Nearly 50% of GameStops profits come from pre-owned sales (College Paper)
polycounter lvl 5
I have to do a paper on the effects of game retailer's on the game industry and I am writing from the side of the game publishers/developers. Here is an small article about what I am writing.
http://www.gamesradar.com/xbox360/xbox-360/news/nearly-50-of-gamestops-profits-come-from-pre-owned-sales/a-20101119122526180020/g-20060321132945404017
For those not interested in the article, in short, it talks about how Gamestop re-buys newer used games and marks them back up to astronomical amounts. This allows Gamestop to make a lot of money, but cut's in on the profit of the game business's.
How do you feel about what Gamestop is doing and do you have any idea's on how the game industry ultimately can combat this problem?
http://www.gamesradar.com/xbox360/xbox-360/news/nearly-50-of-gamestops-profits-come-from-pre-owned-sales/a-20101119122526180020/g-20060321132945404017
For those not interested in the article, in short, it talks about how Gamestop re-buys newer used games and marks them back up to astronomical amounts. This allows Gamestop to make a lot of money, but cut's in on the profit of the game business's.
How do you feel about what Gamestop is doing and do you have any idea's on how the game industry ultimately can combat this problem?
Replies
Most people don't understand where the money goes.
Developers combat this by adding first-buyer content to games, much like EA does with biowares mass effect and dragon age series.
Buy it new and you get everything, buy it used and you'll end up having to pay even more afterwards than you saved, consumers understand THAT language.
Yeah.. that's what I thought.
profit margins on preowned games/consoles is retardedly high, and not a single penny of it goes to the publishers/dev studios. so yes, it's wrong. yes, i hate it. but no, i don't know of a miracle solution to it.
everyone wants everything cheaper. but it's kind of a repetetive cycle.
pirates claim games are too expensive. publishers claim prices are high because of too much piracy.
consumers say pre-owned games are more affordable, and therefor would rather buy that than the brand new copy. publishers say pre-owned sales hurt their income, so they make brand new copies more expensive.
digital distribution is by far and away the best solution there is at the moment, but it's almost exclusively used for PC titles, which are the easiest to pirate. if digital copies were maybe 40% cheaper than the off the shelf versions, their sales would likely go through the roof, and PC gaming would see a boom over consoles. if hard drives for consoles were put to a level that could support digital distribution, you'd see a pretty big advantage there too.
the reason i bring up disc space is this: the average amount of data on my ps3 discs is somewhere about 15gb. i don't know why it takes up so much room on a BRD compared to a DVD-9 like the x-box uses. but whatever...
i've got about 30 ps3 games on my shelf, and probably about the same x-box games. that's ~450gb of ps3 game data (give or take) so current HDD's just won't cut it.
i dunno... i kind of get the feeling that if publishers worked together with hardware vendors (sony/microsoft) to get decent (1TB) hdd's on their consoles, at a decent consumer price. and then said "ok. we're going to distribute all our games digitally, at 2/3 the cost of the off the shelf versions". places like gamestop would go bust, and the industry would likely see a huge upturn in profit.
i just doubt people communicate that way though.
maybe all games should have a 'not for resale' sticker, and we (as developers/publishes) drop the price accordingly after the sales ramp down?
I mention that because it seems to happen already, not just in Steam, but in retail, most games will hit $20-$40 within a MONTH of being sold new at 60 now. I like this because it seems to allow maximum profit (hitting the people that are willing to pay x pricepoint, then dropping and getting the next batch, etc), but it would be better if GS wasn't taking a huge chunk out of our creations.
Even if you don't buy used games, you still get fucked by the stupid EA "project 10 dollar", because it cripples the game in a way that makes it worse to loan to friends, and reduces your own resale value. Why would I continue to pay full price for games that are clearly not worth as much as they used to be?
I would like to say I am boycotting games that do this, but the reality is that big publishers aren't even making anything I would buy.
bluray read speeds aren't fantastic, and lots of tricks like having duplicated data and uncompressed audio etc are used to improve loading performance and other things on the ps3.
