More Misplaced Hatred For The Used Games Market

from the learn-some-economics dept

I’m constantly amazed at the general cluelessness of the video gaming industry on basic economics concerning the concept of the first sale doctrine and the ability to resell a product. More than pretty much any other industry, the video game industry is vehemently against the idea of reselling used games. They’ve claimed that it defrauds the industry, that it hurts consumers (say what, now?) and that it “cheats developers.” All of this is ridiculous and economically ignorant.

The latest to jump into the fray, as pointed out by Copysense, is some industry consultant who basically calls used games sales by Gamestop a version of money laundering:

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.

Of course, all of this is based on faulty economic theory. They all seem to ignore the fact that a healthy resale market increases primary market sales, by making the primary sale more valuable. It’s a pretty simple equation. If I can buy a $60 game, knowing that I can sell it back later, that reduces the risk and the real “cost” to me. That increases sales. Separately, a strong resale market has other secondary benefits, such as hooking people on series of video games, so that they’re more interested in buying the “new” (full price) versions.

But, overall, what these gaming industry execs and consultants are whining about is that they just don’t like a free market where they can’t artificially inflate the market price of games even higher. The used market acts as a check on the primary market to keep it realistic. And, as a result of a more efficient market, you actually have a bigger market. Those who assume that demand is totally inelastic think this is bad, but they don’t recognize that game buyers have choices, and one of those choices is not to buy games that are too expensive. It’s not fraud and it’s certainly not money laundering. It’s called keeping a market healthy.

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Comments on “More Misplaced Hatred For The Used Games Market”

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117 Comments
khory (profile) says:

Re: Re: Re:

Sell it at a loss??? Games I buy always cost $60! How is that selling at a loss??

The new titles sell cheaper is when they are terrible games people won’t buy at that price. In those cases the publisher should be happy to sell units at any price. Gamestop probably wants to recoup anything, even at a loss, to get those stinkers off the shelves.

You can’t publish a weak product and expect to get top dollar!

They also ignore the fact that games that are good/have demand sell used for very little discount. Theres not much incentive to buy those used. I (and many others) prefer new in those cases.

John Fenderson (profile) says:

Re: Re: Re:2 Re:

but his article seems to imply that Gamestop asks publishers or some sort of reimbursement or something if they have to sell games at a loss.

I don’t know about the specific terms Gamestop has with distributors, but I’ve been selling software through retail channels for a long time and can say how this sort of thing usually works: if a store is taking a loss selling the product, they don’t come back and ask for reimbursement for units sold. They stop selling the units altogether and then return the unsold units for reimbursement.

If distributors have a different deal with Gamestop that allows Gamestop to get compensated for units sold below their cost, that’s the distributors fault for entering into an insanely bad and unusual business deal. I really doubt that the terms with Gamestop are that far out of kilter from the usual deal.

Anonymous Coward says:

“If the consumers do not sufficiently cover the expense, Gamestop will call on the publishers for price adjustments and protection.”

This seems to be the nub. I don’t quite understand what he’s getting at there.

If he’s saying Gamestop sells new games below cost then asks the publisher to make up the difference (then, once that is done, makes money off the resale of the used game it claims it didn’t profit on initially), then he’s kind of got an argument.

Of course, the publishers could just not agree to adjust Gamestop’s price based on such claims of loss.

khory (profile) says:

Re: Re:

I think it depends on what the publisher determines the cost to be.

If a game is crap and doesn’t sell, Gamestop doesn’t want to pay the same cost as a AAA blockbuster title because they can’t sell it at the same price. To move the shitty titles at all they have to cut prices below what the publisher wants.

Publishers over-value a lot of what they produce. They produce a lot of crappy titles and expect to rake in the same price per unit as Call of Duty or other successful titles.

Kelly says:

Re: Re:

“If the consumers do not sufficiently cover the expense, Gamestop will call on the publishers for price adjustments and protection.”

It sounds to me like the publishers are selling games on consignment. Gamestop tells the publishers how many copies of a game they are willing to stock, and the publisher ships that many. Unsold games are later shipped back to the publisher, and Gamestop only pays for games sold. It’s a common enough arrangement for music CDs and paper books, so it doesn’t surprise me that it’s used in the game publishing industry.

Under the consignment system, the publisher is the one taking most of the risks. Unsold games are the publisher’s problem, not the retailer’s. The publishers could simply tell the retailers that they will no longer sell on consignment, and the retailers have to pay up front for every copy ordered. That would shift much of the risk from the publisher to the retailer. I’d expect to see a massive lack of interest from the retailers on that, and the publishers know it too.

