July 13, 2006, 11:32AM
By DAWN C. CHMIELEWSKI
Los Angeles Times
Sony Corp. has patented technology that would prevent its PlayStation consoles from playing used, rented or borrowed video games -- raising questions about whether the electronics and entertainment giant may attempt to redefine what it means to own something in the digital age.
Speculation over Sony's plans for the technology have sparked a furor online as game fans and consumer advocates fret that the company may incorporate it into the upcoming PlayStation 3 console, due to hit stores this fall.
They worry that it would wipe out the $1 billion annual market for used games and could even prevent someone from playing their games at a friend's house.
For its part, Sony has decried the "false speculation" surrounding the technology, patented in Japan before the October 2000 introduction of PlayStation 2. Sony has said little else about the technology or how the company might deploy it.
It is not unusual for technology companies to patent innovations and then never incorporate them into products.
Documents filed in April 2000 with the U.S. Patent Office describe a method of copy protection by which the game system would verify a disc as legitimate, register the disc to that particular game console, then wipe out verification data so the disc would be rendered unreadable in other PlayStations.
"Since only titles for which legitimate software has actually been purchased and which have been initially registered in the machine table can be used, resale (so-called used software purchase) after purchase by an end user becomes practically impossible," according to the patent documents.
Although Sony has been vague about its plans for the technology, "I actually think they're toying with this idea," said Michael Pachter, a game industry analyst for Wedbush Morgan Securities.
Pachter said he doubts Sony will tighten the software locks on PlayStation 3 games, but might employ bolstered copy protection on other forms of entertainment downloaded to the console over the Internet.
"Maybe they'll copy protect movies or music downloads," he said.
Whatever Sony's plans, the tempest illustrates the changing nature of ownership as millions of people accumulate vast collections of digital entertainment. Few people realize that when they buy software or music or movies, they are actually buying a license to use, watch or listen. That's why it violates copyright laws for people to sell copies of their music collection.
Sony was attacked earlier this year for including software on some of its music CDs that surreptitiously installed itself on computers playing the disc. The software was intended to prevent unauthorized copying. Sony later apologized.
Taking that sort of copy-protection one step further would be, in the words of one analyst, "crazy."
"What does Sony get from that?" said John Taylor of Arcadia Investment Corp. "Sony gets a black eye. It doesn't make sense to me."
Several analysts said the patent appears to principally be aimed at deterring game piracy. Indeed, Sony's patent notes that through the complexity of its copy-protection scheme "manufacture of counterfeit software becomes extremely difficult."
And it's not unusual for technology companies like Sony to register patents, either in anticipation of one day collecting royalties from someone seeking to license the technology, or to prevent someone else from deploying it.
"These are all things technologically possible to do in any computing device," said one cryptographer, who requested anonymity. "In the video game business, it would be suicide for someone to do this. It's actually possible Sony filed this because they wanted to keep people from doing that."
Nonetheless, persistent online speculation that Sony would use technological or other means to ban sale of used PlayStation 3 video games prompted one analyst, P.J. McNealy of American Technology Research, to study its potential effect on the industry.
"While we believe it is unlikely that SNE will ban PS3 pre-owned games from being sold by the same chains that sell new PS3 games, we believe this issue remains under consideration," McNealy wrote in a research note issued June 23.
McNealy estimated that game fans spent about $990 million buying used games, primarily from GameStop or through eBay. Much of that spending -- about $620 million -- is for used PlayStation 2 games.
Were Sony to ban sale of used games for its next-generation PS3, McNealy concluded the effect on independent video game publishers would be negligible.
Used-game sales are a growing source of irritation for game publishers, who receive no proceeds from the resale of games. Indeed, executives privately complain that cheaper second-hand games are available for sale shortly after a new game's release. And game publishers, which give retailers marketing money to promote games, end up competing with discounted versions of their own titles.
Major independent game publishers Electronic Arts Inc., Activision Inc. and THQ Inc. declined to comment.
Meanwhile, used games are a lucrative source of revenue for retailer GameStop, which began reporting pre-owned game sales for the first time following its acquisition of competitor EB. Last year, second-hand game sales accounted for $930 million in revenue and $418 million in profit. The profit margin was 45 percent, compared with 21 percent for new games, according to Arcadia Investment Corp.
Analysts say used-game sales contribute to the overall growth of the video game market, in the same way that the ability to trade in a used vehicle fuels the new-car market.
"A used-car market creates currency to buy new cars. Same with games. Everybody acknowledges that," Pachter said. "The problem is if the used game is available a week after the new game is out for a $5 discount."