Thats why some games take more space on bluray in multiplatform games.
PC games have been using this method for years, and as you've seen there's barely any used market left for new pc games these days, if at all.
And also if you noticed, they weren't eager to fuck over the regular used market, this has only been the reaction to the mass-resale market gamestop and the likes created.
You can't really set this up long term because companies go out of buisness, rights change hands, etc., something that would need a regulatory body just to keep track of, and I don't think having a single body that all the industries retail earnings is funneled through is a good idea.
If they can do like steam does, and offer sales and/or lower the price after a while, it would be a direct competition to used games sales.
wait until the next console cycle.. I'm pretty sure the games (ALL of them) will be both, unlike now where some are DD and the rest are retail.
then a cycle after that I can't see any more disc-based games
Also, again (how many times does this point need to be made?), A lot of people like having physical copies of what they buy. They like knowing that they own what they buy. They like knowing that not only can they resell what they buy but 10 years down the line they will still be able to play it.
Also, benfits like more game content/free addons/map packs/whatever to first time users would increase new game sales.
Server side activation for multiplayer/online content works pretty well too.
I think one of the big differences with the PC game market is that I haven't paid $60 for a PC game in maybe a decade.
Why are you always looking for an argument? Even when we're in agreement.
I said we need to start offering an alternative. Meaning, not completely uproot everything and move to 100% digital distribution. But offer an option, an alternative. As in, in addition to physical, ALSO offer digital.
Sony, Nintendo and Microsoft need Gamestop to sell there games because they sell the most copys there. Problem is Gamestop sells used games for 5 bucks cheaper hurting Sony, Nintendo and Microsofts profits from people buying used instead of new.
They need Gamestop but Gamestop dosnt need them as much. They make more money off selling used copys then the new copys so if they were to ever stop carrying new Sony games on there shelfs they wouldnt be as hurt as Sony would. Gamestop could still could sell all the used copys of Sony games no problem.
Sony already is starting to do this and has been for a while with the PSN. Every new PSP game you can buy you can buy right off the PSN.
Even some full fledged games like Mass Effect 2, inFamous, God of War collection are all available for download off the PSN. The alternative to physical media is happening. It is something that will take a while to happen a lot more but it is happening.
Sorry, totally miss understood what you were saying. I've just gotten so sick of constantly hearing people talk about how physical media needs to die off that I see it as the default argument most people are trying to make in these sorts of topics :-/
People can argue about the others working fine with a second hand market, but their second hand markets are not pushed to the fore and in the mainstream.
You dont get second hand DVDs or books sold in upmarket stores. Mainly because its not worth it.
Why is there even a difference?
I think realistically the main thing has to be price, if you buy second hand dvds or books you are somewhat thought/percieved to be cheap. But games its perfectly acceptable. They are too expensive.
Whether or not the developers can afford to make them cheaper, consumers in the majority do not want to buy them at the prices they are dished out at.
Its up to the publishers what they want to do about that, it will probably be nothing then the status quo will be maintained it will probably even increase.
Very true, but console games have always come with a license-premium tag that goes to the console creator, that's always been the downside with buying consoles, even though people say how great it is to be able to play modern games without having to buy an expensive computer.
Unfortunately the $60 trend is bleeding over to the PC. It's the reason I passed up Starcraft II and Modern Warfare II (plus the deds) which I would likely have bought at $50 (especially Starcraft). After being out for over a year, MWII is still $60 on Steam.
But other than that, I just refuse to buy used shit from Gamestop. I mean, they might think "Hey you're saving $5 bucks buying used". But the amount of times I've had to return used games, even had to return multiple copies of used games from various Gamestops - yeah, I'd rather just buy it new. I mean if I'm going to be paying over $40 for Super Mario Galaxy I might as well just buy the damn thing new at Target, why waste the money on a used copy that I'll probably have to return or rub a piss stain off of anyway?
Gamestop has always, ALWAYS pissed me off with a lot of their practices. I've got a Wii in practically new condition I was thinking of trading in, and what could I get for it? $25. Yes, just $25. I could get ~$60-70 store credit, but even that's pathetic as hell. And what do they sell it for? Oh you know, 20 bucks less than a brand new one. Way to totally shaft me, Gamestop, thanks a lot.