Instead, the publishers are trying for a new system. They want to be paid in full whenever a new game is sold, then paid again and again and again every time that same, paid for, game is resold.

I can see a number of problems with this, starting with the fact that there’s absolutely no law that requires it, and quite a bit of case law and precedents that say it’s not required.
But what would happen is if there was such a law? Would it apply only to big retailers? If that’s the case the used game market would simply move underground to flea markets and garage sales. If it applies to everyone, what do I do with the box of old games I happen to have sitting in the garage? Do I have to go on a title search every time I want to hold a sale to clean out the garage? Any sort of “resale royalty” law is likely to bring the whole “orphan works” problem from copyright, and apply it to the resale of physical items.

Jeffrey Nonken (profile) says:

Re: Re:

I’m going to use your remark as a springboard here:

“If he’s saying Gamestop sells new games below cost then asks the publisher to make up the difference (then, once that is done, makes money off the resale of the used game it claims it didn’t profit on initially), then he’s kind of got an argument.”

Depends. Is the publisher asking Gamestop for $1000 per game? $100? $10? $1? If the publisher is pricing the game too high for the market (or at least too high for Gamestop to make a profit while selling it at a marketable price) and Gamestop is adjusting for that, the lines of responsibility start to blur.

But even then, assuming you’re correct, what he’s saying is that Gamestop is behaving unethically regarding the initial sale — which has nothing to do with their making profit on the used game market. It may be maddening and hypocritical, but the answer is not to try to cripple the used game market, which they have no legal or ethical control over — it’s to fix the pricing issues on the initial sale, over which they have both.

Otherwise you could take that one step further and claim that by buying the game at an artificially low price (what Gamestop is charging me) and then selling the game later, I’m a party to the same (illegal and/or unethical) act, even if I don’t happen to sell the game back to Gamestop.

Sorry about Yet Another Car Analogy, but Fo… Chr… uh, hmm, GM didn’t get to profit when I resold my old Nova. Krups doesn’t get a cut if my coffee maker goes for $15 at a yard sale. I got a really nice used microwave for $30 once; Samsung didn’t get a dime, nor did they expect to. And Sears isn’t knocking at my door with a cease-and-desist (or my neighbor’s) because I bought my neighbor’s old router. (Wood, not network. ๐Ÿ™‚ A large percentage of the books in my collection were purchased from perfectly legitimate used book stores. I’ve been known to sell books to them. Neither Daw nor Tor nor Baen nor et.al. have been trying to shake them down that I’ve heard of.

If the gaming distributors have a problem with the way Gamestop is selling new games, then they should address that problem, not try to use it as an excuse to get a cut of the used game market. If they want a cut of the used game market they should set up a used game exchange. You know, like Gamestop has done.

“Of course, the publishers could just not agree to adjust Gamestop’s price based on such claims of loss.”

Or some other change in the arrangements, but yes. That would qualify as addressing the correct problem.

Anonymous Coward says:

Re: Re: Re:

So what are they complaining about then?

I’m sure if they wanted to they could absolutely find a way to deal in their own used games, some kind of trade-in service, added value for repeat customers, etc.

This might result in having to lower the price of new units to make them more desirable than the pre-owned, however, and they would never want to do that.

Such a quandary – pirates or consumers, both are eating them alive.

EA is clearly suffering: http://investor.ea.com/releasedetail.cfm?ReleaseID=594196

The eejit (profile) says:

Re: Re: Re: Re:

Well, that’s mostly because the people who run EA are boneheaded, money-grubbing parasites who mooch off of others’ works.

Case in point: their upcoming Origin “service”, which isn’t an opt-out service. EA games, from The Old Republic to Mass Effect 3 to Battlefield 3. It tracks your application usage, your registry and then EA have the right to sell hat information to advertising companies whether you like it or not once installed.

When your company relies on the malware model to support its infrastructure costs, then doesn’t reduce the cost of its games (both online AND offline), then most consumers have a problem.

Anonymous Coward says:

Re: Re: Re:2 Re:

Damn you, eejit, I was going to work the OhDRMigin stuff into my post but couldn’t come up with an on topic closer. ๐Ÿ˜‰

Well done and agreed. EA is clearly not suffering from the resale market (left off my /s up there), but a chronic incapacity to respect paying customers.

Gamer #2,746,943 says:

Re: Re: Re:3 Origin & EA & Schemers

Sigh, the future is looking darker each day. I’ve been playing video games since the early Atari 2600 days, and despite the fact that I’m a proud pirate, there isn’t a single game I haven’t paid for. The majority (about 70%) are new too, not used, and I don’t sell them. I keep them for posterity. You should see the mountains of jewel cases I have.

