Is the Used Game Market Damaging the Industry?

[Shifty Geezer]

I kind of understand that, but if you're a smaller studio dumping boatloads of money into a title to compete with the big boys, you've got to know you're taking a huge financial risk. The used game market is not a mystery. Sales of used games cannot be look at as losses. A person that buys a game used would not necessarily have bought the game new at full price.

That's true. I myself have bought games (or is it one game) second hand which I wouldn't have bought new. That's much the same issue as piracy though - those who pirate a game wouldn't have bought it anyway, so it's no loss. One developer fairly recently spoke as much about this, saying they didn't care. Still, companies will view people playing their work without paying them any money for it as 'a bit off' especially if they didn't get good returns. Consider something like Heavenly Sword. Lots of years in development, if there are people who didn't buy the game because reviews weren't stellar or everyone said it was short, and then picked it up in a store cheap, the Ninja Theory people have a right to say 'hey! If you're not paying us any money for the game we made, you shouldn't be playing it at all!' Then again, that same argument goes for any product.

 

[archangelmorph]

I kind of understand that, but if you're a smaller studio dumping boatloads of money into a title to compete with the big boys, you've got to know you're taking a huge financial risk. The used game market is not a mystery. Sales of used games cannot be look at as losses. A person that buys a game used would not necessarily have bought the game new at full price. I know I've bought a lot of used games that I never would have payed full money for. I just wasn't interested enough. If used games is a make or break for your finances, you've probably invested too much. Unfortunately, with gaming technology being such a competitive field, the smaller players are going to get pushed out because of the escalating costs of developing first rate titles. And we all know there's a good deal of gamers that are fickle about technology. The game industry needs to find its "indie" market, like the film industry has.

The thing is the "indie" market for film is different.. They can afford to remain highly competitive on the market since they have so many options for revenue; Silver screen, DVD, broadcast & VOD are just some of the options film studios have to broaden there potential revenue streams & spread the risk associated with a product..

A movie could bomb at the box office but break evne & then sum when the DVD is released as a directors cut-collector's edition packed with extra content..

Games developers nowadays are pretty much stuck with a single release, cross your fingers & hope for the best, strategy which, as we have seen for many games in the past which have been critical stalwarts but failed to turn a profit, isn't always guaranteed to work even when the quality is there & enough money has been spent on it..

 

[Arwin]

I think the used game market should be a non-issue. That retailers can make so much money on reselling games, well, that's a different issue. You can either try to compete with them at some level, or change the way you sell your games, or educate consumers on how they can get more for their games, so that they can use that money to buy more games, which is better for both publisher and retailer.

I can see that it would be advantageous to publishers to try to sell out licences rather than actual games (through downloads and so on). A consumer would factor in not being able to resell his copy or exchange it with someone else, however, so you'd have to sell the games at a lower price to compensate. The only advantage you'd have is that you'd probably leak less money to retailers. But that's a complicated and sensitive relationship, the publisher / retailer relationship, and everyone is following progress in online game sales through direct downloads over PSN and Live very closely no doubt. There have been a few topics on this already.

Game rentals also fall under this category.

 

[dobwal]

I think the simplest solution where used games sale aren't banned and GameStop isn't forced to give part of their used game profits to the publisher is for publishers to sell to gamespot at higher wholesale prices.

In fiscal year 2006 Gamestop generated $2 billion in new game sales with gross profits being $427 million. Gamestop used game products generated $1.3 billion in sales with a gross profit of $651 million.

If I was the publishers I would go after that $427 million as thats the easiest route. If publishers would have cut GameStop's new game margins in half by selling at higher whole prices in 2006, an additional $213 million in profits would be generated in one year.

A chunk of that 200-300 million additional dollars a year would migrate to the devs making the development industry a little more stable.

 

[wco81]

Retailers have no obligation to give publishers a cut of their used games revenues, no more than car dealers have any obligation to pass back a cut of their used car sales to the auto makers.