...yeah Gamestop does not make me happy. 90% of the shit I do want to buy - it's always wanting to buy it new, and then I usually try to buy it someplace else since it's all the same price by that point anyway.
Or put another way, the developer's profit margin on a sale is too low.
Between physical-product production costs, shipping, storage, advertising, second hand sales, etc etc, there is too much bulk.
Maybe. I haven't been in the industry long enough to know all of that for sure. But that's the way it's striking me at the moment. I could be wrong though.
Way to generalize.
I used to work in retail, admittedly guitars and not games, but a huge portion of the overall profits came from used gear / accessories rather than new products. And any brick and mortar business needs to make profits somewhere since the overheads are so much higher than the 'online box shifters'; building rates, rent, employee wages, PL insurance etc.
The problem is often that new products are sold at such competitive prices that there is just no opportunity for profits. Oftentimes, the RRP of a new product would incorporate a realistic margin... for example, a brand new Fender Strat used to have an RRP of about £799, and it would cost the store about £550.
However, as online stores gained popularity, and pricing became more and more competitive, the actual in store price started dropping so far to compete with the online businesses, eventually, we sold those Fenders for £579, making £29 profit as opposed to the £249 we could if they were being sold near RRP.
So online stores which have much lower overheads/operating costs, were driving down prices of high street stores, who had to lower their prices to compete, despite having those extra overheads, which in most cases increase over time... profits go down, costs go up... not a good combination for a business as you can imagine.
This got so bad that the store I worked for sacked 75% of it's workforce, and ended up going bust.
I know this is guitars and not games, but surely it's a similar situation, new games have an RRP that should give high street stores a realistic margin, but with online sales competing so heavily, the in store price has to be reduced to the point the store takes almost no profit whatsoever, resulting in a need to get profits from somewhere else; used games in this case.
I agree it's a joke to pay such high prices for used games, but you have to remember that these businesses have overheads that need to be covered, and that money needs to come from somewhere, it's not coming from new products since the market price is so stupidly competitive, so it comes from used products.
In terms of combating the problem, I think the 'incentive to buy new' with one time use codes for DLC etc is probably the right way to go.
It's impossible to find old used games these days, their market are for new used games.
Oh for sure, I don't sympathise, and I agree it sucks that the devs don't get a cut of the used price. But I do think consideration needs to be made in this argument that brick/mortar stores need profits to remain open, and that isn't coming from new games.
I'm pretty sure it won't be long before the high street game shop is on its last legs just like Blockbuster is and most of the high street music retailers due to the move to online distribution. That happened because they couldn't cut a profit on new product due to the insanely low prices of online, and they didn't have the option to sell used, so profits ran out and the stores closed.
Oh yes, that's extremely important, which is why I think it's sad that gamestop has made a worldwide business from this, especially since the brick/mortar stores can't compete with them, barely any of those left compared to years ago.
Being able to sell your used games is important, making a worldwide industry out of it where you buy NEW used games that just came out and resell them at just about below the new price just becomes sad for everyone.
This scenario seems to be eerily playing out like the fall of the music industry.
I think games need to stop being so 'single serving experience' on a disk, and needs to start becoming a service like Valve/Blizzard do with their games.
I think the current retail model for games is going to kill off a large part of our industry (particularly consoles), and we're going to see a shift to more Free-To-Play MMO's/ social networking type games and services.
Before I was in games I was running a gamestation and then a blockbuster games and the company always pushed the pre owned side and they pay pennies for your games and make atleast 50% profit on things, if people wanted cash then its 75% profit on used sales. was ridiculous and a genius money making scheme, sucks for devs though, I remember EA did recall on products that werent shifting, god knows what they did with them though
I cant complain though, just got demons soul and vanquish brand new for £15 each from zavvi. still crazy expensive most places and demons souls is so hard to get hold of, they are cheaper than any used prices Ive seen aswell.