Sadly, I fear those days are coming to an end. I’ve dealt with endless DRM issues over the years, and on more than a few occasions I’ve had to use a crack in order to play the game I legitimately paid for.

I’m fed up. I’ve had enough. I’m trowing in the towel. I will NOT put up with invasive DRM, nor will I put up with their “requires a code to play” pay to play scheme on used titles. If the only way to play games in the future is to pirate it, then that is what I’ll do. Games keep me sane. They help relieve stress. I had no problem supporting the game industry because I truly, honestly cared. But if they are going to piss on me, a loyal customer, then f^ck them and the horse they rode in on. This camels back is officially broken.

Anonymous Coward says:

Re: Unpaid EA

I think the general answer to your question is the “free” part of “free market.”

More specifically, the creators got paid on the initial sale and gave up their rights/control over the physical copy of the game they sold. They could compete in the resale market if they want a cut, or they could even include resale restrictions in the initial license (i.e., turn it from a sale into a license).

David Liu (profile) says:

Re: Re: Unpaid EA

They sorta already do; they provide one-time use codes (to provide access to major parts of gameplay, or the online portion of the game), depriving the used copy of the code. This effectively turns it into a license.

And this is only for console games. On PC, it effectively already is a license market, since digital distribution controls the lion’s share of the PC game market, and everything there is a license rather than a sale.

Anonymous Coward says:

Re: Re: Re: Unpaid EA

It’s easier on a PC because it’s not tied to the hardware. On a console, any DLC or first-sale feature is tied to the console itself. On a PC, it’s tied to an e-mail address. Set up a separate account for each game download and you can sell the account.

I see no reason to give up my resale rights because they want to tie the game to an account. And I couldn’t care less about their TOS or EULA.

Michael (profile) says:

Re: Unpaid EA

When game creators only offer the game in a kind of one-off premium priced window, they give up all their opportunities for future discounted sales.

Because the game medium is usually a convenient disc or physical package, it’s also very simple for customers to create this secondary market independent of the process that created the game in the first place.

Scooters (profile) says:

The industry consultant is an idiot. I can attest from personal experience used games have lead to the purchase of sequels at retail price.

There’s no way in hell I’m spending $60 on a “what if”, even if 10,000,000 reviews give it 5 stars.

Those reviews don’t mean a thing to me until I can add my own.

Also, I’m glad GameStop exists. Without it, I could never purchase these used games to try them out without the “Okay, that’s enough demo. If you want total immersion in this game, buy it!” messages I receive from downloaded demos (360).

David Liu (profile) says:

Re: Re:

I do like Gamestop as a concept, but I really don’t like their stores.

Their employees get a little “too friendly” with you. Like, if they hear anything game-related, they feel like that they have to comment on it. A little privacy when I’m shopping might be nice? They do know their stuff though, so maybe it’s a little attempt at a gamer trying to reach out to another gamer.

That wouldn’t be all too bad, if they didn’t use that to try to upsell EVERYTHING. They will try to get you preorder some game, and if you refuse, they have the gall to ask you “are you sure?” like 3-4 times, and then the same thing over with their pro power card. Please man. I just came in here to get a game. Not be marketed to.

Chuck Norris' Enemy (deceased) (profile) says:

Seems like he thinks that we should be paying on a per player basis instead of a per published unit basis. Damn filthy pirates! You should buy one copy of every game you own for each person in your family, maybe a couple extras in case a guest comes over and wants to play. The publisher printed a set number of games and got paid for the ones they printed at the first sale. They didn’t set up shop to purchase used games and sell them again, the game shop did. The publisher did nothing else to deserve a cut of the resold published game for which they already were fairly paid.

btrussell (profile) says:

Re: Re:

Games will soon be offered at “no cost to you!”
They are working on a console they will provide for free. The games will be accessible online only. It is up to you to pay for connection. It is coin operated(in case they are flagged as rogue and can’t process your payments). They will send ICE to collect your coins once a month. You can pay more for a bigger coin box and/or slot if you are a heavy gamer. Their collection fee, whether there are coins or not, will be thirty dollars/month.

“All this at no cost to you”

Some restrictions may apply*

*,mnbv,, mdg,a,zngcvblmdsbfmnbdg,ms bvm m,ndg fbgskbg,nbkfv jkfhkrgjhkdjgklfhklnhhlk[lfhkwlet’lmhnlz otijrtekll bluoriylo[r[ldro[eiyl[‘dh[ldrkkkyt[ler pourl[tjs[rlkjtl[WIRU[OK PUW4POT;4WLILTO POP[UP[RY;RELOJY’LDJ KRJTLRJYL m;ouyprto orpoy;]dtjhty;dj ;jth;dtljh];adtjyh;lj roy;da.jh’laekjh[laej; laepy]peryh;lrjy’;lruj.glsrut’ o;r[lyjaedrlgj [laedyt[lijdsrl[rdkiu[rlkght

We hope you enjoy being our customer as much as we HAVE ENJOYED HAVING YOU.

