Paying for exclusivity - why its here to stay

According to recent reports, the first game from Respawn Entertainment, called TitanFall, will be an Xbox One exclusive. Other rumours suggest that Mirror's Edge 2 and Fallout 4 could also be single format games--or at the least Xbox and PC only. Not just for a week, a month, or a year... but permanently. It’s a clear sign that Microsoft is going all-in to dominate PS4 in the next-generation. Why? Because true third-party exclusives like these cost big, big money.

During the current generation true third-party exclusives have dwindled from ‘unusual’ to ‘rare as rocking horse droppings’. When you’re spending millions of dollars on a game, you need to recoup your costs. The best way to do this is to sell millions of copies at $50 / £40 a pop. That’ll do nicely, thanks. And the best way to sell millions is to put your game onto as many devices as possible, maximising your audience. Sure, you can make cash by releasing DLC and using in-game advertising, but nothing beats millions of cold, hard, physical sales. This is basic economics, so it should come as no surprise that true, single format exclusives, are incredibly unusual. Why limit yourself to Xbox 360 when there are 80 million PS3 owners out there too?

At E3 2007, when Microsoft announced via the medium of tattooed Scouser, that GTA IV's Episodes From Liberty City would both be exclusive to Xbox 360 for over a year eyebrows were raised. Microsoft had paid Rockstar $50 million (that’s $25 million per episode) to keep Lost and Damned and Ballad Of Gay Tony away from PlayStation owners. At the time this felt like cheating. How dare Microsoft throw money around like that? Not very sporting of them. Now, six years later, the practice of paying for exclusivity--no matter how petty--has become the norm. In fact, it’s fast becoming a requirement. Games industry economics have made it so.

Securing peripheral content like DLC, services such as LoveFilm, and pre-release extras is a practice that has really taken off during this generation. Pretty much everything is up for sale, as console manufacturers and even retailers try to get one up on each other without paying silly money. Want exclusive escort missions? The PS3 version of Assassin's Creed Brotherhood has you covered. Want exclusive avatar items? Better get Final Fantasy XIII on Xbox, then. Want 17% bouncier balls? Better buy FIFA 14 on PS3. Actually, that last one’s a lie. For now.

However, fully exclusive games remain very expensive, which is what makes the TitanFall news so significant. Lucrative first-party arrangements mean that titles like Gears of War--created by independent third-party developer Epic--still exist, but with fewer large studios remaining independent, these deals are getting rarer.

It would be naive to assume that Microsoft’s GTA arrangement was the first ever ‘paid exclusive’, but it was the deal that changed things. Microsoft was open about it. The company needed a system seller for Xbox 360, and they bought it. Given the news about TitanFall, and the rumours about Mirror’s Edge 2 / Fallout 4, it looks like they’re doing it again. In fact, they’re taking it to the next level for the next generation. Back in 2007 the bean-counters at Microsoft decided that $50 million in both exclusive sales and damage to the opposition was worth it. Let’s not forget, the GTA Episodes deal wasn’t just about money: it was about reputation and competition.

The Xbox owner has never been shy about using financial clout to better its position in the games market. The signs were there when it bought Rare in 2002, essentially removing Nintendo’s most talented studio from under them. No one would argue that Rare produced $375 million worth of games during the Xbox generation, but it probably kept that amount away from the competition. It’s only now, working on the Kinect Sports series, that Rare has started to pay back its asking price.

By throwing money around, Microsoft has gone from gaming unknown to market leader in just over a decade. Why? Microsoft has not only paid for great exclusives, but has also done deals to weaken its competition or level the playing field. Final Fantasy? That’s on Xbox now. Metal Gear Solid? Yeah, that’s going Xbox too. Curiously, Metal Gear Solid 4 remains one of the few, high-profile third-party exclusives of the current generation, largely thanks to the storage capacity of Blu-ray (something quickly negated by higher capacity Xbox hard drives to avoid this becoming a trend). The general tendency, though, is a decline in true exclusives.

Sony was slow to react and lost the most ground. Whereas the PlayStation owner may have been in a position to respond with similar blockbuster exclusives back in 2007, it may not have the financial clout to go toe-to-toe with Microsoft now thanks to a significant shares and sales decline across the company, and the deficit left by developing and marketing the unpopular PS Vita. We’ve seen PS3 get timed exclusives for DLC and some smaller downloadable games, but nothing on the scale of Microsoft’s GTA IV’s episodes, Call of Duty DLC, or even Skyrim Dawnguard. Will this prove costly in the next-generation? It just might...

Meanwhile Nintendo chose to compete for a slightly different audience when it released the Wii, largely negating the need to compete for exclusive content. The Japanese giant has always relied heavily on first-party games, but Wii’s focus on motion control and unique system architecture meant that games were either tailored for Wii (eg. Call of Duty Modern Warfare) or never released (eg. Battlefield 3).

However, with the more ‘traditional game’ focus of Wii U, even Ninty is being forced to look around for exclusive content--we’ve seen the first signs of that with Bayonetta 2, ZombiU and the recent deal with Sega to keep the Sonic series exclusive for the next three games. However, Nintendo president Satoru Iwata recently commented: “I don't think it would be an appropriate course of action to get into a battle with a company like Microsoft over the cost or the expense of trying to go head to head in a situation to try to obtain exclusive rights,” so don’t expect any significant exclusives on Wii U beyond added functionality and first-party games. How will that impact sales of the console? It’s unlikely to be positive.

With the next-generation it seems exclusivity will be the key battle-ground between Sony and Microsoft. First looks at both PS4 and Xbox One show consoles that are largely comparable in power, functionality and architecture. Multi-format games will be largely indistinguishable, so the question both companies are asking is: what will make people buy our machine? The obvious answer is ‘stuff that other people don’t have’. Exclusives. Exclusives that will cost console makers plenty more money in the coming years. In fact, we could see a scenario where the next-gen will be ‘won’ by the console manufacturer not with the best original games, but with the biggest wallet.