Hey Detroit is in a world of hurt and you don't see them saying they should get used car sales money. Of course, they go crying to Washington for other things.

Now, if the publishers can convince retailers to share their used games revenues, that's one thing. How they would do that, who knows. Perhaps if they show that the long-term viability of games development requires more revenues to publishers and developers, maybe.

For all the stories about studios shutting down, you have stories about record profits for some publishers. So it will be a hard-sell.

The retailers pay rents to keep up storefronts, which is more convenient for consumers looking to buy and sell used games. Sure you could eBay it but sometimes, when you want to get quick cash or another game, nothing beats brick and mortar.

 

[dobwal]

Retailers have no obligation to give publishers a cut of their used games revenues, no more than car dealers have any obligation to pass back a cut of their used car sales to the auto makers.

Hey Detroit is in a world of hurt and you don't see them saying they should get used car sales money. Of course, they go crying to Washington for other things.

Now, if the publishers can convince retailers to share their used games revenues, that's one thing. How they would do that, who knows. Perhaps if they show that the long-term viability of games development requires more revenues to publishers and developers, maybe.

For all the stories about studios shutting down, you have stories about record profits for some publishers. So it will be a hard-sell.

The retailers pay rents to keep up storefronts, which is more convenient for consumers looking to buy and sell used games. Sure you could eBay it but sometimes, when you want to get quick cash or another game, nothing beats brick and mortar.

Used car sales is probably one of the major reasons why profit margins on new cars are 2-4% for most dealerships, which is a strategy I mention in my previous post.

Manufacturer also see residual income from maintenance and repair, so while manufacturers see no money on used sales there are financial incentives for the manufacturers when a used car is sold back into the market.

For every dev you have floating in money there are probably 10 or more thats one rough patch away from closure.

 

[Cheezdoodles]

If no publishers and studios were going under, you'd have a point.

No. He has a point right now, anybody with the slightest economic insight will agree. There is absolutely nothing wrong with status quo.

Its completely irrelevant if certain studios and publishers are going under, companies go under all the time, its a natural side of business. Companies have to look out for themselves, if they dont, they go under, the survival of the fittest applies, i dont see why you want to mess with it, unless you think for some reason that in a perfect economy nobody is out of work. (Completely wrong)

Unless shifty, you can say with a straight face that i should pay Porsche when i sell my car, because they made it. Should i also pay my house manufacturer for the house i live in when i sell it? If i want to sell my house through a broker (aka a store that sells used games) i can do so, because its a free market. The guy that made my house, or owned it before it, shouldn't profit on that.

There are car companies that go bankrupt every now and then, should we for some reason feel sorry for them as you feel sorry for the devs?

If publishers or developers dont like the current set up, they should try to change it, by say using digital distrubution.

Consider something like Heavenly Sword. Lots of years in development, if there are people who didn't buy the game because reviews weren't stellar or everyone said it was short, and then picked it up in a store cheap, the Ninja Theory people have a right to say 'hey! If you're not paying us any money for the game we made, you shouldn't be playing it at all!' Then again, that same argument goes for any product.

This is only because you feel sorry for Ninja theory, they have no right to say this. If you initally sell a product, you have no bearing over that product after you sold it. You CANNOT ask for future revenue from that product. This applies to all normal wares.

Ninja theory made a game. Their publisher sold blurays with that game on. Some people bought it. Thats their income, they shouldn't have future income on whatever they sold. Why should they? They have done any work to resell it. Only the person owning the game has, he should profit, period. Explain to me why publishers and developers should earn on future sales without applying any more work to it, after they allready sold their product? They should earn additional money on making downloadable content and stuff, not sitting on their asses crying.

Lastly, to all of the people here that defend this, the solution to this problem is very simple, if the publishers are crying because of used sales, all they have to do is lower their retail prices to a level where the customer doesn't feel ripped off unless he sells the game after finishing it, or start renting them out.

 

[Cryect]

Hey Detroit is in a world of hurt and you don't see them saying they should get used car sales money.

