Here’s a late ’80s memory you may not have thought about in a while. Do you remember going to the video rental store to rent a video game and getting the cartridge but not getting the instruction booklet? The reason video stores would rent you a cartridge without instructions dates back to events that started in late July 1989, when Nintendo sued Blockbuster.
The Computer Software Rental Act
Video rentals were a big deal in the 1980s. As VCRs became commonplace, small businesses proliferated renting out movies on video cassette for a nominal fee. A trip to the video store to rent a movie or two became part of many families’ weekend routine. It was cheaper than going to the theater, and much cheaper than buying the VHS tape outright.
Over time, renting out more than just movies became inevitable. Video game rentals started in the Atari 2600 era, in the early 1980s in some metro areas. But video game rentals really took off as the Nintendo Entertainment System gained popularity.
But there were certain things such stores could not rent out. Music was one of them, and so was computer software. That was the result of a law called the Computer Software Rental Act, signed into law in 1990. Nintendo wanted video games to be illegal to rent just like computer software. They regarded every rental as a lost sale.
Blockbuster’s exception
Blockbuster, the largest video rental chain in the United States, lobbied Congress for the exception. Renting video games only amounted to about 5% of their annual revenue at the time, but they saw it as a growth area. Not to mention the profit margin was better than on video tapes, because game cartridges cost less than VHS tapes and lasted longer. So they argued for an exception, arguing that while music was very easy to copy and floppy disk-based computer software was relatively easy to copy, video game cartridges such as Nintendo games were not.
Yes it was technically possible even in the 1980s to copy video game cartridges, that wasn’t something the average household was able to do.
Blockbuster won out and got their exception. But it wasn’t long before Nintendo found a technicality, and they used it to intimidate not only Blockbuster, but even the small independent video rental shops. And they didn’t even wait for the law to pass before they struck.
Nintendo sues Blockbuster for copyright infringement
On Monday, July 31, 1989, Nintendo sent a letter to Blockbuster asking them to stop infringing on their copyrights. Later that week, on Friday, August 4, 1989, Nintendo sued Blockbuster for copyright infringement. Nintendo didn’t claim renting out game cartridges violated any copyrights. Nintendo sued because they found out Blockbuster was photocopying the booklets that came with the cartridges.
Blockbuster recognized that people renting a video game would want the instruction booklet so they could learn how to play the game. The problem was the booklets that came with game cartridges were really nothing more than a few sheets of glossy paper stapled together. They weren’t especially durable, and they were prone to having snacks or drinks spilled on them during a gaming session.
So the booklets frequently came back damaged, if they even came back at all. Frequently, the renters would misplace the booklet or forget to bring it back.
Solving the problem of missing and damaged Nintendo booklets
Blockbuster’s solution was pretty obvious. Photocopy the original booklet, file away the original, and hand out a copy with the rental. If the photocopy came back in poor condition or didn’t come back at all, they could just make a fresh copy for the next time someone rented the game.
Nintendo sued, claiming it infringed on their copyright. Which was a valid point, except when Nintendo didn’t hold the copyright. Which they didn’t always. Nintendo produced many of the NES titles themselves, but over time, an increasing part of its library came from third-party publishers like Capcom, Squaresoft, and Enix. The cartridges came in the same gray shells as a Nintendo cartridge, they contained a Nintendo seal of quality, and except in dire circumstances, Nintendo handled the manufacturing. But the copyright to the game and the manual actually belonged to some other software publisher.
It was a flimsy case, and Blockbuster warned it would have a chilling effect on smaller, independent video stores.
But both companies had too much at stake to risk losing. Nintendo and Blockbuster ended up settling out of court. The result of the settlement was Blockbuster wrote its own documentation and provided copies of those when you rented a game.
Contrary to some speculation online, Nintendo’s lawsuit didn’t bring Blockbuster down. Blockbuster didn’t go bankrupt until 2010.
The effect on Nintendo rentals at smaller, independent video stores
For independent video stores, Blockbuster’s solution was really impractical. The typical two-person operation didn’t have the staffing or equipment to produce their own game manuals. They were too busy running their store.
Most likely, they read about the legal action in the newspapers or in trade magazines that covered the video rental industry. They may or may not have completely understood the nuances of the case, but they found telling customers that it was legal to rent out the cartridges as long as they didn’t give out the manual worked well enough. Most consumers accepted the explanation. They would simply rent the game, and do their best to figure out how to play it. The best games, after all, didn’t need a lot of instruction.
At least in some cases, forcing stores to quit giving out the manuals may have boosted sales by discouraging repeat rentals. If a game seemed promising but too complex to figure out, some people probably did go and buy it rather than renting it repeatedly.
The argument for video game rentals
Nintendo games weren’t exactly cheap. The price varied depending on how old the title was and to some degree, how widely anticipated the title was.
But with a manufacturing cost ranging from $7-$14, a game cartridge didn’t turn much profit unless it sold for $30 or more. That was a fair bit of money in 1989, the equivalent of $75 today.
Of course, there were some games you played over and over enough that you didn’t mind paying $30 or $40 to have your own copy. But a typical working class family, especially a single income working class family, couldn’t justify spending $30 on an unknown title.
So the idea that you could go to a video store, rent a title for a couple of days, and try it out at home was really appealing. If the game wasn’t very good, you were out $2 instead of $30. And if you liked the game but got tired of it after renting it a few times, you still saved money. Maybe you rented the game five times, so you were out $10 instead of $30.
I had friends who got the console when the price hit $100 and they never bought any cartridges aside from whatever cartridge came with it when they bought it. They just rented a game every weekend.
Not a lost sale
And that’s why I disagree with Nintendo’s argument that a rental was a lost sale. The video store owner had to buy the cartridges, so Nintendo got their royalty with the initial sale. If a new title was really popular, they could only rent out as many copies as they had managed to buy. And when a title was low quality, it wasn’t going to set any sales records anyway. People would give it a chance at $2, but after buying a couple too many bad titles untested, they weren’t going to take a chance at $30, at least not very often.
And even though Nintendo did reserve the right to veto certain titles, and they often did, some bad titles still made it through the process. Friday the 13th, Bad Street Brawler, and Dr. Jekyll & Mr. Hyde are three examples of side scrolling fighting games that were confusing and not fun to play. And making a low-res video game adaptation of Where’s Waldo was just a bad idea all around.
And the other thing Nintendo forgot about was the low income families. If it hadn’t been for rentals, the families who were buying the console and then renting may not have bought the console at all. There wasn’t a lot of incentive to save for the console, only to have to turn around and save for weeks or months to buy another cartridge. Without rentals, most would have either gone without, or bought an Atari console, which had less expensive cartridges.
Nintendo wasn’t getting rich off rentals, but they were overestimating the effect on sales. If Nintendo rentals hurt anyone, it was Atari.
David Farquhar is a computer security professional, entrepreneur, and author. He has written professionally about computers since 1991, so he was writing about retro computers when they were still new. He has been working in IT professionally since 1994 and has specialized in vulnerability management since 2013. He holds Security+ and CISSP certifications. Today he blogs five times a week, mostly about retro computers and retro gaming covering the time period from 1975 to 2000.