E. Zachary Knight (profile) says:

I think their biggest problem is that they have no idea how to make a profit off of games with a long tail. They want to sell all their games and get all their profit in a small 3 month window. They get upset that used games appear in that window along side the new copies.

So rather than look at the real problem (why people are selling off their newly purchased game within a month of owning it) they focus on the symptom of the problem, the used sales.

I have made the suggestion before that they should partner with GameStop to get them to disclose the movements of used games. In this, GameStop would release regular data on how many used games people trade in and how many are sold. This would provide game publishers with enough information to determine when a reduced price would spur new sales or when a re-release would be warranted.

That is not to say the solution is perfect, but it is a change of pace.

Jay (profile) says:

Re: Re:

Hell no… Why do they need to track every used game? This doesn’t get into the nuances of the game market. Capcom has games that have a very high turnover rate (Marvel vs Capcom 3 will be replaced in November by Ultimate MvC3) or decreased playability (Resident Evil Mercernaries).

Ubisoft… Yeah…

The ability to know how many people are buying used games won’t tell the people much. It just means the publisher has to add more value to their games to entice people to play them longer.

TimothyAWiseman (profile) says:

I factor in resale when deciding whether to buy

At the risk of being totally unoriginal, I always consider the resale value of a game when I am deciding whether to buy it. I routinely buy a $60 game, knowing I can resell (either to gamestop or through craigslist) for somewhere around $20, making what I am really paying closer to $40.

If I could not resell my games, I would not be willing to pay so much for most of them. I have never paid $60 for a download only game. And if video games keep getting more expensive, I may just have to drop that hobby and focus on playing Go.

DogBreath says:

I'm sure glad this "used" sale thing dosen't happen in any other markets

Thank god that everyone has to buy a new car from a major dealer. Imagine if there were such a thing as “Used Car Lots” where anyone could buy a “used” car without paying the original producers of said car. That would certainly eat into the profits of the “new” car market and be totally unfair to the original manufacturers of cars not to receive a cut, if not all of the money. Why, no one would ever buy a “new” car again because “used” cars are so reliable and well maintained that they will never fail or be too expensive to keep running on old, worn out or irreplaceable parts that are no longer produced.

I must say that if there isn’t, there ought to be a law against any “used” car selling by anyone because it’s eats away at the profits of the major car companies, their children and possibly even their little dog (Toto) too.

/sarc

Anonymous Coward says:

As the definition of copying as theft has more and more to rely on definitions that have nothing to do with theft, ie. the supposedly moral argument that you have no right to enjoy x film/music/game because the copyright holder did not receive any money for your viewing or use of it, the publishing industries having wedded themselves to that twisted logic have no choice but to notice that 2nd hand sales fall short of that very same moral argument and having noticed it must attack it.

AJ says:

make a trade off, and make it worth while....

When I started using the Steam distribution system, I had to make a trade. I traded the ability to resell my game, for having access from anywhere, real time updates, long term storage… etc. They got rid of the possible competition from resale, and I got a bunch of cool stuff in return.

“They have to want to get off. How do you get a crew to want to get off a submarine? How do you get a crew to want to get off a nuclear sub…”

Jack Ryan, Hunt for Red October

Q. How do you make a gamer want to give up the secondary market?

A. You give him something he considers more valuable in return.

Capitalist Lion Tamer (profile) says:

Say that again...

Saying that Gamestop’s primary business is selling used games just because that’s where they have the highest profit margin is like saying movie theaters are primarily concession stands that “rip off” the motion picture industry. After all, they spend hundreds of millions of dollars making the movies and promoting them. Why should the theater owners be allowed to make so much money pushing sugar water and corn byproducts, both of which are infinitely cheaper for them to acquire?

Michael (profile) says:

Re: Say that again...

The problem with your analogy is that movie theatres provide a service in the viewing of the films that Gamestop doesn’t provide. I think it’d fit an arcade more than Gamestop.

There never even has to be any such thing as a “used” game in the first place. It’s software. The more tech-savvy game companies already realize this. This is why there is no “used” market for Steam-exclusive titles. Steam gets that lower-price market themselves when they do periodic sales.