Sure they took the route of making cars that are less dependable so they won't be on the used market as long (though who knows if thats really why American cars are less dependable now a days). Most companies might not say something about used sales but there are ways to address them whether consumers like it or not.

 

[Shifty Geezer]

No. He has a point right now, anybody with the slightest economic insight will agree. There is absolutely nothing wrong with status quo.

Hold your horses. He said exactly 'Publishers are doing just fine right now.' There are publishers not doing fine now. For his statement to be correct, he'd need to say 'some publishers are doing fine' or 'most publishers are doing fine'. Other than that I have no disagreement with your point and agree, although a the brutal dog-eat-dog view of pure economics doesn't fit in with many folks attitudes to business, including a lot of law makers who pass laws restricting what freedoms companies have to do business.

This is only because you feel sorry for Ninja theory, they have no right to say this. If you initally sell a product, you have no bearing over that product after you sold it. You CANNOT ask for future revenue from that product. This applies to all normal wares.

This argument is viewing the game as a material product, but I'm not sure that model fits well. They're not selling as product as much as an experience and an IP. Consider a theatrical production with expensive sets and music and actors. Tickets are sold to people who go see the play and the production company makes some money. Now what if those tickets remained valid for other showings, and after seeing the play, the audience sold their tickets to other people? Second hand ticket sales would (drastically) eat into the production companies takings, right? Would that be fair? Is it fair that the companies only allow the ticket to be valid for one experience? Would it likewise be fair for game development companies to allow games to only be run for one experience? Lots of people were up in arms over that idea with that Sony patent.

 

[DuckThor Evil]

I think publishers could help themselves by dropping the price of their games to the platinum/best seller level much faster than what they are doing today, games do bulk of their sales in a very short window anyway. So the sales of new copies basically die quite shortly after the release. Cutting the price in half in something like 3-6 monhts after the games initial release would most likely help boost sales of new games.

I think people would still buy lot's of copies during the release week and on overall I could see that boosting the number of copies sold and helping the publishers to gain more revenue.

 

[AlphaWolf]

In fiscal year 2006 Gamestop generated $2 billion in new game sales with gross profits being $427 million. Gamestop used game products generated $1.3 billion in sales with a gross profit of $651 million.

If I was the publishers I would go after that $427 million as thats the easiest route. If publishers would have cut GameStop's new game margins in half by selling at higher whole prices in 2006, an additional $213 million in profits would be generated in one year.

How do you do that without crippling your own sales? Keep in mind that Gamestop accounts for a huge chunk of new game sales.

Consider a theatrical production with expensive sets and music and actors. Tickets are sold to people who go see the play and the production company makes some money. Now what if those tickets remained valid for other showings, and after seeing the play, the audience sold their tickets to other people? Second hand ticket sales would (drastically) eat into the production companies takings, right? Would that be fair? Is it fair that the companies only allow the ticket to be valid for one experience? Would it likewise be fair for game development companies to allow games to only be run for one experience? Lots of people were up in arms over that idea with that Sony patent.

People going to a theater/show paid for 1 performance. When I purchase a game, I pay for the game, not 1 play through of said game. If publishers want to start offering licenses to play through their game once for $10 or whatever then they should do that. The reason the used games industry is so strong is because people don't value most games at $60.

Also this thread has gone a few pages without anyone actually showing any concrete evidence that the used games market is harmful to the industry. Mostly just proof that there's money to be had there, which is hardly surprising.

 

[Scott_Arm]

Hold your horses. He said exactly 'Publishers are doing just fine right now.' There are publishers not doing fine now. For his statement to be correct, he'd need to say 'some publishers are doing fine' or 'most publishers are doing fine'. Other than that I have no disagreement with your point and agree, although a the brutal dog-eat-dog view of pure economics doesn't fit in with many folks attitudes to business, including a lot of law makers who pass laws restricting what freedoms companies have to do business.

