Pachter: Economist's Claims in Madden Monopoly Case Irresponsible

July 15, 2009 -

Yesterday's GamePolitics report detailing a University of Michigan economist's estimate that EA's exclusive NFL deal cost Madden buyers as much as $926 million raised a number of eyebrows, including those attached to the forehead of Michael Pachter (left).

In an e-mail exchange with GamePolitics, the Wedbush-Morgan analyst scoffed at the monopoly theory offered by Dr. Jeffrey MacKie-Mason in a filing last week with the U.S. District Court in San Francisco. MacKie-Mason was hired as an expert witness for the plaintiffs in a class-action suit filed in 2008 by a pair of gamers who allege that EA exploited its exclusive NFL deal to jack up the price of its popular Madden series.

Here's what Pachter had to say:

What kind of fool is this U of Michigan economics professor? ...Madden (according to NPD) sold 23 million units in 2006 - 2009, not the 30 million that Dr. MacKie-Mason claims... The total retail sales were $1.034 billion, meaning that EA's cut was around $800 million (retail margin is 20%).  How in the world does [MacKie-Mason] conclude that EA overcharged by more than they generated?

For the four year period, EA's average retail price was $44. For the period 1995 - 2005 (when either Sega or Take-Two provided [NFL 2K series] competition), EA generated $1.548 billion of sales on 36 million units, for an average price of $43. In other words, WITH competition, the price was $43, and WITHOUT competition, the price was $44.18...

I rarely read anything that gets me so incensed... They may have some odd estimates I'm not aware of, but based on what you printed, they should be embarrassed. You can quote me.

Here's more: Take-Two discounted [NFL 2K5] to $19.99 to gain market share, and lost their butts in the process. It's the same as a dollar menu at McDonald's that is a loss leader in order to gain share, and McDonald's hopes people buy the high-margin soft drink. There is no "right" among consumers to receive a perpetual discount just because one retailer decides to discount below cost... 

It strikes me as irresponsible that the professor would focus on the NFL exclusive as if there is some god-given right for consumers to have all intellectual property available for exploitation by any business that chooses to do so in the name of competition... 

The ONLY I/P that has ever been licensed to multiple video game parties is team sports.  The NFL, Major League Baseball, FIFA, and NCAA Basketball have all chosen to go the exclusive route for games, similar to the contracts for all movie-based games.

GP: As GamePolitics reported yesterday, MacKie-Mason acknowledges that his analysis is based on incomplete data. In a response filing, attorneys for EA (who were similarly contemptuous of MacKie-Mason's theory) agreed to furnish available documentation dating back to 2001.

Comments

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

Looking at sales in 1995 is not the correct time frame. If the difference in revenue was only $1, why would EA pay between $300-500 million dollars for only a 5 year deal? This is because EA was worried about competition at the $19.99-29.99 price point, as EA did not know how long they would need to lose the $20 per sale. Finally the NFL gave in once EA forked over the high price tag for the exclusive license. EA wants all other developers to fall so far behind that in the development for a NFL game, that after the exclusivity deal ends, the entry costs for a firm will be too high to incur, especially forthe more advanced tecnology of the PS3 and 360.


Also there is no IP being transferred here. It the right to use NFL players stadiums etc. Antitrust law wants to encourage competition, and here competition is being foreclosed by EA. Also by EA getting the exclusive license, the only benefit they get is they get to increase the price. The consumer gets no benefits, and when an exclusivity deal creates no efficiencies and only an increase in price, the deal will be scrutinized. 

 

Also the argument that a buyer should just wait untill a price drop or don't buy at all, is what antitrust law wants to prevent. Antitrust law wants people to buy items and for competition to flouirsh so to maximize production and consumption.

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

All I have to say is: Finally, someone who actually understands economics.

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

For once the guy makes a decent argument.

http://www.magicinkgaming.com/

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

So they raised the price a buck?

Bye Bye lawsuit.

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

Did patcher really just try to compare licencing the names, numbers, and colors of sports to the licensing of IPs from a movie franchise (which is rarely exclusive beyond a single title anyways...)? Combine that with the fact that movie games are considered to be the bottom of the barrel in shovelware compared to the high production values of Sports simulation games, and the analogy is completely lost.

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

Not to mention that the single NFL license is created as the result of a joint-selling arrangement, read lawful cartel, between separate teams.

This is not the same as a creator selling the exclusive right to exploit a single IP. This is all the creators in a whole market selling all the rights across the market as a single exclusive bundle. Joint selling in most industries is simply not allowed.

Some big European sports leagues have had their joint selling perk removed because of the damaging effects on competition downstream in the market.

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

I believe the courts have ruled time and again that sport leagues can, and do operate as a single entity and not just a cartel of seperate teams.

"You know what I wish? I wish all the scum of the Earth had one throat and I had my hands about it."

"You know what I wish? I wish all the scum of the Earth had one throat and I had my hands about it."

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

I think clarification of that principle is why the NFL recently asked the U.S. Supreme Court to take up a lawsuit it had actually won regarding officially licensed sportswear.

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

I'm not sure I understand what you're saying here. That individual NFL teams should have the right to license their teams out individually?

I think the movie example is a great one. It's all under the umbrella of the organization (NFL). It would be like if the Transformers were licensed out for games one by one (one for Optimus Prime, one for Bumblebee, etc).

Damaging effects of competition. In what way? Why should a rights-holder have to agree to non-exclusive licenses? It's their right as the rights-holder.

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

Actually, I'd consider sports bottom of shovelware barrel next to movies.  At least even movies has a decent one every now and then. Football's football, and no matter how much you shine a piece of crap, it still stinks.

Kinda mixed on this one. I do believe a monopoly by EA is unconscionable, but if gamers got ripped off, it's their fault for buying it in the first place.

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

I notice a lot of people are dismissing movie based video games as "shovelware" as if that has any relevance to the issue at hand. This article is about the monetary effect such licenses have on the general public. Move based IP's are highly sought after by developers because even if the quality is not quite up to snuff they still sell very well. This is especially true about children's games since parents feel very safe buying a game for their kid after having seen the movie the game was based on.

Moving on from that, this article brings up another good point: It is not our "right" as gamers to have games be discounted to some arbitrary price point at some arbitrary time we decide. If we as consumers want something to change, then the only "right" we have is to respond with our wallets (as Vake Xeacons said above me). This doesn't mean bitching because there is no other licensed NFL game you can buy, it means not buying Madden. The only reason games get discounted in the first place is because a large enough number of people do exercise their right to wait to buy a game until it reaches $30 instead of buying it at the launch price of $60.

It is on the other hand the "right" of the publisher to push for an exclusive license and the "right" of the license holder to agree to an exclusive license for a compensation they deem appropriate. This is a "monopoly" only in an intellectual sense, not a legal sense. Complaining that the NFL has licensed its game exclusively to EA is the same thing as complaining that Warner Brothers is the only company that can use the Mortal Kombat characters (following their purchase of the Midway license). Intellectual Properties are owned and controlled by their creator and therefore have the right to be sold or licensed for whatever the IP holder deems appropriate.

And finally as stated in the article, the grand total price difference was a whopping $1.18 per game. Even for price conscientious gamers that's pocket change. So in closing, if you are really worried about that extra $1.18 you feel you are entitled to, then exercise your right as a gamer and don't buy the next Madden. Otherwise, stop wasting forum space by complaining how it's not fair.

 

Re: Pachter: Economist's Claims in Madden Monopoly Case ...

Sounds like the plainiff just lost their case, by the admission of their own expert witness.

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