Xbox One's DRM Backflip Is A Bad Business Decision: Here's Why

Earlier this morning, Microsoft announced a raft of changes to its upcoming Xbox One platform in response to palpable gamer outrage. Barely a week after its controversial E3 press conference, the company has back-flipped on DRM and used game restrictions -- the console will no longer require you to connect to the internet every 24 hours and disc-based games can be sold and swapped at leisure. While this is a partial win for consumers, from a business perspective it can only be viewed as another blunder.

When Sony launched the PlayStation 3 at E3 back in 2006, the resultant backlash could only be described as an embarrassing disaster. With an eye-watering Australian RRP of almost $1000, it was significantly more expensive than the competition. The inclusion of a Blu-ray drive was also heavily criticized: at the time, it was a completely unproven format and many thought it was a terrible gamble on Sony's part. Even the physical appearance of the console came under fire, with snarky comparisons to the George Forman Grill littering the internet.

At the time, I was working for GamePro magazine, and like most of the gaming press, our coverage was far from glowing (for our money, the PS3 came a distant third behind the Xbox 360 and Wii). In a single dodgy E3 conference, it felt like Sony had managed to lose the console war. Some commentators even went the whole hog and predicted the entire company's ruin.

The whirlwind of vitriol easily matched what Xbox One went through at E3 2013. But unlike Microsoft, Sony chose to weather the storm. It turned out to be a sound business decision -- while the price of the console was tough to swallow, the global sales showed consumers were willing to pay more for a quality machine if the games and features delivered. Meanwhile, the Xbox 360's lack of a Blu-ray drive turned out to be a thorn in its side for the duration of the console's lifespan.

If Sony had caved to consumer pressure, pulled the Blu-ray drive from the PlayStation 3 and lowered the price, we would have ended up with a far less compelling machine. In a sense, the same thing can be said about the Xbox One. Don't get us wrong; draconian DRM and disc restrictions are terrible and we're immensely glad they've been pulled. But that's not all Xbox One owners will be losing:

These changes will impact some of the scenarios we previously announced for Xbox One. The sharing of games will work as it does today, you will simply share the disc. Downloaded titles cannot be shared or resold. Also, similar to today, playing disc based games will require that the disc be in the tray.

In addition, consumers will no longer be able to share and resell their digitally purchased games, which was one of the most future-facing features of the system. The hugely compelling 10-person share plan has also been scrapped, as has the potential for a Steam-like ecosystem where all your games are accessible online, no matter where you are. In other words, we're basically just getting the Xbox 360 again, with prettier graphics. It's a PS3 with a DVD player.

But it's about more than what consumers are losing. By getting spooked and doing an immense turnaround, Microsoft has proven to the world that it has no confidence in its own business decisions or product. Instead of waiting for the furor to die down and staying on message it has done a complete 180 (which is what many sly wags are now calling the new console -- the Xbox 180).

We think Kotaku editor Mark Serrels puts it best. We'll leave you with his sober assessment:

Have we ever, ever in the history of the video games industry, seen such a tremendous, catastrophic mismanagement of public relations? It is my humble opinion that the Xbox One is worse off today than it was yesterday. You may disagree with that conclusion but the one thing we can agree on is this: Microsoft colossally screwed up its messaging with regards to the Xbox One. It cowered in fear when it should have led with the benefits. When it should have been beaming with pride, it acted like it had something to hide. Now we're all going to suffer.

What's your take on Microsoft's Xbox One revisions? Is it an epic win for consumers or a step in the wrong direction? Let us know in the comments section below.


    As a gamer living in regional Australia with limited access to reliable internet, I wasn't going to purchase an Xbox One because of its focus on digital content and DRM internet requirement. I didn't think it was a bad product, just not the one for me. With these revisions I will now need to consider which platform to purchase first, though I will likely end up purchasing both. Therein lies the problem, as Microsoft has chosen to compete with Sony using what is now essentially the same product. I think if MS had stuck with their plan they could've led the march toward digital content in an ever increasing digital world, ending up in a much stronger position in the long run.