Yes, Gamestop’s activity drives up demand enough to support the $60 prices on newer games, but if game publishers could all harness that “used” economy like Steam, they wouldn’t need the game to cost $60 in the first place.

Capitalist Lion Tamer (profile) says:

Say that again...

Saying that Gamestop’s primary business is selling used games just because that’s where they have the highest profit margin is like saying movie theaters are primarily concession stands that “rip off” the motion picture industry. After all, they spend hundreds of millions of dollars making the movies and promoting them. Why should the theater owners be allowed to make so much money pushing sugar water and corn byproducts, both of which are infinitely cheaper for them to acquire?

Loki says:

Personally, I’ll never buy a “new” game. I’ll either get it second hand, or wait a year or two until the price drops to a more reasonable level.

And as has been mentioned, the second hand/resale market can do much to drive new games. A friend of mine gave me their copy of Civilization III a few years ago. I liked it so much I bought the Complete edition of Civ IV last year, when Civ V came out. When Civ V drops to about $30 I’ll probably buy that one too.

What makes this story even more amusing to me, is I just finished reading this story

JackHerer (profile) says:

This kind of ripoff is rife

Damn those used car salesmen, they buy their cars for a fraction of the original price and resell it for profit without any money going back to the original car manufacturer…

Damn those used furniture stores, they buy their furniture for a fraction of the original price and resell it for profit without any money going back to the original furniture manufacturer…

Damn those (real) estate agents, they don’t even buy the property they just take a cut when a property is sold without any money going back to the original construction company…

Of course that’s all very different to computer games because… erm.. well it just is.

cjstg (profile) says:

wait? what?

“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.”

there is a name for this kind of thing; it is called “retail”. all retailers try to buy on credit and sell the product before the invoice is due. why are they blaming gamestop for this behavior? all our dealers try do this exact thing. it’s great for us (it sells product and makes us money) and it’s great for the retailer (it make them money). the only downside is when we make a product that nobody wants to buy.

out_of_the_blue says:

Games aren't cars; don't have lasting value; they're a fad.

Therefore first sales are the most important, and if re-sale were restricted, would likely create more first sales.

As usual, not arguing for, just stating likelihood. It’s basically an opinion, and the games makers have their view.

But I don’t use Mike’s technique of referring to one of his prior articles as if it held conclusive proof. You’ll note that above, Mike writes: “They all seem to ignore the fact that a healthy resale market…”
But in the referenced piece, he writes:
“Research on used book sales suggests…”
BIG DIFFERENCE BETWEEN “FACT” and “SUGGESTS”, Mike. You only get away with your assertions because your fanboys here are incapable of integrated knowledge and rigorous logic.

DCX2 says:

Re: Books aren't cars; don't have lasting value; they're a fad.

Therefore first sales are the most important. Just like games, once you’ve read a book there’s little reason to keep owning it or reading it again. So selling used books ought to be immoral cannibalization of publisher’s profits.

And libraries…Don’t even get me started on libraries. It’s like renting games! Hundreds, maybe thousands of people get to use the publisher’s property and they only get a cut once!

Capitalist Lion Tamer (profile) says:

Re: Games aren't cars; don't have lasting value; they're a fad.

Therefore first sales are the most important, and if re-sale were restricted, would likely create more first sales.

First sales are most important for game manufacturers because it makes them X amount of dollars. Used sales make them $0. Whether or not gaming is a “fad” (a fad with nearly 4 decades of history, but rock & roll is considered “dead” nearly every year, so maybe you have a point…) has nothing to do with this argument.

Anonymous Coward says:

You said “If I can buy a $60 game, knowing that I can sell it back later, that reduces the risk and the real “cost” to me. That increases sales.”

Me: A little bit of a false play here. If I have $60 for one game, or I can buy two used games for $30, the potential is that I get the used games (especially if they are the same games I would have bought for full price).

Your assumption is “more consumption of games”, but there are only so many hours to play games, and that limits the number of total purchases (new or used) anyway. So even if there are a few more cycles of the money, there is little to show that there is actually an increase in new sales as a result of used sales. Rather, those who buy used instead of new decrease new sales, and the people selling their old games buy new ones, pretty much making it net nothing.

However, as gamestop picks up money on both sides, they are probably happy with the increased economic activity. But it is very misleading to say that there is some magical increase in sales of new games as a result of used sales.

khory (profile) says:

Re: Re:

I think those that consider would rather have two games at $30 are not necessarily a demographic that would buy the game at $60 in the first place.

If I go to buy a game, I know what I want before I go. Usually it is a new release. I may pick up a used title if its cheap enough if I hadn’t bought it at release I probably didn’t want it that much. I would certainly never pay full price for it new so it isn’t a lost sale to the publisher. At least this way I get to try their product and maybe buy the next one when it’s released.

