Is the Used Game Market Damaging the Industry?

[archangelmorph]

Just came across this insteresting read:-

link

I've always been a firm believer that digital download services would never replace boxed games considering the impact it would have on retail, however I'm not quite sure whether such an impact would be a negative thing for the industry after reading this.. I knew retailers were making large profits off used games however I wasn't aware that there revenues were so large..

I'm interested to hear what people think are possible solutions to this problem going forward? Is it even a problem?

One thing that came into my mind whilst reading was that I never really understood why the larger players in the industry (specifically Sony as a prime example) didn't get into video games retail already? Sony already own retail outlets through which they provide CE products such as TVs, Walkmans etc. So I guess it would have just been a natural progression for them to enter into the market directly by selling video games, consoles & products from there own lines to consumers directly.. I guess if you can't beat the used game market, why not join it & offer further incentives to consumers by providing extra content etc. which wouldn't otherwise have been available had the consumers gone through a third party..

This could also allow the big players (Sony, MS & Nintendo if they decided to enter into the retail business) to retail software build for their own platforms & also stock unique products exclusively available through there own stores as a differentiator..

Just something that came to my mind anyways..

 

[Silent]

I do think so that it hurts a publisher. Seems logical to me.

Personally I don't buy used games. I don't know how the situation is in other countries with regarding the price of second hand games. But here in Belgium we have 1 big gamestore (Gamemania) that sells allot of second hand games.

The problem is that newer second hand games are more expensive then when I import a new regionfree game from Japan or the US. 90% of my 360 an PS3 collection is imported. And that saves me hundreds of euro's a year and publishers still collect my money !

Maybe dropping regiolocks so that people who want cheap games can import them ? Think most people rather want a new game then a second hand one.

You will always have people who will pay full price anyway because one big drawback of importing is that you must have allot of patience. You can always choose for fast express delivery but then it's very hard to make a profit.

For games like Bioschock,COD4, Uncharted, R&C,... I have paid full price because I didn't want to wait 2 weeks for my copy to arrive. I even bought games that I would never buy new in my country because they are to expensive for what they deliver.

 

[Rangers]

I dont think Sony, MS, Nintendo want to get into retail because it's a whole seperate business and it's not what they do. To do a large retail operation would require a total split focus of the company which overall wouldn't be good. Profit margins in retail also tend to be razor thin, it's a tough business.

Sony stores are I assume in a limited high end fashion basically like the Apple stores. In such a limited brand conscious way is different from widespread retailing. For instance I am sure there is not an Apple let alone Sony store within 100 miles of me, because that is the distance to the nearest major metroplex. Whereas there are about 4 wal marts within 5 miles..

 

[Johnny Awesome]

I think used games are a good thing. Gives consumers more options when buying games and encourages publishers to make their games better right out of the gate and with some longevity. I think it's a mistake to start telling people what they can buy and sell when it comes to games. Consumer freedom is important.

 

[valioso]

Of course it hurts the publishers, the only ones that benefit are the stores like ebgames that sale used games because they is all profit for them on the used game, thats why they push them so much.

 

[LunchBox]

It does... coz it takes away from the number of units the publisher sold.
The publishers will never see a lick of that profit... it all goes to eb games or game stop, or any other used games merchant.

 

[Magnum PI]

talked before

in this thread "PS3 will not play used games? "

http://forum.beyond3d.com/showthread.php?t=25394

 

[Silent]

How much do they pay in the united states (or in other countries) for a used game and for how much do they sell them ?

Here they (Gamemania) only pay 1/3 of the new price and they sell them for 2/3 (2,5/3) of the new price.

 

[dobwal]

How much do they pay in the united states (or in other countries) for a used game and for how much do they sell them ?

Here they (Gamemania) only pay 1/3 of the new price and they sell them for 2/3 (2,5/3) of the new price.

GameStop sells newly released used for about 54.99 versus 59.00 for a new copy.

 

[dobwal]

I think a solution for used sales is....

For hardware and publishers to present a unified front and force places like Gamestop to sell used software and hardware under certain restrictions.

1. To buy back software at very low prices.

2. Sell that used software and accessories within 1-3 dollars and consoles hardware within 10-15 dollars of the price of new software and hardware.

This would shrink the market of used hardware and software considerably by making trade-ins and used software less attractive but give game shops huge margins to partially offset the shrinking of used product sales.

A unified front would be impossible for stores like GameStop to ignore because the manufacturers and publishers could threaten not to distribute any new software and hardware to those retail chains making it hard for them to sustain themselves.

While I agree that used product sales are good for the market. If allowed to grow out of hand they have a very negative effect on the price of new software and hardware sales.

Used games and sales actually represents competition to manufacturers and publishers and represents a segment of the market that generates no revenue or profits for them. The bigger that segment of the market becomes the thinner the margins become for MS, Sony, Nintendo, the software publishers and ultimately the developers.

I also think that publishers need to come up with better ways to track and determine demand of their software.

If publishers could release enough software to satiate consumer demand at any one price point. They could release more supply at lower price points faster without upsetting retailers by creating situation where retailers would have ample supply of software at one price point and then deal with the same software priced at lower points.

