Used Games: People Are Waking Up


I hate the used game market. I first wrote about last February, but at the time, no one else seemed to care. The "used games are bad meme" is finally starting to build. Folks from Epic, Atari and others spoke out against the practice in recent weeks, while the Gamestop CEO continues to rationalize the value to the industry with voodoo math (In case you are interested, I addressed the flaws in his argument a few months ago.) I guess caring and speaking publicly are steps in the right direction, but the solutions proposed don't address the issue.

The publishers seem to think episodic installments and downloadable content will help, but if they read the message boards, they will quickly learn it will only exacerbate the content. So long as we have trade in value from Gamestop, games become depreciating assets. Gamers are getting a quick lesson in beginning economics. The game is burning value as it stays on the shelf. Each day they way the value to them of keeping the game, against Gamestop's posted value for a trade in and the currently available new games. The quicker they turn it in, the more money the get, the more popular game inventory Gamestop has and the less incentive Gamestop has to re order. It is a great cycle . . . for Gamestop. Contrary to Mr. Gamestop CEO's assertion, games do not have an inherent residual value of $20. Gamestop creates a residual value, along with an incentive to return the game as quickly as possible to maximize the value. Downloadable content plays directly into Gamestop's hands.

With the exception of Rock Band and Guitar Hero, DLC expansions are delivered no more than quarterly after the release of the game. The value of keeping the burning asset on the shelf is not increased by DLC. It is undermined by the gap in time between initial release, and expansion release. By the time the expansions are released, the value of the game at Gamestop has declined significantly, allowing the gamer to repurchase the game to take advantage of the DLC, and return it to the store for another credit. Chaching, chaching for Gamestop on two sales, nothing for the publisher. In an even uglier scenario, the gamer just throws the game back into their Gamefly cue. Publishers may feel they are making money on the downloads, and they are, but downloads only have value after the significant investment made in the initial release - the one suffering from a lot of lost revenue. Moreover, DLC is selling into less than 50% of the initial purchasers and in most cases less than 20%.

We have to treat the disease, not the symptoms. We cannot accept used games as a fact of life. We must take a stand against it. There are a couple of ways to address the issue.

The obvious answer is to make all games downloadable only. It would be great to be able to convert on an impulse directly from a demo. Technologically, it is more than feasible. Practically, it is just not. The biggest problem is we don't have the technology to download a console. Every time the download issue arises, the retailers threaten to stop selling consoles. The downloads will happen eventually, but, like the music business, it will be in the form of a tidal wave hitting the shore, slightly later than it should. Because we can't flip the switch and go download, we have to look at other options to make sure we still have a business when download time comes.

First, don't sell to Gamestop. I am not talking to consumers, I am talking to publishers. It will hurt in the short run, but not as much as you may think. Gamestop sells a lot of games, but when we factor in the losses from used games and MDF paid for every corner of the store, the margins are lower than other retailers. Gamers go where the games are, and if Gamespot doesn't have the new games at release, they will stop going to Gamestop. Most of the lost sales will be made up by other retailers. You may argue about not being able to hold price at Wal Mart or Best Buy, but the increase volume from consumers who no longer buy at Gamestop will allow you to maintain price longer. It is just supply and demand. The gamers learned about it, publishers should too.

Okay, how about something a little tougher to implement, but a bit more palatable. Make games valuable only to the initial consumer. It is kind of like EMA's proposal for activating games, but uses Gamestop for promotion the same way the MMO companies used Chinese software pirates. What would happen if the first purchaser was able to play the whole game, but any subsequent purchaser could only play as far, or with the assets, the publishers wants them to use? A purchaser of a used game would be able to use console stored value points, or a toll free number if not an on line subscriber to unlock the balance of the game. If this sounds familiar, it should. iD used this model with Doom and it changed the business. Consumers will dictate a reduction in the price of the limited game, making it a more attractive purchase, reaching a larger audience. If the game unlock is set at $26, or about the amount the publisher take to the bottom line for full price unit sold at retail, the publishers will receive the currently lost revenue and the Gamestop price could be reduced to roughly the same amount, and no one would care. Some people won't convert because they won't like the game or they may be sated by the shortened experience. But the revenue received from the conversions which do occur is revenue which would otherwise have never been received. Gamestop becomes a promotional partner rather than black hole of revenue. The reduced price will enable the game to reach more people than even the fully accessible game. Which gets me to the final point.