Other people won’t buy new no matter what. Strangling the used market isn’t going to magically make those people start buying games at $60 a pop. I suspect most of them simply won’t buy at all.

Ed C. says:

Re: Re:

Net nothing? Hardly. It becomes fairly obvious if you actually run the scenarios all the way though.

First person buys the game for $60, and then he sells it to the second person for $30. The first person buys another game for $60 and also sells it to the second person for $30. The publisher gets its cut of $120 for two games. First person paid a net of $60 for two games. Second person paid a net of $60 for two games.

Now, what if the first person can’t resell the game? First person buys the game for $60, but the second person can’t or won’t pay the full price. The first person buys another game for $60, but the second person can’t or won’t pay the full price for that one either. The publisher gets its cut of $120 for two games. First person paid a net of $120 for two games. Second person paid nothing and got nothing.

Now, what if the first person can’t resell the game, and only had $90 to start with? First person buys the game for $60, but the second person can’t or won’t pay the full price. The first person now only has $30 and can’t buy another game at full price, and the second person can’t or won’t pay the full price for that one either. The publisher gets its cut of $60 for one game. First person paid a net of $60 for one game. Second person paid nothing and got nothing.

(I didn’t run the first scenario with the $90 restriction because it would have had no effect on the outcome)

As you see, the second person isn’t a factor for the publisher at all, as long as the the first person can and is willing to pay. The second person can, however, effect whether the first person can pay.

Anonymous Coward says:

DRM dual standards

Although the games market is finally beginning to change, overall it’s still tied to owning a physical copy of the game. Want to play a console game on your console? You’ll need a disc/cartridge to play it. Want to play a game on your PC? Most of them check to make sure the physical disc is in the drive.

The funky thing with this business model is that if I legally purchase a new game, then scratch the disc, the game company feels no obligation whatsoever to replace it. If they were selling me the right to play the game, and the game required the disc, they’d either have to replace the disc or else they’d be in breach. Instead, they seem to take the attitude that they’re selling the disc, which comes attached to the rights to play the game. One disc == one set of rights.

Realistically, then, this sort of thing is the game industry’s own fault. They’ve attached the value and rights to their products to physical media — big surprise when people then do things with that media that don’t directly profit the companies.

Jay (profile) says:

Re: Why just Gamestop?

Because the largest company in the used game market is Gamestop and the fact that they make money outside of the new release titles is “unfair” to publishers.

This should tell the publishers something. If people are going to your competitors instead of you, shouldn’t they do something like… Iunno. dropping the price of the games to something manageable for the average consumer? Just a thought…

DarkGecko says:

“If I can buy a $60 game, knowing that I can sell it back later, that reduces the risk and the real “cost” to me. That increases sales.”

Clearly you are not a gamer. The resale value of even the most popular console game drops worse than a car when you take it off the lot. While I do agree with the concept that a secure resale market does provide a degree of security and could encourage a potential customer to purchase a product, the reality is that the only reason gamers are willing to trade in their games for a pittance is they are eager to grab the next new shiny thing. I have several friends that have worked for Gamestop as managers and they can validate the claim that the majority of profit for the company is in resale.
Example: I buy a new xbox game for 60$ + tax. I trade it in a week later, because I realize that the game has no replay value, for 30$ even. Gamestop resells the game for 50$ + tax. Assume someone else makes the same mistake I did and tack on another sale. Gamestop just made 100$ minus whatever they owe the developer for the game.
While I am certainly not knocking their ability to make a buck, Gamestop assumes little risk and makes a lot of money while the developers get just a little bit off the initial sale. Considering what goes in to a game I don’t think it unreasonable that the developers get a portion of the resale value in this instance since the same company they have licensed to sell the game is reselling it time and time again.
This is not the fault of Gamestop in my opinion. Developers simply need to be a little more savvy and contract in something to make a little off of “official” resales. Problem solved.

taoareyou (profile) says:

Re: Re:

If developers of video games should get a piece of every resale, then so should clothing makers, book writers, car manufacturers, furniture manufacturers, home builders, etc. etc ad nauseum.

It’s flawed logic that a resale is a lost sale. If I am not going to pay $60 for a game, I am not going to pay it, period. Whether or not it’s available used.

Once you buy something, it’s yours. If game makers want to control the revenue, then stop selling games and start leasing them.

Of course, if they wanna see losses, that’s the way to do it. Instead they are complaining about their “slow growth” of only adding several billion dollars in sales over the previous year.