 

[AlNom]

How do used game sales work - is the UPC scanned repeatedly, or is it more of a silent transaction ?

And on the subject of revenue, do publishers get any cut on rental fees? Compared to used games, it does not appear that different in concept.

A unified front would be impossible for stores like GameStop to ignore because the manufacturers and publishers could threaten not to distribute any new software and hardware to those retail chains making it hard for them to sustain themselves.

It sounds like Mutually Assured Destruction to me.

The simplest alternative is to opt for digital downloads, essentially copy the Steam service (except they should actually set a lower-than-retail-outlet price to entice people). Heck, why not offer rentals ala the video services on XBL? What they could do is set a flag to determine if one has paid to "rent" the game. If the person wants to buy the game after one has "rented" it, subtract the rental fee from the full fee.

 

[dobwal]

It sounds like Mutually Assured Destruction to me.

How is what i described mutually assured destruction? For Gamestop and retailers like them? Used software and hardware sales isn't the foundation or backbone of the market.

If used games, used hardware sales or GameStop/similar retail chains disappeared the market wouldn't crumble.

 

[AlNom]

How is what i described mutually assured destruction?

because the manufacturers and publishers could threaten not to distribute any new software and hardware to those retail chains making it hard for them to sustain themselves.

Which manufacturer or publisher is going to not distribute their respective wares to a major chain of stores

So the game store doesn't get anything new to sell - Ok, zero new income that's bad. At the same time, manufacturers and publishers don't distribute their goods -> zero market hold. Meanwhile, competitors are releasing their stuff as usual and capturing 100% market or actually making some money.

 

[dobwal]

The simplest alternative is to opt for digital downloads, essentially copy the Steam service (except they should actually set a lower-than-retail-outlet price to entice people). Heck, why not offer rentals ala the video services on XBL? What they could do is set a flag to determine if one has paid to "rent" the game. If the person wants to buy the game after one has "rented" it, subtract the rental fee from the full fee.

Digital distribution isn't the simplest alternative, it would practically be the most complex solution as there are numerous wrinkles and problems that need to be worked out.

1. A centralized digital distribution model is practically gauranteed for a console, so it needs to be several magnitudes larger than Steam. Its needs to be reliable, big and fast enough to deal with the holiday season without breaking or slowing down to a crawl.

2. A digital distribution model would add a significant cost to the BOM of a console as the HDD needs to large enough to house 4-8 normal size games, arcade games and digital media like movies and TV shows. Software size caps would have to instituted like on Live Arcade.

3. A model totally dependent on digital distribution must deal with a shrinking market as the current market consist of a large segment that doesn't have broadband access. Total coverage is decades away, so a model totally dependent on digital distribution is probably years away.

4. A centralized digital distribution model would remove a huge chunk of advertising dollars. GameStop, Walmart, BestBuy and others advertise and promote hardware and software at no cost to pubs or console manufacturers to lure consumers into their stores.

5. Retail chains would want significant margins on hardware since they would no longer have access to the biggest generator of profits in the gaming market, which is software.

 

[dobwal]

Which manufacturer or publisher is going to not distribute their respective wares to a major chain of stores

So the game store doesn't get anything new to sell - Ok, zero new income that's bad. At the same time, manufacturers and publishers don't distribute their goods -> zero market hold. Meanwhile, competitors are releasing their stuff as usual and capturing 100% market or actually making some money.

I am not sure about Japan and Europe but only GameStop does a rather significant amount of business in the used game and accessory market. The big retail shops don't do trade ins and sale used games.

Most of the used game market is perpetuated by game-centric retail, remove the sales the of new hardware and software and they would practically go out of business. In this case, a united front by the manufacturers and publishers would have more than enough leverage to shut down the way the used market currently operates in the US.

 

[Shifty Geezer]

Like all these things, a mutual agreement with the pressure of 'sanctions' could pull about a change. If the publishers got a reasonable cut from the second hand sales, they wouldn't mind. Not knowing the ins and outs though, it could be that these specialist game stores that are the ones reselling actually need that income to be a viable business. If they lost the huge margins they have on trade-ins, would the margins on new sales be enough for them?

 

[AlNom]

Digital distribution isn't the simplest alternative, it would practically be the most complex solution as there are numerous wrinkles and problems that need to be worked out.

I meant in terms of stepping on retailer's toes. Your united front solution seems rather dubious and too much fantasy IMO.

1. A centralized digital distribution model is practically gauranteed for a console, so it needs to be several magnitudes larger than Steam. Its needs to be reliable, big and fast enough to deal with the holiday season without breaking or slowing down to a crawl.

And why shouldn't they be able to handle this? Obviously, they will have to prepare for large numbers of unique connections, and if the recent troubles with XBL was an indicator, they would be keeping this in mind from now on.

And how about implementing P2P connections i.e. torrenting, particularly if you're expecting people to be connected to download large files in large numbers in a short amount of time (your holiday example).

2. A digital distribution model would add a significant cost to the BOM of a console as the HDD needs to large enough to house 4-8 normal size games, arcade games and digital media like movies and TV shows. Software size caps would have to instituted like on Live Arcade.