Well, all right, it's not my job to tell anyone what his or her business plan should be. My point, though, is that the games industry loves seeking an external enemy that they can blame everything on. All that when the industry is making billions of dollars!
Yes, I can understand that it's not fun to have to work hard on something only to get fired whenever the project is done, and all that economic malarky that the games industry has been going through. At the same time, I don't think infringing on consumer rights is really the way to go here. Software makers have been trying to avoid reselling rights for a while now by claiming software is a service and not a product, but I like to think we all see video games as products for all intents and purposes. The service things, like online authentification, are there purely to justify its status as service, without any purpose of its own.
I can resell every single thing I buy, except for video games? C'mon, that's just nonsense. Maybe, just maybe, a large part of the industry simply isn't very effective when it comes to delivering value for money.
don't you mean, while activision + zynga + valve + angry birds is making billions of dollars, and everyone else goes out of business?
I think it was like 12 major studios that went out of business in 2010?
Take All Points Bulletin. The big failure of 2010, right? According to these figures APB made 130,000*28=3,6 million dollars. I know what you're thinking; that's not a lot. But it is!
For that kind of money, you can make Amnesia: The Dark Descent five or six times over (based on numbers here and here, it's $600,000-700,000 to make) and Braid over 18 times (source).
And that's just APB, which flopped horribly. There must be games out there getting much more revenue and still being in the red. Do you think a couple of millions is too little money for clicking on guys until they die, or are the indie developers I mentioned perhaps a bit more effective with their money? I just think the problem isn't that not enough money is coming in, but that there's more money going out.
not quite sure if that's solely to plame on piracy, but yeah, there seem to be quite a few studios which waste money with overly ambitious expansion plans, overly luxurious offices and benefits, trying to be google #2, or just by bad management and non-existant organization. There's always studios where you start wondering how they can afford all this stuff (or practices)....
Maybe I'm just misunderstanding your point.
His point is that much better games were made for far less money.
I agree some games have stupid high budgets though, but sometimes it's necessary. APB's problem was that it wasn't good.
I didn't even mention Amnesia and Braid because they're better, because I couldn't tell (not having played either APB or Amnesia), but common opinion has it that they indeed are, which makes it all the more painful.
So instead of blaming pirates and Gamestop for not giving you enough revenue, why not see how you, as a developer, can cut down costs?
I don't think it's valid to blame pirates and gamestop for poor sales, but it's valid to blame them for loss of revenue. If your game sold poorly, it was probably not that great of a game to begin with.
It's too hard to tell because like everyone knows, just because your software got pirated doesn't mean if they couldn't download it they would have bought it.
While I do agree that something drastic (though not necessarily bad) may happen in the near future, I wouldn't expect a shift to purely on-line games.
There's still a large group of people who don't appreciate MMO's (including me :poly142:) and there will always be a market for single-player games just like there is a market for other solitary forms of entertainment. But, I do agree that single player games will become more like MMO's (or rather RPG's in general). Customers are no longer willing to pay the full price for 6-10 hour long campaign, or as you described; a single serving experience.
Huge blockbuster titles like Assassin's Creed already feature RPG elements and other forms of character/house customization. This year is filled with single-player RPG titles and they all are on the lists of the most anticipated games. Bioware heavily markets their save-transfer feature (effectively extending the experience beyond a single game), while on-line shooters like Brink, COD, BC2 or TF2 boast heavy character customization, unlocks, perks and all that jazz.
I believe this might be the direction the core gaming is going in. RPG's and MMO's are known for having addicting mechanics and a lot of replay value, so it feels only natural to borrow from them. So yeah, I am fairly optimistic about the future of gaming. Especially as a gamer; I can't remember the last time I anticipated so many games.
About the social gaming; I'm rather sceptical about it. I have this feeling that it might become just like the MMO market, where one company owns the majority of the market while everyone else tries to steal a piece of that cake. Social gaming just doesn't seem like a genre that favours diversity; they're one of those games that are only fun if many people are playing them. Therefore customers will always flock to the games that are already being played by their friends. I feel that Zynga had already taken all there was.