Rikuo (profile) says:

Re: Re:

“Considering what goes in to a game”

The market doesn’t care how hard you work on the game, how many years you spent at it. The market only cares “is it worth my money”. Charging me full price for a game, and then telling me I have to pay the developer a cut when I resell it? That’s odd, I thought when you charged me full price for the game, you relinquished all control over it (ya know, what happens in any other sale). If you want a portion of re-sale, then give me a reason to agree to it. Otherwise, no.
I’ve got a flea market in a couple of days, and I’m looking to sell a few dozen books I own. Should I have to ring up the publishers and give them a fraction of what little amount I expect to make?

John Fenderson (profile) says:

Re: Re:

Considering what goes in to a game I don’t think it unreasonable that the developers get a portion of the resale value in this instance since the same company they have licensed to sell the game is reselling it time and time again.

I do consider that unreasonable.

Firstly, if the developers aren’t making enough money for their effort, they need to either increase their prices or reduce the amount of effort.

Secondly, Gamestop actually does have ongoing costs related to selling the same game over and over: they have to pay employees, leases, utilities, etc. The developers have no such ongoing costs.

Saying that the developers deserve a cut of all future resales is saying that the developers deserve unearned gravy. That, somehow, the developers have some sort of right to an ongoing profit. There is no such right to profit, ongoing or otherwise. It must be earned.

If the developers want a cut of resale, then they need to take an active part in that market by actually engaging in the resale activities. They need to continue to add value past the initial sale.

Some do this (DLC, etc.) If they desire the cut that badly, that’s the proper way to go about it. Not by getting some kind of legislation against resale or injecting themselves into resale deals simply by virtue of existing.

taoareyou (profile) says:

More

Best Buy lets you trade in used games for resale.
Goodwill accepts donated video games and resells them.
Consignment shops all over the place resell used video games.

Gamestop is just one of literally thousands of business’ that resell video games.

Despite this massive resale market, the video game industry was an $18 billion annual monster in 2008

http://seekingalpha.com/article/89124-the-video-game-industry-an-18-billion-entertainment-juggernaut

It’s expected to reach $70 billion by 2015.

http://venturebeat.com/2010/05/25/video-game-industry-to-hit-70-billion-by-2015-but-growth-will-slow/

Apparently the resale market is not having a negative impact.

Charles Meyer (profile) says:

Other industries

This seems to be a recurring theme within the tech industry…does anyone know if this was ever an issue, or if it is an issue, in other industries like the music (i.e. the resale of purchased musical instruments) or the furniture (resale of purchased furniture, either from a big box store, mom/pop outfit, or national chain/brand) or any other industry that isn’t necessarily tech?

MobileSilence says:

Use Car Sales

While to be upfront I’m actually on the developers side on this one.

There’s a rather obvious flaw within the Used Car/Furniture arguments some of you are using. Used cars and furniture depreciate at an incredible rate compared to games. So long as they aren’t scratched, games play as good as new for YEARS after their initial purchase. We have a caricature of the “Shady Used Car Salesman” for that very reason. Furniture isn’t quite as bad but its still pretty bad, a lot of people are very turned off by the idea of buying a couch that was lived in by someone else for an undetermined amount of time.

Used games sales do amazing because outside of box art and contents, you largely only have have one of two types. A broken game, and a working game. Functionally, digital copies of anything are just as good as a new one. That isn’t true of things like cars and furniture.

What GameStop is doing isn’t illegal, and I do buy from them. However once I realized that original publishers don’t get money from used games (took me far to long to get that one), I changed my buying habits. I buy most game

Anonymous Coward says:

Re: Use Car Sales

Wait, so ‘new’ games don’t depreciate in value immediately after being opened? So I can turn around and sell/return the game I just bought for $60.00 for $60.00 from the same store where I purchased the game?

No, I didn’t think so, I’d be lucky to get $30 in STORE CREDIT (not cash) for the game, due to the whole ‘no refund on opened games policy’ that most stores have. You know the one that forces you to buy the game and open it, before even seeing the EULA that you are required to agree to if you expect to be able to actually play the game (try answering NO to accepting the EULA and see how well the game plays).

I can expect a used car or furniture to be usable and useful to me for at least a year (if not 5-10 years), can anyone say the same thing about games (name one game from 5 years ago that you still play on a regular basis…)?

How useful is a game once you’ve completed it? With most games only having 5-10 hours of actual gameplay, sometimes repeated several times so they can claim, 50-100 hours of game play (if you want to repeat the same 5-10 hours of activity 10 times at different ‘levels’ or as different ‘players’, ‘countries’, ‘agencies’, etc).