This argument is viewing the game as a material product, but I'm not sure that model fits well. They're not selling as product as much as an experience and an IP. Consider a theatrical production with expensive sets and music and actors. Tickets are sold to people who go see the play and the production company makes some money. Now what if those tickets remained valid for other showings, and after seeing the play, the audience sold their tickets to other people? Second hand ticket sales would (drastically) eat into the production companies takings, right? Would that be fair? Is it fair that the companies only allow the ticket to be valid for one experience? Would it likewise be fair for game development companies to allow games to only be run for one experience? Lots of people were up in arms over that idea with that Sony patent.

The way I see it, you're purchasing a product which provides a service(entertainment), which is no different than buying a blender to provide the service of blending. All of this creative talk about not selling a product but selling an experience or IP is just fancy ways for company to try and convince you that they have more rights over what you purchase, or have more entitlement to money over time. It's grasping at our wallets, basically. The day I buy a disposable game that can only be played once is the day I never play games again, unless the game happens to cost in the range of $2, like at the arcade.

Edit: Fixed a typo. Accidentally added a 'not' that completely changed the meaning of my argument.

I think there is room for a bigger indie market in gaming, which will be more financially stable. Live arcade is maybe a start at this. What we need to see is more games in the price range of $15-25 range from the smaller developers.

 

[rbushner]

I think most here have completely lost sight of the point. This is only about the agreements that publishers have to make with EB/GS to get stocked on their shelves.

Is it that hard to see that a publisher might be a bit peeved, when they have to pay for a circular to bring a customer into EB/GS, only to have the store flip their sale and not share any of the proceeds? This is not any different than a publisher agreeing to not undercut retail outlets with direct sales, which retailers whined about when internet retail started (and those agreements are now common). In the end, I do think an agreement will come between EB/GS(and any other large retailer) and publishers.

The hyperbole is interesting, but no banning or anything of the sort is called for, just some profit sharing.

As to the comparisons/analogies with houses and cars.

 

[Cheezdoodles]

Consider a theatrical production with expensive sets and music and actors. Tickets are sold to people who go see the play and the production company makes some money. Now what if those tickets remained valid for other showings, and after seeing the play, the audience sold their tickets to other people? Second hand ticket sales would (drastically) eat into the production companies takings, right? Would that be fair? Is it fair that the companies only allow the ticket to be valid for one experience? Would it likewise be fair for game development companies to allow games to only be run for one experience? Lots of people were up in arms over that idea with that Sony patent.

Thats a terrible example, that doesn't represent the situation at all.

Consider this real life example with theatrical productions that represents how it should be:

If i buy a ticket, i can

A: Go to the show, thus spending the ticket.
B: Sell the ticket.

If i sell the ticket, the theatre shouldn't get any money for that, they have already gotten the money they are entitled to from me, and only one person sees the show anyway.

I cannot take a backup copy of the game i bought and give it to my friend so he can play, i have to sell the "experience" or whatever youd like to call it, in order for somebody else to use the same one (or give it away, etc, but there is obviously only one physical copy). A game lasts forever, there is an unlimited number of shows, i can play it whenever i want, if i choose to sell it, i loose that ability, and i should have compensation, not the creators who sold it.

Thats really the problem here, for some reason you try to look at this product as something wierd. This is software on a disc, when that software is SOLD to me, im free to do whatever i want with that copy, this is because i BOUGHT the copy, thus all future revenue from this product should be to me and whoever else i may sell it to.

 

[Scott_Arm]

I think most here have completely lost sight of the point. This is only about the agreements that publishers have to make with EB/GS to get stocked on their shelves.

Is it that hard to see that a publisher might be a bit peeved, when they have to pay for a circular to bring a customer into EB/GS, only to have the store flip their sale and not share any of the proceeds? This is not any different than a publisher agreeing to not undercut retail outlets with direct sales, which retailers whined about when internet retail started (and those agreements are now common). In the end, I do think an agreement will come between EB/GS(and any other large retailer) and publishers.

The hyperbole is interesting, but no banning or anything of the sort is called for, just some profit sharing.

