Would Microsoft be Foolish to Make the Next Xbox Always Online? The Stats Suggest Yes

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Last weekend Xbox Live experienced issues for around 10 hours, preventing some users from signing into the service, downloading content, using web-based entertainment apps, playing online with their friends and, in the case Minecraft: Xbox 360 Edition, saving their progress. A relatively rare occurrence, it was nevertheless a giant pain in the ass.

But imagine if the outage had prevented users from doing anything with their consoles. Imagine if it stopped you playing games of any type, in any capacity and for any reason. If the rumours are to be believed, that’s the future we could face with Microsoft’s next console.

For the past year or so the internet has been alight with talk that the next Xbox will be ‘always-online’, necessitating a permanent internet connection in order to play games. If your connection fails for more than three minutes, say the rumours, for whatever reason, your game will be shut down.

Even since the first murmurings of this potential future started leaking out onto the net, the response has been angry. And noisy. Commenters have raised their pitchforks, Microsoft execs have spoken out (then been quietly shuffled out the door) and chaos has reigned. In the gulf left by the platform holder’s refusal to reveal any concrete details about its next machine, a tidal wave of toxic waste has poured in.

Stripping away all the anger wrapped up in this clearly emotive issue, however, it’s worth taking a closer look at the potential pitfalls of an ‘always online’ console. Because more than just a shockingly bad decision from a consumer perspective, it’s also bizarre from a business perspective. So what would drive Microsoft to make such an unpopular decision?

One of the most obvious reasons is piracy. An always-on console is primarily a method of digital rights management (DRM), ensuring that games are tied to a console and monitored at all times. The thinking behind DRM is that it eradicates piracy by preventing any form of sharing. You can’t even lend the disc to a friend without an activation code. Yet it’s a massively flawed system.

At GDC in San Francisco earlier this month, ex-Epic Executive Producer Rod Fergusson said that Gears of War 3 had “50% more players than sales,” the suggestion being that piracy was a significant factor in Epic’s loss of potential revenue.

Yet stats published by TorrentFreak last year say that by December 2011, three months after the release of the game, pirated versions of Gears of War 3 were downloaded 890,000 times. That’s a lot of copies and it’s clearly an issue that Microsoft has to tackle. But it’s actually a very small portion of the game’s sales. In stores, Gears of War 3 sold 3 million units in its first week.

So while piracy is a problem, are those numbers worth potentially reducing the quality of service received by the millions of consumers who actually pay for their games? On the face of it the answer is no.

So perhaps it’s the second-hand market that Microsoft hopes to combat with its console’s rumoured DRM, an issue that content creators and platform holders have been worried about for some time. Here we find some far more convincing numbers. During October, November and December 2011, in Britain alone, NPD estimated that £90m ($141.9m) was spent on used games. Yet, once again, if you look at the stats you’ll see that pre-owned game sales constitute just a fraction of the total revenue. During that same period, GfK Chart-Track reports that £780m ($1b) was spent on new boxed video games.

Of course, if you factor in North America and the rest of the world, those numbers no doubt rise exponentially. Along with the piracy rates, it all adds up. These aren’t insignificant figures. But this next stat reveals that if Microsoft makes the next Xbox always-online, it could be cutting its nose off to spite its face.

A recent study of major nations conducted by Ofcom found that around 75 per cent of North American households have a broadband connection, while in the UK that rate is a bit higher at 77 per cent. In important emerging markets like Brazil, that number dips to 45 per cent. And that’s without mentioning the large number of countries that Xbox Live doesn’t reach, all of which would be excluded by an always-online console.

These numbers are reflected by the amount of connected Xbox 360s across the world. During a session at GDC 2012 attended by X360A, video game research and consulting firm EEDAR estimated that around 76 per cent of Xbox 360 owners are connected to the internet.

So what does that mean? It means that of the 76 million Xbox 360s Microsoft has sold so far, around 18.24 million of them are not connected. If the rumoured always-online Xbox was to achieve a similar number of sales during its lifespan, that’s a potential 18 million consumers that could be shut out and 18 million proven buyers that could be tempted to into purchasing a PlayStation 4.

"Technology doesn't advance by worrying about the edge case," said ex-Gears of War designer Cliff Bleszinski in a recent blog post defending an always-online future. We’re not sure about you, but 18 million people seems like much more than an insignificant minority.

And seeing as we’re throwing numbers around, consider this. US Xbox 360 owners have an average of nine games in their collection, according to Microsoft themselves. If you multiply that by 18 million that’s roughly 162 million potential game sales gone in a puff of smoke. 

Microsoft pockets around 11.7 per cent of the revenue from each game sold on the Xbox 360, regardless of the publisher. So, for example, 162 million games sold at $60 could be worth up to $1.13 billion in potentially lost revenue. Should Microsoft truly be prepping an always-online console we don’t doubt that it has done the maths, but when you see stats like than you can’t help but think they need a new calculator.

It’s worth bearing in mind that these numbers are all based on released information regarding the Xbox 360, spun out to give an indication of the next Xbox’s reach and attach rate. There’s no other way to project the performance of an unannounced console and the numbers could be way off. At this point all we can do is make calculated guesses based on what’s already out there. But regardless, even this rough indication of the potential implications of an always-online console makes for scary reading.

So that’s why an always-online console could be bad for Microsoft. Let’s have a look at why it’s bad for gamers, many of whom have already threatened not to buy the next Xbox if it turns out to be always-online. There’s a whole load of precedents, but a decent place to start is with Ubisoft’s use of DRM on its PC releases, a system that ensured that even the publisher’s single-player games could not be played offline. It was disastrous.

Not only were PC gamers up in arms about being prevented from playing their favourite titles without an internet connection, Ubisoft’s use of DRM also failed to tackle PC game piracy - a far larger issue than on consoles - in any significant way. Indeed, despite the inconvenience caused to consumers by the measures, last year CEO Yves Guillemot said that Ubisoft still endured a 93-95 per cent piracy rate on its PC releases.

In this particular case, DRM did nothing to deter pirates and plenty to enrage players. So Ubisoft quietly shelved it in favour of one-time activation codes. Always-online was a failure.

The biggest and most obvious problem, however, is the one hinted at by the opening to this piece. Time and time again, with games that require an online connection to function, we’ve seen catastrophic releases that have prevented players from enjoying the games they paid good money for.

The most recent is example is SimCity, the US launch of which was a mess, leading to consumer outrage. Amazon suspending the game from sale, EA cancelling some of the game’s marketing and ultimately, the publisher giving away free copies of other titles in a desperate attempt to calm angry fans. All because the game required a persistent internet connection to work.

Diablo III’s launch was similarly disastrous. The months following the game’s release saw Blizzard Entertainment challenged by consumer groups across the world, while the company’s offices were raided by the Fair Trade Commission in South Korea for suspected consumer rights laws breaches. Again, this was all due to the launch of a game made unplayable by its always-online approach.

Between them, EA and Blizzard have vast resources and great experience in the online world. Both publishers understand exactly what is needed in terms of online infrastructure to keep these games ticking over. Yet despite all this both games still failed. And it was the gamers that suffered.

And ultimately, that’s the biggest issue. When DRM is introduced, consumers who are happy to pay for the latest releases are being punished for the actions of those that are not. An aways online console wouldn’t solve any problems faced by paying customers, it potentially adds to them.  And just to add insult to injury, methods like DRM don’t even work against piracy. It’s useless.

So the question remains. If consumers don’t want it and the numbers suggest it’s bad business, why would Microsoft even entertain the idea of an always-online console? What are the benefits? We just don’t know. Now we just have to wait and hope that the rumours surrounding the next Xbox are false.

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