When you point a finger at someone you are pointing four at yourself and this is no exception. At 59 USD games are the most expensive piece of media sold to consumers. The home video market started with a price point of 99 USD and consumers largely yawned. Sales were in the tens of thousands. When prices were reduced to 19 USD the numbers climbed to the millions. The used game market exists in no small measure because our games are too expensive. People don't like paying so much. I hear the arguments about how expensive production is but movies cost more. We can get rid of institutionalized used games, day and date rentals, explore new windows, release less expensive bits episodically and more. In other words, think of ways to grow the market. When Take Two did it with their Madden killer they made the first in roads against the greenest of EA Sports evergreen franchises.

Again, simple economics - supply and demand - prices go up demand goes down. Some may argue the elasticity of demand is small on something like a game, but I do not believe. Nothing in America is perceived to have a lower elasticity than gasoline, but when we saw a significant rise in price, we saw the first demand reduction in history. We determined the value of a gallon of gas and it was less than the one set by the market. Game sales considered as a function of installed base are stagnant from cycle to cycle and year to year because the price is stagnant. We spur demand by console price reduction, but not front line games.

Not that we've woken up to the disease of used games, let's work on the cure.





Comments

Mike said…
It's still a catch-22, though no? The only publishers big enough to be able absord the short term losses of cutting out Gamestop are the one's with the least incentive. Could Midway realistically launch MK vs DC in Best Buy and Wal-Mart? Could they afford to gamble when every game they release is an existential gamble to begin with?
Anonymous said…
what about ebay? what about the time i sold my copy of bomberman on the SNES to my neighbor?
Jim d said…
You know, as a consumer I am getting pretty sick and tired of publishers and developers railing against the used game market. Honestly, how dare you try to suggest that it is a bad thing to be able to sell something that *I own*. It belongs to me and it should be my choice and only my choice if I wish to sell it to somebody else.

I'm sure that game publishers would be thrilled if the used game market died. Then again, I'm sure that book publishers would be thrilled with the demise of used bookstores and the auto-industry would be thrilled with the demise of used car lots. Fortunately for consumers, publishers can't dictate such nonsense.

If the industry is being so hurt by used games, why is it still one of the few growth industries in the midst of a global economic recession? It's not consumers that need a wake up call: publishers and developers need to wake up and realize that anti-consumers actions such as killing the used-game market will ultimately harm the industry as a whole.
Keith said…
Anonymous and Jim, thank you for your comments.

I am not condemning sale of your own games. That is why I said "institutionalized" sale of used games. To some degree Gamestop actually blocks the sale of new games by offering the sale of a used one at a discount every time a consumer makes a purchase. This is A LOT different, than an individual selling to a friend or on ebay.

To Jim's point, I am not suggesting the consumers wake up, I am speaking to publishers. Consumers are taking advantage of an inefficiency. It is simple market economics. This is also why I suggest the publishers are partially to blame for pricing the games at a point that created the market in the first place.