As to the comparisons/analogies with houses and cars.

Isn't that the reverse though? The retailers get mad at the manufacturer undercutting because they're at a competitive disadvantage. There isn't any possibility of them price-matching unless they accept losing money on the sale. Publishers aren't at a disadvantage. They could set up their own stores with competitive pricing, direct downloads or even their own trade-ins/used sales if they wanted.

I mean, I see how it's annoying if someone buys a game that's been out for two weeks for $5 less than a brand new copy and the publisher/developer doesn't see a dollar of that sale. But really, what percentage of the total used games market actually falls into that situation? I'd think most used sales would go to the people that were skeptical of buying the product new, and are waiting for the game to discounted or hit a significantly lower used price first. And for the used market to get flooded, a lot of copies need to be sold up front. So, for a game to be successful in the used market, it has to do fairly well in the new market anyway.

 

[Cheezdoodles]

Sure they took the route of making cars that are less dependable so they won't be on the used market as long (though who knows if thats really why American cars are less dependable now a days). Most companies might not say something about used sales but there are ways to address them whether consumers like it or not.

downfall in car reliability is because of cost reduction, not on perpuse.

Nobody would make their cars less reliable in order to sell more cars, as the competition wouldn't lower their standards aswell, thus your car would just be percieved as a bad car, thus even lower sales.

 

[dobwal]

How do you do that without crippling your own sales? Keep in mind that Gamestop accounts for a huge chunk of new game sales.

New software generates most of GameStop revenue. Even if publishers were to sale at higher wholesale prices to cut into the profit generated off that revenue, GameStop wouldn't stop selling new game software. MSRP and other retailers adherence to it, would gaurantee that GameStop wouldn't sell at high retail prices.

They key is for publishers to act in agreement and as one when dealing with the retailers. Its no wonder that publishers are having these problems, they should have formed a trade group a long time ago and dealt with manufacturers and retailers as a whole. The same goes for devs as they could create a more stable enviroment if they worked in tandem when dealing with publishers.

 

[rbushner]

Isn't that the reverse though? The retailers get mad at the manufacturer undercutting because they're at a competitive disadvantage. There isn't any possibility of them price-matching unless they accept losing money on the sale. Publishers aren't at a disadvantage. They could set up their own stores with competitive pricing, direct downloads or even their own trade-ins/used sales if they wanted.

Huh? It's not about advantages or disadvantages. The situation is not typically adversarial. Suppliers and Retailers are for the most part partners. Besides publishers opening up retail outlets is even more unlikely than retailers starting their own development/publishing teams.

They key is for publishers to act in agreement and as one when dealing with the retailers. Its no wonder that publishers are having these problems, they should have formed a trade group a long time ago and dealt with manufacturers and retailers as a whole. The same goes for devs as they could create a more stable enviroment if they worked in tandem when dealing with publishers.

I don't think it will need to go that far, I think an agreement will be reached in the coming years. My cynical side says that a large trade group would end up just giving large publishers more power and force small publishers to follow their lead.

 

[dobwal]

I don't think it will need to go that far, I think an agreement will be reached in the coming years. My cynical side says that a large trade group would end up just giving large publishers more power and force small publishers to follow their lead.

Large pubs have all the power now. At least with a trade group, things that only EA or Activision enjoy now, could become standard across the industry.

 

[Scott_Arm]

Huh? It's not about advantages or disadvantages. The situation is not typically adversarial. Suppliers and Retailers are for the most part partners. Besides publishers opening up retail outlets is even more unlikely than retailers starting their own development/publishing teams.

I don't think it will need to go that far, I think an agreement will be reached in the coming years. My cynical side says that a large trade group would end up just giving large publishers more power and force small publishers to follow their lead.

Well retailers complaining that they're being undercut by manufacturers who are selling directly to customers is adversarial. In that situation, it is about advantages and disadvantages. I was just pointing out why I thought that situation wasn't really the same thing as the used game business.

I wouldn't expect publishers to open retail outlooks, only to do business online.