      The xbox one and ps4 are far from the same machine. Even though they have the same amount of ram, the ps4 has more allocated to running games, whereas the xbox one uses a lot of ram to run its entertainment features. So the ps4 is a lot more game focused then the xbox one.

        Sony lost all the classic developers it had. It now only has 2 games that are exclusive to it. The xbox not only managed to get hold of some traditionally sony exclusives, but also has many new exclusives made for it, has the developers and the publishers going for it, + as extra it also has big media companies and creative writers backing it. Tell me again which console has the gamer in heart.

          this is a terribly misinformed comment. you come off as a totally blind, dumb, bigot fanboy. lets examine the facts.

          Please list the developers they have lost? I can only think of one, that is Insomniac. Sony has Sony Worldwide Studio's. That alone is more than all of the Xbox exclusive studios combined. Let's talk about an interesting developer who left Microsoft, and has gone on to have an exclusive partnership with sony. Bungie. The company who practically put the Xbox on the map with Halo. If it wasn't for them, it would not have been as successful.

          And which exclusives have Xbox stolen from Sony?

          Which Developers are backing the Xbox? Because so far, every big name developer who has said anything, has spoken about how awesome the PS4 is. I have heard barely anything from them about the Xbox though.

          To say that Microsoft is the company who has gamers at heart sounds like someone who is clinically insane. They have outright admitted that they want to rule the lounge room in terms of media devices. Notice how I said Media device, not gaming device.

          Last edited 08/07/13 2:10 pm

    I'm a big lifehacker/gizmodo/kotaku fan, but seriously... you guys change your minds quickly.

    "Why I Won’t Be Buying An Xbox One"
    "E3 Battleground: Xbox One Vs. PlayStation 4" (In which the X1 is criticised for DRM and used game policies)
    "The PlayStation 4 Is $US399, Plays Used Games, Online Not Required" (Not at all a biased title..)

    What this will mean for the used game market remains to be seen but anything that hampers your ability to sell something you’ve paid for can’t be a good thing.

    "Xbox One’s Awful DRM Drowned Out Some Really Cool Games"

    Admittedly you guys did do a few articles on the benefits of the new DRM and other MS features, but I think it's safe to say you drowned them out in the negatives.

    Still, it's a bit unjust to propagate all of the negatives, on a site which lots of people read, then complain when Microsoft make changes. You can't be the problem, and then complain about the solution!

      As I mention in the above article: "draconian DRM and disc restrictions are terrible and we’re immensely glad they’ve been pulled."

      But from a business perspective, I think the reversal was still a silly move on Microsoft's part. It makes them look like they don't know what they're doing. It would be like pulling all the touch functionality from Windows 8 a few months before launch. If you make a bold decision, you should stick with it and roll with the punches (at least don't fold a week later).

        ....whereas not changing their mind would make them look equal parts naive and arrogant. Damned if they do, damned if they don't, but at least of the two they went with what consumers clearly want for a change. Maybe if other departments there took popular opinion on board with their products a bit more we wouldn't have the huge backward step in usability or function of Windows 8, or complete flops like Windows Phone 7/8.

          If they never made the initial bad decision in the first place then they never would have backed themselves in this corner. They deserve the damnation. Just because a company backs down from an anti-consumer decision, doesn't mean we should start heaping praise on them. In the eyes of many consumers the Xbox brand has been damaged, trust has been lost.

          Microsoft will have to fight an uphill battle to repair their brand, today's announcement was only the first step.

        To be honest, from a business perspective Microsoft did the only thing they could do after seeing what one can only assume to be phenomenally bad pre-sale figures. Microsoft's hand was forced; there's no point having confidence in your business plan if nobody buys it. Talking to an employee at EB Games, he said the PS4 had 11x more preorders (60 to 5) than the Xbox One; early adopters are the best type of brand ambassador a tech company could have.

        Unfortunately while taking one step forward with their disc-based game policy, I can't help but feel they've taken 2 steps back with their innovative online based offerings, specifically family sharing as well as digital-download game license trading. In my opinion this has left the door wide open for Sony to make up ground in the only area the PS4 was really lacking.

