Gamestop: Used Games, We Just Can't Quit You Edition
After realizing my call for the destruction of Gamestop was for naught, I had to come to terms with the need to accept their business model as a fact of life - even though they are killing the geese who so lovingly innovate, fund, develop and so lovingly deliver golden eggs into their grubby, cold, clammy, unappreciative hands. I even moderated a panel with Gamestop's CEO, and kept my opinion to myself . . . mostly. But do I really have to accept their repeated efforts to persuade us their actions are good for the business. Does the crack dealer stand on the corner and say he is enhancing the junkie's lives, or does he just take their money? Gamestop senior executives do understand that if they have to keep repeating that their actions are good for the industry, they are probably not good and constant repetition will not make it so.
In a recent interview in Edge, Mike Mauler, EVP of Gamestop International said:
"I can understand the feelings," he tells us, "[but] we've sat down with developers and publishers and really gone through the data. I personally think there's a lot of benefit to the publisher.
"A great example is sequels, where there's a large percentage of people who are just not going to spend $60 every single year without being able to do something. They'll look at their shelf and see ten FIFAs, Pro Evos or Maddens.
"Being able to take the older one and do something with it in order to buy the next version is really important to consumers. That drives new sales quite a bit."
To say this is the stupidest thing I ever heard would be an insult to the memory of the pitch I heard for the sperm racing game. This whole new level of stupidity is inconsistent on it's face. He explained the data TO developers and publishers and HE personally thinks there is a benefit? He could not say the game makers see the benefit. He may as well have said he spoke with the plant in his office - or the other EVPs.
I understand they can no longer spew the used car analogy with a straight face, but couldn't they come up with something better than the rest of the argument? The sentence seems to be missing a few words "a large percentage of people who are just not going to spend $60 every single year IF WE GIVE THEM THE OPPORTUNITY TO SPEND MUCH LESS." Isn't this like saying, no one will pay to see Transformers 3 because they just saw Transformers 2 a couple years ago? If Gamestop was not reselling these games at 10% off the very same week they come out, and less every week thereafter, consumers would be pay the USD 60. Those who won't pay will go online and download the older version on XBL or PSN, where the publisher who funded the game and took the risk can be properly compensated. Gamestop, or should I say the Mother Theresa of the game industry, is really not helping anyone by taking the old games off their hands, or capturing all the money they generate. We still get back to the fundamental fact that publishers take risk to make and market games and only get paid on the one sale, while Gamestop profits from multiple sales of the game. Each downstream used sale is one less unit sold by the publisher and therefore less revenue on the game. This impacts initial sales as well as re orders. A healthy stock of used games means Gamestop will not reorder from a publisher.
If this was the whole picture, I could stop here, but you know my posts are never this short. It is time to for Gamestop to fess up and acknowledge their real business. Relative margins reveal Gamestop's actual business to be the collection and resale of used games. New game and accessory sales revenue may equal or exceed the used game revenue, but they do not come close to matching the profit. The stock of used games is financed by the very publishers who are being harmed by the market. They put up the risk capital to make and market the game and put the unit on the shelf. Publishers receive a one time, per unit fee for putting the game into the Gamestop system and are required to pay marketing development funds to Gamestop to have posters and other promotions in store. But Gamestop does not pay for the games, customers do. Gamestop only provides credit until the games are sold. The consumers' payment covers Gamestop's initial outlay, plus a profit. Because Gamestop pays on terms, the consumers' money is in the bank before Gamestop ever makes a payment on the new game units. If the consumers do not sufficiently cover the expense, Gamestop will call on the publishers for price adjustments and protection. While this business shows a profit with no downside risk, the entire retail side is merely a highly cost effective way of funding the used game inventory. To ensure return of the games, consumers who buy a games are bombarded with offers to turn them back in for credit. Each turned in game builds the used inventory, at no cost to Gamestop. When sold, the only person receiving the benefit, is Gamestop. When I put it this way . . . . I don't want to say it sounds like laundering, but . . . . . They take a game unit a publisher should get paid for, run it though a consumer, and turn into a game unit they can sell over, and over, and over, and over without compensation to the publisher.
I feel better now.