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Analysts: Sony Made Money on Welcome Back Program

| 13 Jul 2011 16:30
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The PlayStation Network outage has had a silver lining for Sony's sales.

Having your customer's data stolen through a cyberattack, and subsequently bringing down your proprietary gaming network for almost a month is never a good thing. But Sony tried to make good with gamers by offering four older titles for free through its Welcome Back Program and may have accidentally hit upon a new way to increase game sales. Electronic Entertainment Design and Research (EEDAR), a market research firm, released a report that claims sales of Sony titles such as Infamous 2 and Little Big Planet 2 actually increased due to offering the original games for free. The report recommends other publishers experiment with offering older games in its catalog for free, especially when a new sequel is on the shelves.

"While the Welcome Back program was designed to rekindle the activity and consumer trust of PlayStation Network users, the data suggests it may have highlighted a new profitable sequence for video game," EEDAR's report read.

By offering games for free, the increased awareness, excitement and purchasing intent for a franchise more than makes up for any decreased sales profits, as EEDAR's data proves:

When broken down mathematically, the results make a sound financial argument.

If a game that once sold 2 million units in the market is currently available digitally and physically, it is likely producing gross receipts of about $500,000 a month. Assuming that gross receipts reduce to $0 during a 30 day period where a title is free (-$500,000), as long as the free offering boost sales of the next iteration by 8,500 units (at $59 ASP), then it would produce a net/net benefit to the publisher.

EEDAR believes that the publicity generated from the free offering, in addition to new consumers being introduced to the series, would make the 8,500 unit mark easily achievable.

There are a few downsides, though. Games which have a strong narrative element, such as the Mass Effect series, often see huge spikes in sales of previous titles for gamers that want to "catch up" with the story. Offering narrative games for free may not offset the potential profits. The other problem is that physical retailers - as opposed to digital marketplaces - will likely frown on offering product for free that they can typically charge rental or used prices.

Unlike movies, there is no clear sequence of sales for games and the industry could seriously use one. "For instance, a movie is first released in theatres where it generates the most revenue, then moves to the Pay-Per-View market, followed by the rental market and lastly, broadcast for free on network television," the EEDAR report points out. "Within the video game industry, however, these sequences typically occur simultaneously with games being available physically, digitally and for rental concurrently and rarely made available for free."

The plan that EEDAR recommends sounds similar to the free-to-play revolution going on in MMOs right now. Exposure to more content often loosens the purse strings more than a $60 paywall.

While it certainly seems counter-intuitive to offer product for free, I'm sure that gamers would welcome playing older games without emptying their wallets.

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