        I agree however that this backflip not only made Microsoft look weak; but also confused any message they were trying to associate with the Xbox brand.

        Sidenote: it seems like this announcement was very low key and sudden; is it possible they were trying to capitalise on the PS3 firmware update situation?

        But from a business perspective, I think the reversal was still a silly move on Microsoft's part. It makes them look like they don't know what they're doing.

        If you make a bold decision, you should stick with it and roll with the punches (at least don't fold a week later).

        I think you're coming at it from the wrong angle. Nobody was buying the 'but we thought you'd like this' stuff. Dragging it out wasn't helping anything. This isn't to get the XBOX One on track it's to get the XBOX One under the rug. They're not pulling it out of a tailspin they're aiming for the ocean. I think the general consensus behind closed doors is that they've ruined the brand for at least a generation. In the space of a week they've gone from on par with Sony to further behind than they were when the original XBOX failed to gain traction and lost them insane amounts of money.
        If they had their way I think the XBOX One would never hit the shelves. They lost gamers on the reveal. Mere days later they lost almost all publisher support, including the big gun publishers who were meant to give them the exclusives to push through the resistance. The XBOX One is so highly toxic that the next XBOX probably won't use the XBOX name.

        So the idea of removing the bad parts from the XBOX One isn't to sell consoles, it's to put as much distance between this and their next next generation console reveal. Standing their ground wouldn't help and looking bad is the fastest way out of the spotlight, so in that way it makes sense as a business decision.

        From a business perspective they took something to market that the market wasn't ready for, highlighted by the endless whining on here in response to your handfuls of negative articles. They did what you wanted to them to do and now you are whining about that. As for rolling with the punches, it was you lot throwing them. What exactly would make you happy, if they didn’t make a new XBOX at all?

        I lol at your use of the term "draconian" when it is probably the most free drm policy there is.

        DRM is a 2 way street. It is what enabled these features to exist. To anyone with half a brain, it was clear that removing the drm was going to be far worse then the simple 24 hour checkin that it required. Yet you guys made it out to be an idea of the devil. I truly believe that you guys are partly responsible for the backwards step the xbox had to take, leaving the consoles in 1990's era, with everything else leaving it behind.

    I agree with tazza, you got what you wanted, stop looking for stupid negatives.

    They've even already said that reselling digital downloads is still under consideration, just now not for launch. Stuff in Software is easy to fix.

    Would it be so bad if we reverted to the previous Xbox one but with one change. If failed to have an internet connection or even chose to play offline, the phisycal disc must be inserted. Another thing I wanted to say is that Microsoft has listened to us once maybe if we stress out our ideas get rid of all the fuss and confusion they might listen again. I don't expect everyone to agree on this but I will be happy as a consumer if this idea was enforced even if its changed along the way.

    Downloaded titles cannot be shared or resold. Also, similar to today, playing disc based games will require that the disc be in the tray.

    Oh whoop de do. Disc based games require a disc? What a surprise! Seriously, don't like discs? Get a digital download instead. This isn't a big issue.

    Downloaded titles can no longer be resold? It wasn't guaranteed to be possible previously. Under Microsoft's old system you required the cooperation of the publisher AND they could set the price/terms. What does the publisher have to gain from allowing you to resell their game? In other words they could completely block resale or just price you out of the market, leaving you with a literally unsellable copy. Further to that point, you would have to resell through an authorised partner. You couldn't just sell the game to a mate or your local games shop (unless you used your one-time transfer).
    Also with these latest changes there's no reason why Microsoft can't eventually allow you to resell downloaded titles and allow both models to exist simultaneously (optical disc and downloaded titles).

    10 person share plan gone? Why not just lend your family member the disc?

    24hr signins gone? Great!

    Essentially people were given a stick with no real promise of a carrot in the future. That is why this is a win for consumers.

    Also I don't see what this has to do with Sony's PS3 Bluray drive. That was a hardware feature which cost money and added capabilities (as you'd expect). The Xbone DRM is just a set of user-restrictions which costs nothing and takes away capabilities (in my view).

