Well, it's been awhile coming, but here's the article that I promised Ozymandias regarding region coding for console games.
Personally, I'm against region coding. I feel that the benefits to publishers are far outweighed by the negatives for publishers, retailers and customers, but I always try to understand both sides of the debate.
Region coding does have some benefits. First, it helps limit the damage that can be caused by professional pirates. When the French version of "Halo 2" was leaked, it was only playable on modded Xboxes, and if it was pressed to a disc by an unscrupulous distributor, it could only be played in European Xboxes.
Second, it can help you comply with the laws in certain countries. If you want your game stamped as playable in a region, you have to provide a copy of the rating certificates from that region to the console publisher. In some countries, distribution of a title that has not been submitted for certification or rating can be an offense punishable by fines or jail time.
Third, licensing restrictions. There may be times when you just can't get the rights to distribute certain assets outside of your region. A good example would be a licensed song for a soundtrack. U.S.-only licensing of that song may only run $30,000 for the SKU, but worldwide licensing would run over $100,000. The potential extra sales may not offset the extra cost.
Fourth, it allows staggered releases. This is a big thing with movie tie-ins, especially. Since movies are not always released day-and-date worldwide for a variety of reasons (the local markets may be saturated during the U.S. release window, or there may be a more opportune window overseas), being able to lock the title down to a released region often increases sales in a region.
Fifth, it can allow a customized experience for a region. There may be times when a title would sell better in other regions with a few minor changes, like swapping out realistically proportioned faces from the U.S. release to more anime-styled faces for the Japanese release. (This was done for at least one title because focus testing in Japan showed hatred towards the characters because the smaller eyes indicated hostility.)
Finally, it can allow interest in other regions to be properly gauged based on the release in other regions, and allow me to make the proper number of units. More on this in a second, because it leads to my reasons to dislike region coding for console games.
The first thing I have against region coding is the cost for the developer and publisher. Each region-coded SKU is a seperate SKU for a console game, and each console SKU has a minimum disc order. For each disc pressed, some money goes to the console manufacturer as a licensing fee for allowing the game on the console. Let's say that the minimum order per SKU for console X is 100,000 units. The COGS for the manual and disc are about $4 a unit, and the console manufacturer's non-refundable royalty would be about $10 a unit. In other words, that's a $1.4 million outlay before I've made dollar one on the title. If I'm shipping in three regions, that's 100,000 units minimum per region, or $4.2 million minimum outlay. (To be fair, some console manufacturers are allowing discs to be authorized for multiple regions, so you can have a disc that will play in regions 1 and 2 but not 3. For those manufacturers, the minimum order applies to the disc, not the region.)
The second thing I have against region coding is that it short-circuits customer choice. While it may be illegal for us to distribute our titles in certain regions or the licensing costs may be prohibitive towards release in a region, the weird thing is that it usually isn't illegal for people in those regions to import the titles. People in Germany can still buy titles that are denied classification. We may not actively distribute the title there, but they can purchase it themselves. As a gamer, there are tons of quirky Japanese titles I'd love to import, but can't because none of my consoles are modified, and I don't feel right using some of the "hack discs" that are available.
The third thing I have against region coding is the support costs. Each SKU generally gets a seperate media ID from the console manufacturer. These media ID's are used for matchmaking and updating purposes. If I split my SKU's, it becomes harder for me to allow cross-region matchmaking, and the work necessary to master the game and create any updates increases geometrically by the number of regions we are going to release in.
So while I'm personally against region coding in most cases, I can see certain circumstances where region coding your media would increase sales. However, those circumstances are generally so few and far between that I really can't see them outweighing the benefits from a lack of region coding.