The BOM certainly didn't stop Sony and Microsoft from taking advantage of multiple SKUs with variance in hard drive sizes! I don't think this is a problem for them at all. If you compare the Xbox 360 Elite to the Xbox 360 Premium. Does $100 sound right to you for a difference in one hundred gigabytes and an hdmi cable and dongle ? Does the $100 difference sound right to you between the 40GB and 80GB PS3 If anything, Microsoft and Sony have taken advantage of the variance in HDD sizes to justify such a ridiculous price variance and are making more money off of it, so the BOM is readily taken care of.

3. A model totally dependent on digital distribution must deal with a shrinking market as the current market consist of a large segment that doesn't have broadband access. Total coverage is decades away, so a model totally dependent on digital distribution is probably years away.

4. A centralized digital distribution model would remove a huge chunk of advertising dollars. GameStop, Walmart, BestBuy and others advertise and promote hardware and software at no cost to pubs or console manufacturers to lure consumers into their stores.

5. Retail chains would want significant margins on hardware since they would no longer have access to the biggest generator of profits in the gaming market, which is software.

Nowhere did I say that they should go exclusive with online digital distribution (ODD). So your last three points should not apply.

When I mentioned the Steam model, I meant just that. You certainly don't see a lack of Valve Software...software in stores.

So, it's not that hard is it?

 

[ban25]

It's a serious issue for console games. I suspect ultimately that the used games retailers (EBGS) will cut a deal with publishers for some percentage of the profits on used games. As digital downloads become more prevalent, they'll have no choice.

 

[dobwal]

I meant in terms of stepping on retailer's toes. Your united front solution seems rather dubious and too much fantasy IMO.

You deem cutting out all retailers less dubious than threatening a few game-centric retailers. Whats more fantasy? Putting pressure on a few retailers or removing practically all retailers from the software sales' equation?

"Hey, Walmart, BestBuy and all the major retailers around the world, sell our hardware with those thin margins while we remove the most prominent encouragment (software sales) to do so."

or

"Hey, GameStop do you want to continue to compete against BestBuy, Walmart and others for new hardware/software revenue and profits or do you want to be limited in competing against Ebay in the used game market."

And this stopped Sony and Microsoft from allowing multiple SKUs with variance in hard drive sizes? I don't think this is a problem for them at all.

If you compare the Xbox 360 Elite to the Xbox 360 Premium. Does $100 sound right to you for a difference in one hundred gigabytes and an hdmi cable and dongle ? If anything, Microsoft has taken advantage of the variance in HDD sizes to justify such a ridiculous price variance and are making more money off of it.

The cost of 20-80 Gb harddrives in the 360 and the PS3 aren't trivial, so the adoption of 250Gb+ harddrives isn't going to be easy in terms of hardware costs.

If MS and Sony thinks that the current HDD size are ideal enough for their current anemic offerings. Whats do you think MS and Sony will feel would be the appropriate size to deal with full size games?

MS sales HDD at ridiculous price because they can and because the demand for after market HDDs is rather small as they aren't many cores on the market and HDD failures of Premium and Elite users aren't common enough to generate massive amounts of sales.

Cost to console manufacturer/HDD size ratio is the most prominent obstacle to full blown digital distribution of regular size game. If it wasn't the 360 would have bigger HDDs and Live would already be distributing full size games.

Never did I say that they should go exclusive with online digital distribution (ODD). Co-existence doesn't hurt.

So, it's not that hard is it?

Co-existence doesn't even significantly deal with the problem of used games. The options of downloading a few games is no different than buying new games online when trying to combat used game sales. People will still work in to stores and be enticed by used games if given the choice.

 

[dobwal]

I meant in terms of stepping on retailer's toes. Your united front solution seems rather dubious and too much fantasy IMO.

And why shouldn't they be able to handle this? Obviously, they will have to prepare for large numbers of unique connections, and if the recent troubles with XBL was an indicator, they would be keeping this in mind from now on.

And how about implementing P2P connections i.e. torrenting, particularly if you're expecting people to be connected to download large files in large numbers in a short amount of time (your holiday example).

The BOM certainly didn't stop Sony and Microsoft from taking advantage of multiple SKUs with variance in hard drive sizes! I don't think this is a problem for them at all. If you compare the Xbox 360 Elite to the Xbox 360 Premium. Does $100 sound right to you for a difference in one hundred gigabytes and an hdmi cable and dongle ? Does the $100 difference sound right to you between the 40GB and 80GB PS3 If anything, Microsoft and Sony have taken advantage of the variance in HDD sizes to justify such a ridiculous price variance and are making more money off of it, so the BOM is readily taken care of.

Nowhere did I say that they should go exclusive with online digital distribution (ODD). So your last three points should not apply.

When I mentioned the Steam model, I meant just that. You certainly don't see a lack of Valve Software...software in stores.

So, it's not that hard is it?

And a split model does very little as the used game market grows despite the growth of online sales. A split model is practically no different than the current model of brick and mortar sales and online sales. The only difference is getting a game in the mail or it being downloaded straight to your 360 or PS3.