    Last edited 20/06/13 1:03 pm

      What does the publisher have to gain from allowing you to resell their game? They get money from you. Why would they block themselves from making money?

        If you believe the 'money' from 'reselling' a game is going back to the publisher, you clearly dont understand what EB and their ilk are doing my friend.

        Exactly ZERO is going back to the developer. ZERO of a resold game. Not some, not alot, Zero. THATS why the DRM was a good idea. Unfortunately Microsoft's Xbox CEO couldnt sell his way out of a paper bag and the internet hated the idea.

        Why would any publisher have chosen to let people resell and take a percentage when they could just eradicate the used market and make everyone buy a new copy?

          THIS is what I was getting at. This seems to be too complicated for many to understand. Essentially the publisher has control over all the copies of the particular game, new AND used. This gives them no incentive to allow used sales. Think about it. The publisher could either; A) allow a buyer to purchase a used game from the previous owner who takes a substantial cut; or B) force the buyer to purchase a more expensive new copy whereby the publisher receives all the revenue.

          Lets do the EA test: Which would EA choose? B

        Thom is right, Reselling doesn't make them as much money as someone buying a completely new copy. Not like the developer has to spend extra money if it's from the online store.

    I'm not sure how getting rid of a "draconian" business model could be considered a bad business decision. You don't win customers by being severe

    It makes MS look like they gambled on Sony taking the same path, and lost. Now they're gambling on gamers' short memories which is pretty much a safe bet.

    As I recall, the 360 went with HD-DVD as an add-on, which I think pushed the price of a 360 into the $900s. And the big feature I remember tech blogs pointing out was that - as a Blu-Ray player - the PS3 was comparatively cheap and full-featured - and played games as well.

    To top it off, the PS2 was so astoundingly popular, it actually killed one of the big three (at the time) manufacturers through its dominance - in a 4 horse race of PS2, Gamecube, Dreamcast and Xbox, it held a 60% market share - almost two-thirds of the market. Since the launch of the PS3 2006, Sony has continually shed that share - it now has 29.7% to the 360's share of 30.2% and Nintendo's 40.1% (that's for total sales to date of all three consoles since their respective launches). Not exactly a success story.

    In that context, and when the reports of pre-orders at the moment look like anywhere between a disastrous 30% share to catastrophic 11% share for Microsoft (particularly bad when - just 10 days ago - Xbox One pre-orders were ever so slightly (2.3%) ahead of the PS4), there's clearly some compelling evidence for a change in strategy.

      The HD-DVD Addon Drive for the 360 was only to play HD-DVD Movies only not games....Not many people brought it because

      A) It was expensive
      B) The movie catalog was pretty thin

      It bit the dust when HD-DVD as a format was "killed off" due consumer confusion and more importantly film companies abandoning the format for Blu-Ray

        All valid points @bigdirtyjase. Sony had an big advantage over HD-DVD, as Microsoft didn't have it's own successful movie studio - the HD-DVD decision was a partnership with Universal, wasn't it?

        I was trying to counter Chris's argument that the current situation mirrors that in 2006 when "The inclusion of a Blu-ray drive was also heavily criticized: at the time, it was a completely unproven format and many thought it was a terrible gamble on Sony’s part." The same applied to the HD-DVD add-on, and it tanked, as you pointed out. So the comparison of business judgement between Sony then and Microsoft now seems flimsy at best - though that's obviously my amateur point of view vs Chris's demonstrably much more professional one.

        If the current outrage was in regards to the bundled Kinect vs the PS Eye, I think Chris's point would have more merit (Microsoft's genuinely terrifying patent for using the Kinect to prevent a movie being played if too many people are in the room notwithstanding). But aside from price, built-in Blu-Ray wasn't a disincentive unless you were genuinely anti-Blu-Ray/ pro-HD-DVD, I suppose. It also didn't exclude anyone, as they would've if say the PS3 didn't play DVDs. Whereas the DRM-features seemed to exclude a portion of the base of existing Xbox consumers in this case, so the comparison (to my mind) doesn't hold.

