The Moral Hazard of Season Passes

I’m going to make the case that season passes are a bad proposition for gamers, fraught with risk and with little accountability.

To elaborate on this, it’s easier to start with a recent history example: the 2008 financial crisis and the subprime loan market. In the early 2000s, banks devised a way to turn their subprime loans into a tradable asset, which allowed two things to happen. First, banks could sell these assets off, removing them from the balance sheet and leaving them with money to give more loans. Second, it meant that banks no longer bore any risk if their borrowers defaulted, since the loans were no longer on their balance sheet. Thus, they had less incentive to ensure that their borrowers would, in fact, be able to repay their loans.

Wall Street Moral HazardThe result was a culture where banks made profits by creating incredibly bad loans – ones that were virtually guaranteed to fail – and selling them off as packaged assets, shifting the inevitable losses onto the unsuspecting buyers of these securities (which were rated AAA, the highest-quality rating, by all major agencies.)

That was pre-2008. Yet the past couple years in the videogame industry have shown a willingness by publishers to do the exact same thing as these banks: sell something to gamers whose risk potential isn’t fully appreciated and where they have little incentive to ensure that what they’re selling is of a respectable quality.

Here’s how a season pass works: Buyers pay upfront, somewhere on the order of $20-$30. In exchange, they receive a set amount of planned downloadable content for free, with the implicit understanding that buying a season pass is cheaper than buying each individual piece of DLC.

last of us season pass dlc
In theory, it sounds simple, a clear plus to gamers who planned on buying all the DLC anyway by giving them a wholesale discount. It also helps publishers by providing them the revenue upfront, giving them a clearer sense of the game’s success (or lack thereof), so they can more immediately make plans about which games to create sequels for and how to finance their development.

However, season passes have an insidious side effect: they reduce the incentive to ensure that the DLC is good. Most of a DLC’s target consumers would have already bought the season pass, meaning that there is little marginal revenue to be made. For developers and publishers, DLC is no longer something to market and attract buyers for; it is instead an obligation that, having been paid upfront for it, they must fulfill ex post facto.

The financial system has measures to protect against moral hazard that are used with complete regularity: as a condition for lending, banks can require borrowers to give the bank a seat on the board of directors, maintain active accounts with the bank, and accept restrictions on their activities. By and large, these conditions are largely successful at hedging against moral hazard.

Even in other industries, like construction, there are checks in place: contractors rarely receive the entire payment upfront. Instead, there is an agreed timeline of payments linked with milestones. In the games industry itself, a developer must reach checkpoints for a game before the publisher releases a new infusion of funds. This is all to ensure that the lender isn’t taken advantage of.

Moral Hazard Season Pass
In regards to season passes, however, there are no such protections for consumer-lenders against publisher-borrowers. Gamers receive an outline of planned DLC, and that’s it. No timetable, no cost comparison between the season pass and the sum of the DLC’s individual prices, and sometimes not even a clear understanding of how the season pass stands relative to all of a game’s DLC.

Borderlands 2 is one case in point. The season pass promised to include four story-related DLC packs, in addition to an increase in the level cap and difficulty mode. Yet Gearbox, the developer, continued announcing hitherto unknown DLC after the fact, incensing pass holders when they weren’t included in the $30 season pass. There are now a dozen main DLC packs, along with dozens of customization packs, but only five of them are included in the season pass. While Gearbox delivered everything it promised to pass holders, the secret development of other DLC that pass holders – having already tendered $30 for the pass on top of the game’s $60 price – would be required to pay more for became a gargantuan optics problem. It came across as a greedy betrayal.

Irrational Games, the developer behind Bioshock Infinite, is an example in opaqueness. The developer refused to offer any timetable, or even vague estimates, for when season pass holders would receive three promised sets of DLC. All were eventually released, four, eight, and twelve months after Infinite’s release, respectively, but there was little advance notice and pass holders were left in the lurch during the interim. While Irrational delivered the content as promised, the total lack of communication did nothing to improve its relationship with fans and consumers, and it may have even done harm. By contrast, an indie developer would have been infinitely more transparent.

No developer has thus far failed to deliver on its season pass obligations, but the lack of oversight and checks is a concern that most consumers and industry workers don’t seem to have recognized. We’ve already seen the mixed views of Kickstarter projects, now that some notable projects have failed or faced extreme, agonizing delays. Double Fine received a torrent of criticism when it announced that Broken Age was behind schedule, running out of money, and would be split into two parts to fund the remainder of development. The Lizzie Bennet Diaries Kickstarter is eight months behind schedule, though it finally seems to be wrapping up for backer rewards shipping this month. And then there are the projects that were funded and disappeared, like the HD video recording sunglasses.

The negative feedback loop seems to be broken when it comes to videogames. Publishers don't face consequences for angering their consumers.

The negative feedback loop seems to be broken when it comes to videogames. Publishers don’t face consequences for angering their consumers.

We’ve come to point in Season pass development that is fraught with moral hazard: the publishers and retailers that sell season passes have no incentive to ensure its quality. There is so little iteration in the games industry, the feedback loop from DLC content quality to sales is so weak, that there are few consequences for burning consumers, and a publisher can often force the developer to accept the blame for lackluster content and game launches, as EA forced DICE to do in regards to Battlefield 4, Maxis for SimCity, and Bioware for Mass Effect 3‘s ending.

Moreover, Season passes turn DLC from a marketable product into a contract. While a consumer can always choose not to buy a product, the only recourse in a contract is the court system, which isn’t a feasible option. It would pit individual consumers against publishers with vast legal resources, where the deck is heavily stacked in publishers’ favor; no consequences are felt, and the publisher will carry on with business as usual. Again, publishers bear no risk for the decisions they make.

The problems of moral hazard are well understood in finance circles, yet we aren’t carrying them beyond that realm into other areas, like gaming, where they are obviously relevant and important.

Granted, Season Passes have a great role: they offer upfront money to keep a developer in the black, ensuring that it has the resources to produce the post-release content that it wants to. However, eventually a high-profile developer will fail its legal and moral obligations to season pass holders, and then the entire system could receive a huge, damaging shock.

*Sorry for the two month hiatus. My only excuse is school, work, and more school work. And starting Persona 3, but that’s beside the point.


2 responses to “The Moral Hazard of Season Passes

  1. Pingback: Minding Monetization Methods | Mental Gaming·

  2. Pingback: Assassin’s Sales Crash | Mental Gaming·

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