As far as the industry being hurt, games take a couple years to make, so the hurt happening today, won't be felt in the market for a couple years.
Anonymous said…
maybe people need to figure out how to make games less expensively...
Matt said…
Perhaps I am reading your posts about gamestop selling games wrong, but why as a consumer should I feel sorry for game publishers in regards to this, because I certainly don't. I don't even purchase used games and I feel that publishers complaining about this issue is appalling. To reiterate what JimD said. Should I feel sorry for Random House or Penguin when the used book store down the street from me sells their books at a fraction of the original price? This all just sounds like whining from the game publishers to me. Mike Capps from Epic Games complained about the used game market being a "huge issue" about a month ago. http://www.gamesindustry.biz/articles/second-hand-game-sales-are-a-huge-issue-epic Do you think that the used game market or day and date rentals have hurt his company's newest game? http://www.edge-online.com/news/confirmed-gears-2-passes-3m Lastly, I buy most of my games from gamestop, but I am never, never asked to buy a used copy of a game. I never hear the employees pushing used games on other customers. Even if they did I wouldn't shed a tear for the poor ole' publisher and his lost money. Jesus you make them sound like mom and pop stores being run out of business by evil corporations.
Jim d said…
@Keith: I'm no fan of Gamestop, but I'm not convinced that they are the enemy that publishers make them out to be. While they prominently feature used games, they also carry a lot of product that a large retailer like Wal-Mart or even Toys-R-Us would eschew in favor of more popular, "blockbuster" titles. Do you think that you're going to find Korg DS at your local Sam's Club? No.

Plus, I'm like Matt in that I tend to not buy used. To me, the price advantage just isn't worth it. And this is an area where Gamestop's greed probably helps the publishers more than it hurts it: would you rather spend $60 for a new game, or $55 for a scratched disc and a scuffed up (or missing) instruction booklet? If gamestop really wanted to put the screws to publishers they'd sell used titles at 50% the new price.

I do sell my games, but this is typically to help in buying new titles. If publishers are successful in restricting the used game market (even if only the "institutionalized" used market) the result will be that I buy games less often. I suspect that many people are like me in this respect.
ColbyCheese said…
My, my, my. We seem to feel...entitled, don't we?

I find your assertion that the game publishers have "lost revenue" somehow through the used market, quite frankly, ridiculous.

It was YOUR choice to throw the digital equivalent of a wad of used chewing gum onto a disc and declare that it's gone "gold". Since you created the thing, you got to set the price. Most of the time, that seems to be $50. If I don't think your title is worth $50, you're not getting my $50. Period. It doesn't matter if you break the game up into 5 x $10 pieces or 2 x $25 pieces. If I don't want it, I won't buy it, and you are not ENTITLED to my hard earned money.

Having said that, if someone else decides that they want to get rid of their copy of the game, then there's nothing wrong with me buying it for $20. Maybe it's only worth $20 to me. Maybe I don't really care about ambulatory bean-bag people or whatever flavor-of-the-month gimmick you've come up with this time. You already had your chance to sell it to me for $20, but you decided that it was worth more than that, so you chose to exclude me as a customer.

That's 2 opportunities that you, as a game publisher, have had to influence money leaving my pocket and jumping into yours. If you've screwed it up twice already, what makes you think that you're entitled at another chance to get into my wallet?

This kind of ridiculous talk smacks of a lack of appreciation for the actual consumer. It's becoming painfully obvious that the games industry that I've been pouring money into for the last 20 years is dead and gone. Those people actually wanted to make games and entertain people. This "new breed" of game industry representatives seems to be a bunch of expensive empty suits that are more concerned with making the payments on their Lamborghinis and entertaining their 19 year old "girlfriends".
Michael Miller said…
I think whatever measure publishers take against the used games market, they need to be really wary of pissing off the consumers. The 'more palatable' proposal reeks of the kind of DRM that has PC gamers up in arms, and going to torrents. Regardelss of its intentions, it would stop such things as selling games on ebay, lending to friends, re-installing on a new machine etc. You really want to start this up with console games too?
Anonymous said…
The problem I have with those who condemn used game sales in general is that, without exception, they all conflate Gamestop's actions with those of the entire secondary market. There's more to used games than just one chain.

What about independent game stores that deal in games dating all the way back to the Atari 2600? (Yes, these do exist, though they are few and far between.) Or direct person-to-person sales via eBay, Amazon Marketplace, Goozex, etc.?

When I buy anything, including games, I think long-term. Very long-term. As in, I would like to be able to play this game twenty years from now if I want to.

