losses. By doing so, the successful bidder will pay me, not Rockstar, thus the company will lose one customer otherwise inclined to buy the game. It doesn’t appear to be a breathtaking number, but I suppose reselling the game will eventually be a huge hit on eBay, therefore the numbers will rise.

More importantly, I have resigned on buying games from an official distributor. It’s just not worth it. I wasn’t buying it at any premium — it was more like an arbitrage — and the malfunction thus didn’t only decrease the marginal utility, it sunk it well below my acceptable level. From now on I will only be buying second-hand games that come with premium. Perhaps it’s morally wrong, but economical thinking in this case must prevail. Without scruples, I will be enjoying games while not paying back the developers for my enjoyment of their product.

This post demonstrates how stupid it is to restrict the free market in something as marginal as video games. By insisting on purchasing a product from local vendor, the industry lost a potential long-term customer. Was that necessary?