Brace yourself, my friends, for a rant.
Saw an interesting piece this week at The Escapist about the importance of used-game sales in keeping computer/video game shops like EBGames and Gamestop alive. Here’s a rather eye-opening factoid:
GameStop executives describe this as a “margin growth” business – because they make a much higher profit margin on the sale of every used game than they do on the comparable sale of a new game. And in the highly competitive retail trade, margins matter. How much?
“Used games are keeping the entire ship afloat,” a vice-president of marketing for Electronics Boutique tells me. “EB and GameStop make basically no money from new product.”
Huh. I always failed to keep my lemonade stand running, but that doesn’t strike me as a stellar business model. And then there’s stuff like this:
Throughout most of the entertainment and media industry, when publishers want to make sure first-run entertainment sells in droves to the public, they charge what’s called “sellthrough prices” – and for virtually every form of media, including books, movies and music, that price is between $15 and $25. You can get the brand-new Feast for Crows hardcover for $16.80, the Star Wars: Revenge of the Sith DVD for $17.98, and Madonna’s Confessions on a Dance Floor for $18.98.
But you have to pay $49.99 for Perfect Dark Zero, or any other new release videogame. In comparison to its closest substitutes from other industries, videogaming isn’t priced to sell through.
And yet, selling through is the one thing a videogame must do. Videogames suffer from the shortest shelf life of any media.
My knowledge of large-scale economics is limited to what I learned in my high-school civics class, but it seems to me (and it’s seemed clear for a while now, actually) that there is a serious shakeup coming for the computer/video game industry. Full-priced sequels and retreads are released within a year of the original titles. Prices of new games are ludicrously high, enough so that this sad old game addict purchased only a handful of new titles in all of 2005 and will likely purchase even fewer in 2006. Even with $50 price stickers, margins are apparently so low that your local Gamestop has to hawk used games to squeak by. Where games were once programmed by nerds in their basements with too much spare time and a cool idea, they’re now cranked out by gigantic corporate teams with Hollywood-scale budgets. The latest round of consoles cost Joe Gamer a small fortune to actually purchase (and the games are sold separately!) but don’t, to my eyes at least, offer anything remotely resembling gameplay that is more fun than what I used to play on my NES.
People have been ranting about this for a while–Greg Costikyan railed rather gloriously about this last year–and you’re always hearing that direct-download game distribution (like Steam) is going to break down the current whacked-out game creation/distribution system, and every year people predict that the game industry is on the brink of another 1983-esque crash… but the months roll on, and the sequels are churned out, and the games still cost $50 (edging towards $60 now!), and old-timers like myself continue to gaze through rose-tinted nostalgia at the Commodore 64 gathering dust in the back corner of the closet.
Can’t say I have a point here, but it felt good to rant a bit. Now to go drown my gaming sorrows in the blood of my (online) enemies.
by 
Andy wrote:
“Huh. I always failed to keep my lemonade stand running, but that doesn’t strike me as a stellar business model.”
Why not? It doesn’t seem all that different a business model than a used bookstore or used music store. It seems to me that second-hand sales are the future of many smaller “brick and mortar” shops, which have difficulty competing with the giants like Amazon or Borders in terms of pricing on new items. I was in an Electronics Boutique just last week browsing through the used stuff and was impressed by the selection.
Good point; I should have been more clear. Selling used games is a good business model for a retail store like EB Games–and I’ve invested plenty of money in the used games they sell.
What I meant to say is that it’s a bad sign for the industry–the game publishers and distributers–that their products only become profitable for retailers when they’re resold used. If a retailer has to sell, repurchase from customers, and then resell your game to squeeze out a profit, that tells me your cost/pricing system is way out of whack.
Believe me, I love used games. But if they’re the only way that games can be sold profitably… then something in the industry is not working the way it should.
Thoughts?
Or to be yet more specific: the business model I refer to as less-than-stellar is the publisher/distributor’s, not the used-game retailer’s.
Hmm. It would be interesting to know would how frequently a place like EB sells a game multiple times. That is say, do they ever buy a used game for $5 (or whatever) and sell it for $19.99, and then buy it back from the same customer for $5 and sell it again for $19.99? In that way, it would be a bit like a more loosely structured rental business. I really don’t know.
You have a good point that it’s a strange and seemingly untenable system overall.
I’d be interested to hear more sometime about your thoughts about console games not really improving since the NES. I’ve had similar thoughts about computer RPG’s, which seem to me to have progressed very little since Wasteland or Ultima 4/5 outside of graphics and sound.
On second thought, make that since SSI’s Pools of Radiance.