In a scene reminiscent of last year's pre-holiday releases of Nintendo's Wii game station and Sony's PlayStation 3, video game enthusiasts lined up for their chance to purchase the latest version of the popular video game Halo in September. The interactive video game, the final chapter in a trilogy that began in 2001 with the launch of Microsoft's original Xbox game console, surpassed $170 million in sales on the first day it hit the market, making the game the biggest entertainment launch ever.
But with all the hype about the game's lifelike images and dramatic story line, one factor was overlooked: the daunting security challenges presented by a launch of this scale. Theft is an ever present concern with video game distribution—industry statistics show that approximately 10 percent of new releases disappear into the black market. A high-profile launch like Halo 3's only ups the ante, essentially presenting Microsoft's distribution team with a challenge on a par with Master Chief's quest to save the galaxy from predators one more time before riding off into the sunset.
"The early shipments of Halo would be gold dust to thieves, so we did take a few extra measures," acknowledges David Warrick, general manager for Microsoft's entertainment and devices manufacturing and supply chain group for the Europe, Middle East, Africa, & Asia Pacific regions. Specifically, Microsoft employed third-party freight security firms to help it understand the risks involved and recommend best practices. It also worked directly with carriers to create security plans, which included the use of convoys as well as GPS tracking devices.
All in all, Warrick reports, Microsoft spent at least 12 months laying out its distribution strategy in preparation for the launch, which represented the video game industry's equivalent of this summer's Harry Potter book release. Included in the deliberations were numerous sessions that focused on security.
Right now, Microsoft and other entertainment industry players have little choice but to spend millions of dollars on security each time they release a new video game or movie. But relief might be on the way. An emerging RFID-based tech-tion, the technology could be used to secure shipments of nology is showing great promise for discouraging theft without sending costs into the stratosphere.
The new technology differs from traditional RFID-based security applications in one important way: Rather than simply leveraging the technology's tracking and tracing capabilities, it also makes use of its capacity to activate and deactivate electronics. In other words, it allows suppliers to disable items like video games, DVDs, and consumer electronics while they move through the supply chain and onto store shelves. Once a consumer has paid for it, an item can be scanned and reactivated at the point of sale in a matter of seconds. The idea is that thieves will have no incentive to steal a pallet of goods from a DC or a tractor-trailer if they know the product won't work.
With the new system, which is being developed by San Francisco-based Kestrel Wireless, an enhanced RFID chip is embedded into the product at the point of manufacture. The RFID chips used for this purpose incorporate innovations such as RFA (radio frequency activation) specific activation logic; protected memory to support security requirements; power outputs to manage an external activation switch; and connectors for an external antenna. Of course, these enhancements come at an added cost. Altogether, they add about 20 percent to the cost of an RFID tag.
Though video games and DVDs are an obvious application, the technology could be used to secure shipments of a wide range of electronics, says Frank LoVerme, senior vice president of business development at Kestrel. He says the system would work for anything that carries a power switch, including television sets, printers, and video cameras. Many of those items are now manufactured in China and other overseas locations, which holds down costs but increases their exposure to theft and pilferage. "Consumer goods that are manufactured in China are at risk of theft every step of the way along the supply chain," says LoVerme, who adds that the cost of insuring these items can be prohibitive.
LoVerme says that radio-frequency activation technology offers other potential advantages as well. For example, by minimizing the threat of pilferage, the technology would allow manufacturers to simplify packaging and eliminate waste. In addition, it would allow products to be displayed openly, rather than under lock and key, in venues like grocery stores, which would encourage more impulse buys.
Kestrel is in the process of recruiting retailers and consumer electronics distributors in the United States and Europe for a pilot program that will get under way early next year. A major U.S. grocery store chain has already agreed to test the technology, and Kestrel says it's close to reaching agreement with a big electronics retailer to participate in the project.
Many happier returns
Potential applications for the RFA technology aren't limited to security. The technology also holds great promise for slashing product return costs, particularly for DVD producers, according to LoVerme.
For DVD makers, reverse logistics costs can be an enormous financial drain—the cost to return a single DVD can exceed $1, which is more than it costs to make it. And with return rates on new releases running as high as 30 percent at big box retailers, the expenses mount up quickly. There's little chance manufacturers will recoup those expenses—studios acknowledge that they end up destroying about half the returns.
RFA technology could eliminate a step in the returns process by killing the release at the retail site. That would allow it to be shipped directly to a materials recycler, instead of going back to the manufacturer before being sent on to the recycler. Streamlining the process would reduce manufacturers' costs and spare retailers the headaches of securing the products in their DCs until they can be returned. There's another potential advantage as well. Theft in the returns channel tends to be high, often leading to disputes between retailers and manufacturers when they go to settle their accounts. RFA technology could eliminate that problem, too.
The technology could also be used to increase retail sales without increasing logistics costs. For example, when a new movie is released on DVD, it may be bundled with a downloadable version of the movie's soundtrack, which is not part of the original DVD purchase. When the consumer takes the movie home, he or she could then use a near-field communications-enabled cell phone to authenticate the DVD to gain access to a restricted music download site, where the soundtrack can be purchased for a specific fee. The retailer gets a percentage of the sale from the download—with no added logistics costs. Kestrel's network tracks and limits uses of the soundtracks'"rights certificates" and reconciles the number of uses per licensor for settlement.
While all of this might sound like science fiction, Kestrel executives say the technology is just around the corner. In fact, they plan to follow the retail pilots with a commercial rollout late next year.
Though he's careful to stress that the technology is still in the early stages and has yet to be thoroughly tested, LoVerme reports that it is generating a lot of excitement. "Everybody wants to shake out the system and see what the details are," he says. "The attraction for some suppliers is to get in on the ground floor and [help influence the technology's development] as well as get a head start on the competition as far as merchandising opportunities."
Security experts, however, advise shippers to use caution when evaluating new technologies designed to enhance security.
Barry Brandman, president of Danbee Investigations, a Midland Park, N.J., firm that provides investigative, loss prevention, and security consulting services, says that his company endorses the use of technology in security applications, but warns users that many technologies are over-hyped in terms of applications and reliability.
"While I can safely say we do support and utilize a good deal of security technology, at the same time, the old expression of caveat emptor is extremely relevant," he says. "There are a certain percentage of providers introducing new technologies as a silver bullet, but no silver bullet exists. If it did, everybody would have it in their pocket."