    I think the fear of not being able to sell many consoles at the start must have gotten to them. Think about the lead Sony would have, MS will have to play catch up and it's a steep hill.

    Given that we may not see another console for the next 5 - 10 years, MS chose to play it safe.

    The decision, as stated, was presented well to disguise the complaints and present them as feedback that MS seemed to have accepted. That bit, though obvious, was well done.
    Further, you can see that if MS is able to make this change, at this stage, it seems quite feasible. May even be as simple as a software patch. When the time comes, MS might just revoke this patch to apply the new model they discussed in E3. Doubtful but possible.

    In my opinion, one way that MS can finish this in style and in their favour is by trying some of the following ideas:

    1. Keep the "family" sharing but restrict it to downloaded material
    2. Games bought as physical media may need to stay in the disc tray while in use

    This is just a start, all they have to do is pick the best of both worlds - 360 and XBone :P

    I wasn't big on their decisions; Many weren't. Some, however, were excited by these new ideas and what Microsoft could bring to the table, due to their position of having a very stable internet connection. I'm very unsure with their 180 strategy, as you pointed out, it shows a complete lack of confidence in their product. Also, as much as we all hate these 'always-online' policies, it really is the definition of a 'new generation' in console gaming. Microsoft planned to drag us in, kicking and screaming; a decision I didn't like, but respected nevertheless. I don't like this 180.

    In other words, we’re basically just getting the Xbox 360 again, with prettier graphics. Perfect! Exactly what I wanted :)

    Man - who cares. I want to play Dead Rising 3, Titanfall and Ryse - and I was a big anti Xbox One hater.

    But I was already warming to the One earlier - now with these changes, I am totally sold.

    Cant wait! :D

    Shut up! They'll change it back!

    No matter how you look at it, the DRM scheme was a huge misstep, and MS changing it to suit the consumer is a positive step which shows that MS hasn't completely disconnected from reality. After the colossal PR blunders they've had, if they didn't reverse these decisions they would have had such a small market share they would have almost completely been put out of commission.

    Thank you Microsoft! What's wrong with listening to the ones that give you your profits and giving the consumer what they want? I was seriously considering getting a PS4 cos unfortunately I'm not rich and don't have the money to spend on buying new games. I buy mostly used games as I'm not one that needs to have the game the day it is released. Also my internet connection isn't the best and would take me a week to download a game. Thanks again Microsoft!!

    1. There was no guarantee of being able to re-sell or share downloaded games.

    2. There's no reason why Microsoft couldn't still implement those features if they wanted to. Even if it required people to opt-in to some form of DRM or "always on" while they were using a downloaded game.

    3. People are too unkind about people who "flip-flop" if it results in the right decision. Idolizing people and companies for being stubborn and sticking to a bad position is dumb. Criticize them for making a bad decision initially and having terrible and chaotic and contradictory communications - not for finally biting the bullet and making the right call.

    See, now, my suspicion is that MS want the public to go "awww, gosh, we actually wanted all them neat features after all - it was just that vocal bunch of a-hats that got their way" and MS will jump to the rescue "Never fear, peons, I shall CTRL+Z back to DRM-Magnificence with this update for you, our fans"

    MS speak like that, right?

    I agree - they didn't even give it a chance, and instead listened to a bunch of tweets from angry gamers who hadn't yet looked at the benefits of an online system. The backlash was huge, so I can see why they'd want to fix it - but they should have given people the option to opt-out and forfeit the benefits, not remove them completely.

    There's a petition here to add the ability to opt-in - - Not sure whether it will make a difference though, looks like the damage is already done.

    I'm surprised that they made this announcement, way expecting something once the console launched and everyone had a chance to see how it all worked but not to this extent. this much of a backflip is crazy. glad they removed the DRM checks and requirements for physical copies for games but they should have continued he policy for the digitally delivered content, would have been happy with being able to share my xbl and xbla content with my 'family' and developing a used game eco system for that content so when I finish or get bored of those games I can trade them in for other digital content and then prepare us for the next generation where the games will be primarily digital

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