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Pre-order refunds could force publishers to shift priorities | Opinion

If a bad or unfinished product isn't cushioned by revenues from pre-orders, it changes the arithmetic of launching games -- for the better

This week's policy change by Sony to allow people who have purchased pre-orders to get a refund any time up to two weeks after launch (as long as they haven't downloaded or streamed the game) seems like a pretty minor, common-sense sort of change. It's what might get called a "quality of life" fix in a set of patch notes. It's a small thing, but it's nice to know you can cancel your pre-order if someone gifts you the game or it turns out you won't be able to play it at launch for some reason anyway, right? Hardly worth discussing.

If this is a small thing, though, why did it take national authorities in Europe threatening enforcement of EU consumer law to get Sony (and previously Valve) to come in line? Why is Nintendo actually fighting a court battle over this in Germany? If refunding pre-orders is the minor issue it appears on the surface, why has the industry had to be dragged kicking and screaming to this point?

"Sony is doing the bare minimum it can get away with under EU law, and it may be less than the bare minimum"

Even now, Sony is doing the bare minimum it can get away with under EU law, and it may be less than the bare minimum. Valve also initially tried a model whereby you couldn't get a refund once the company's "performance of obligations" had begun, i.e. once you'd started downloading the game, but eventually accepted that this didn't align with the EU's consumer protection laws.

Perhaps, then, it's a bigger deal than it seems. Perhaps we're not just talking about a scattering of isolated cases where consumers want to cancel a digital pre-order because there's a boxed copy with better bonuses, or they've been gifted the game, or some other practical reason. Rather, all of this resistance suggests that there's something a bit more fundamental that the industry wants to protect - even at the expense of running foul of the tough consumer protection laws of one of the world's largest markets.

It's not hard to guess what that might be. When a game is released, the publisher has a set of financial models for how that game will perform. It needs these so that it can give effective guidance to its shareholders and the stock market. There are lots of unknowns in those financial models, so "known" data is valuable -- and locked-in revenue is even more valuable.

"All of this resistance suggests that there's something a bit more fundamental that the industry wants to protect"

That makes pre-orders valuable for multiple reasons; they give some indication of the game's overall performance, sure, but more importantly they lock down a big slice of revenue ahead of release, removing uncertainty from the numbers and making certain that even if the worst happens and the eagerly-anticipated game turns out to be an absolute mess that's going to be in bargain bins within weeks, there's a good chunk of money already in the kitty at full price.

The fact that pre-orders are so valuable to the industry is easy to divine from the extent to which publishers push them, both through physical retail and digital stores. Pre-order only bonuses, once a peculiarity, are now de rigeur and have become increasingly elaborate, with different retailers getting different bonus content and various price-points promising extra content, season passes and so on. Season passes are what you might think of as peak pre-order; paying extra up-front for extra content that doesn't even exist yet as part of your up-front payment for a game you haven't even played yet. That's all hard cash money for the publisher, regardless of whether the game itself flops or soars with critics and consumers at launch.

"If people can refund pre-orders, they lose much of their value to publishers"

In other words, there's a whole chunk of the industry's financial modelling which relies on the idea that consumers are going to suffer from poor impulse control, and pull the trigger on a digital pre-order for an anticipated game because of fear of missing out on the various (largely worthless) add-ons and extras which come with it. Those pre-orders are made based on very little information. We know that trailers, E3 demos and so on are often not particularly reflective of the final product -- hello Anthem, but also hello countless major games in recent years. By the time the game nears launch and impressions of its quality based on a final or near-final product are circulating, all those people who pulled the trigger on the pre-order have already paid up and have no recourse.

I'd wager that it's not just about financial modelling and securing revenue; there are likely several major titles in recent years for which that pre-order money represented a not insignificant chunk of their overall sales. If actual critical feedback and customer word-of-mouth is bad, the "tail" of post-launch sales gets docked and the price of the game plummets in an attempt to hook in a few more consumers (and maybe claw back some revenue if they subsequently buy the DLC). People who held off for launch saved their money, those who couldn't resist the pre-order goodies got stiffed.