If we get rid of physical copies, what happens when the content server finally goes offline? Games that need to be activated, can't be. New players who want to try older games can't buy them if they're download-only. And if I downloaded the game, the server goes down for good, and then my device fails - what then?. With physical media, I can buy a replacement device. With device-locked and DRM-ed downloadables, I can't.

The game industry already has a disturbing tendency to actively erase its own past. Most games have print runs measured in months, and can often only be available used. Ports are not a possibility if the original source code has been lost (this has happened to Panzer Dragoon Saga for the Sega Saturn).

That's my primary interest in the secondary market. I've been able to discover older games that I missed the first time around, and in cases where these games were part of an active franchise, it has encouraged me to buy new installments in these series - at full retail from a store whose name does not end in "stop."
It disturbs me that there appears to be a monolithic thought process in the games industry inquiring into how to circumvent the first-sale doctrine. A game company can implement all the DRM-gymnastics it wants at the blame of GameStop, but bottom-line is you really hurt gamers -- even if you are dropping the price. Like someone alluded to earlier, this really kills a game's long-term replay value, accelerating games into de facto abandonware when the next-gen console or whatever becomes available. On a rare occassion, I love playing me some Alpha Centauri -- I don't know if that would be possible if it was made under your scheming.

You speak of economics. You state the fact that games are much too expensive. But you really only gesture to the fact that the publishers are solely responsible for the institutionalized used game market. At $60 a game, used games go for what? $45, $40? GameStop buys games at about $20 you say? That is a huge markup. It is not just consumers that are taking advantage of a market inefficiency, it is GameStop as well. If games went for $30 or $25, there would hardly be any wiggle room for any retailer to make anything but pennies off the used game market. I refuse to blame and demonize GameStop for being good businessmen (at least in this respect).

In principle, I think you are right that it is inefficient to have a middle man here (ie a retailer). But I don't think purely downloadable publisher-centric games is a way to go. Maybe some kind of hybrid: buy a shortened version of the game to be immediately downloaded, ship the full game straight to the consumer. Obviously some problems with this too, but just try not to forget us, the gamer/consumer, when people like you decide what the new model will be.
Meyaden said…
ColbyCheese said...
"That's 2 opportunities that you, as a game publisher, have had to influence money leaving my pocket and jumping into yours. "


I have no solid opinion on the conversation as a whole; however I do have an opinion about fairness and flawed logic. You state that you gave them two shots at your money when you only listed ONE. When you buy the game from your friend the game company is not involved. I know this is nit-picking, but if you are going to rant, then rant accurately. :-)

Your scenerio gave them one shot at your money. You didn't want to give it to them, that is fine. :) Just keep your numbers straight.
Craig said…
It really makes you wonder... Are there any MBAs at all in the industry? I mean, I'm only an undergrad marketing major in my sophomore year, and even I know that you don't set price based on cost, but on what people are willing to pay.
GeX said…
Meyaden said...
"You state that you gave them two shots at your money when you only listed ONE."

I think he also meant the chance to repackage the game as a "gold" or "platinum" title as a missed op.

...personally, I've dumped thousands of dollars into new games.

I find it outrageous that publishers feel they haven't been given their dues. How many people are going to pay $60 for a (broken) game they know they can't take over to a friends house? Why do you think all DLC I've seen is under $20? How many different times have I bought the rights to play pac-man on every frickin system? Excuse me, but this crap about the poor publisher can kiss my crack.

If you feel a store is "stealing from you" in some way, print out a crapload more disks and sell them cheaper. What does a dvd cost to make nowadays 25 cents?

You CAN'T be serious...

Heck you could do like the movie industry did, sell the reprints for 5 bucks. I've even seen (brand new) movies for 1 buck.

If you don't want to compete, there's noone to blame but yourself.

Honestly, I think the games industry would crash if gamers got ticked enough. I can outlast any publisher in the waiting game. Go ahead, destroy the used market, the other one will follow. It'll be just like 83 only funnier.

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