MobileSilence says:

Used Car Sales Continued

What GameStop is doing isn’t illegal, and I do buy from them. However once I realized that original publishers don’t get money from used games (took me far to long to get that one), I changed my buying habits. I buy most games new unless the publisher disappoints me (I’m lookin at you Metroid Other M), or I get a decent deal off of GameStop (buy 2 get one free or something). Honestly what I get for selling games back to GameStop isn’t enough compared to what they turn around and sell it for. So I just don’t sell games to them.

(Hit a word cap i think on my last post)

Lesath (profile) says:

As a former store manager of a Gamestop, the used game business is their major profit maker. Even on just released new games, they give $25-30 and then sell that used game for $55. The used game price goes down from there and usually bottoms out around $10-15 after a couple of years. I, personally, trade in games all the time that I am done with. Usually the trade value goes toward a new game coming out later. I rarely buy used games because I generally buy them when the week they come out.

My question to the game companies is this: What am I supposed to do with the 100+ games I have played on the Xbox 360 over the past 6 years? I suppose I could sell them to friends but is that really any different than what Gamestop does? Gamestop just does it on a much larger scale.

383bigblock (profile) says:

Nail on the head

If the publishers would put a realistic price tag on the games there would be less of a need to buy used. The fact I can sell it back to gamestop for a little coin and then have my kid buy a used game at a reduced rate without having to drop another $60 on something he may not like is exactly what I need….its called a “CHOICE”. If my only option were $60 games new I know we would buy less games overall……especially new ones.

Maybe a $15.00 football or whiffle bat & ball set is what the publishers had in mind……hmmmmmm. Not a bad thought.

Dean Sutton says:

It's not just Gamestop!

This is NOT just Gamestop!
It is time to for Realtors to fess up and acknowledge their real business. Relative margins reveal Realtors’ actual business to be the collection and resale of used homes. New homes and land sales revenue may equal or exceed the used home revenue, but they do not come close to matching the profit. The stock of used homes is financed by the very builders who are being harmed by the market. They put up the risk capital to make and market the home and put the buiding on the block. Builders receive a one time, per unit fee for putting the house into the system and are required to pay marketing funds to Realtors to have signage and advertising posters and other promotions in store. But Realtors do not pay for the houses, buyers do. Realtors only show the homes until the homes are sold. The buyers’ payment covers the Realtors’ initial outlay, plus a profit. Because Realtors do not pay for the right to show the home, the buyers’ money is in the bank before Realtors ever pay for anything. If the buyers do not sufficiently cover the expense, Realtors will call on the seller for price adjustments and protection, even going so far as to requiring them to make up any shortfalls. 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 home inventory. To ensure return of the business, consumers who buy homes are bombarded with offers to sell them and buy replacements from existing listings. Each listed home builds the used inventory, at no cost to Realtors. When sold, the only person receiving the benefit, is Realtors. When I put it this way . . . . I don’t want to say it sounds like laundering, but . . . . . They take a housing unit a builder should get paid for, run it though a consumer, and turn into a unit they can sell over, and over, and over, and over without compensation to the builder.

Andrew D. Todd (user link) says:

Anti-Trust Law

Under the Clayton and Sherman Antitrust Acts, people have been convicted of federal felonies for conspiring to disrupt the markets in various kinds of used goods, for the greater profit of those selling new goods. This isn’t a civil matter– it’s a criminal matter, and carries a prison sentence. You know, white meat on the cell-block… I would say that Keith Boesky is a very great fool. A very, very great fool.

http://en.wikipedia.org/wiki/Sherman_Antitrust_Act
http://en.wikipedia.org/wiki/Clayton_Antitrust_Act

Anonymous Coward says:

I’d have more sympathy for publishers, if they were actually intent on embracing the possibilities of digital distribution on consoles. When they release digital equivalents of their packaged games onto services such as Xbox Live Marketplace, the pricing has been hilarious. Reproducing physical RRP (or even RAISING it) in the digital space takes the absolute piss, and customers know it. Instead of making an aggressive reduction to pass some of the savings of the process on to users and gain a more relevant position in the market, they’d rather actively push them more fiercely towards the preowned market. And then gripe about it, while entering hair-pulling matches with the retail chains when they need to work together even more slickly to best cope with the fact that the bricks ‘n’ mortar world is shrinking.

Golf claps, all round.

Mark (profile) says:

game pricing

Game publishers should cut the pricing on their product to keep pace with the used game market. That way they get continue getting revenue at the price the market will bear. A lot of people will not buy a game at $60. If they keep their prices in line with the market they get the revenue that comes from the $60 people, the $30 people and the $10-$20 people, since people would rather get a new $20 game than a used $20 game.

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