If you're a publisher (or a platform holder with publishers making their desires in this regard very clear to you on a regular basis), giving up this revenue would be painful. If people can refund pre-orders, they lose much of their value to publishers -- they're not locked-in revenue and can disappear overnight if the game turns out to be a dud at launch. Those expensive Super Gold Ultra Season Pass Ex Plus Alpha pre-order additions, which provided a financial cushion for poorly received high-profile titles in the past, end up now almost looking like a liability -- ghost revenue that can fade off your financial projections very easily if the game doesn't live up to expectations. Note that there's also nothing to stop consumers from pre-ordering a game with bonus content and then refunding that and buying a standard edition instead if the bonus content turns out to have been rubbish (as, let's be fair, it rather often is) at launch.

So fighting hard against this change makes a kind of sense, but so does the EU's stance. This is exactly the kind of sharp practice that national consumer protection laws and agencies are meant to prevent. While there are legitimate concerns about more radical implementations of this -- such as the impact that allowing people to return digital titles after a few hours' play will have on short experiences like cheap VR titles or episodic games -- Sony's move remains the bare minimum and a more reasonable compromise could undoubtedly be reached.

Will this hurt publishers' ability to lock in some revenue to cushion them from the impact of a bad game launch? Yes, but that cushioning was coming at the expense of the industry's most loyal customers and shouldn't have been happening at all. Launches of bad, unfinished games don't deserve to have a financial cushion made out of the money of loyal fans. Who knows; perhaps taking this away will focus some minds a little more clearly on the task at hand, which ought to have been "shipping better games" rather than "figuring out how much cash we can squeeze out of preorders" all along.

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Latest comments (3)

Bob Johnson Studying graphics design, Northern Arizona University6 months ago
My guess is any fight from Sony or NIntendo or previously Valve has little to do with some greedy need to lock down money from pre-orders. Instead it is more likely something more mundane and subtle.

Customers have been able to cancel pre-ordered physical products and get a full refund for a long time now maybe since physical pre-orders started. Yes digital is much bigger these days, but according to a GI article from late 2017, NIntendo game sales were still 78% physical. I don't see the "we need to lock down as much revenue as possible" angle when we're talking relatively few customers out of 22% customers wanting to get a refund on their preorder at least for Nintendo. That revenue is a drop in the bucket.

And so my guess is the disagreement and thus court fight is more over the specific details of the government conditions. A company might not like that they have to refund 2 weeks past a launch date. They might feel they are well past their obligations at that point to refund a game.

IT could be the cost companies have to incur in order to process refunds digitally. For Nintendo specifically, they might not be set up for that at all. I say this knowing Nintendo is a fairly barebones run company for as big as it is. They have a very low employee count for example. And so they might not see the need to be required to support this if they see very very few customers asking to refund a preorder after it launches. Or they might see the need to support by a certain date to not be realistic.

There could be other language in the conditions that they disagree with as well.

I don't think it's about locking down pre-order money. Interesting that 2 Japanese companies are your examples. Perhaps it is something cultural. Perhaps it is expected over there that when you purchase something it is yours and return policies are rather strict.

Edited 3 times. Last edit by Bob Johnson on 5th April 2019 8:46pm

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Bob Johnson Studying graphics design, Northern Arizona University6 months ago
Regarding the Nintendo vs EU consumer protection court case in Germany:

"Nintendo's defense is that preloading means that the transaction has already begun, whether the preloading itself has started or not. The company is citing article 16 of European Consumer Law Directive 2011/83, which states that cancellations can be ignored if "the performance has begun with the consumer's prior express consent, and with the acknowledgement that he will lose his right of withdrawal once the contract has been fully performed by the trader".

Basically, Nintendo is saying that preloading the game means that you already own it, whether you can launch it or not. That makes it void for a cancellation."

https://www.gameinformer.com/2018/12/18/german-protection-agency-takes-nintendo-to-court-over-eshop-cancellations

Edited 1 times. Last edit by Bob Johnson on 5th April 2019 8:53pm

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From a personal purchase POV, I have not pre ordered any product in the past 2 years. Once out of the cycle of some eminent advantage of a pre order, once can judge a game on its merits 3-6 months post release, especially if it has a GAAS life cycle
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