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GameStop: Discouraging Resales Hurts The Consumer, Too
GameStop: Discouraging Resales Hurts The Consumer, Too Exclusive
November 25, 2008 | By Leigh Alexander

November 25, 2008 | By Leigh Alexander
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    30 comments
More: Console/PC, Exclusive



As the industry prepares to face a near-certain economic downturn, many developers and publishers are looking at ways to encourage consumers to buy games new -- and, concurrently, discourage the sale of used games.

One often-cited example is the fact that Nintendo's Wii Speak microphone peripheral comes bundled with a "Wii Download Ticket Number".

This is required to access the corresponding Wii Speak Channel -- although Nintendo is now claiming that it will furnish new Download Tickets for the Channel on request.

In addition, Epic's Mike Capps has been discussing how to fight the secondhand market, suggesting provocatively : "I've talked to some developers who are saying 'If you want to fight the final boss you go online and pay $20, but if you bought the retail version you got it for free'."

But leading game retailer GameStop has made no secret of the role that used game sales play in the success of its business model, especially as economically-crunched consumers get ready for the holiday season. Are these new initiatives creating a point of contention between GameStop and game publishers?

"I think it creates contention not only for us, yes, but also for the consumer," says GameStop CEO Dan DeMatteo -- who recently spoke to Gamasutra about the retailer's holiday outlook and hardware performance in his stores.

"Anything that limits the transferability of a game from consumer to a friend of theirs, to selling it on eBay, to exchanging it and trading it with one of their friends, or selling it back to GameStop -- I think is a bone of contention with the consumer," DeMatteo commented to Gamasutra.

"The consumer has been trained that there is a residual value to their video games," he explains, citing a study conducted for a book about French retailer Micromania -- whose acquisition GameStop just completed.

That study, DeMatteo says, identified the "residual value" of a game purchase to a consumer at about $20.

"Also, we will give out approximately $800 million in credits this year -- trade-in credits that will go toward the purchase of new video games," he adds. "The consumer, oftentimes and especially now, needs that residual value from those games as a trade-in to be able to afford a new video game."

DeMatteo explains that GameStop's trade-in rates always increase concurrently with the sale of new video games. In other words, consumers are accustomed to accounting for the residual value of games they've purchased in the past as dollars that can help buy a new title.

If the consumer is no longer able to value their own purchases that way, DeMatteo concludes, it will "eventually get the consumer upset, as well as GameStop."


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Comments


David Saunders
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The issue isn't discouraging resales, it's how developers can share in the profit. No one would be complaining if developers got a slice of the pie.

David Saunders
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p.s. That wasn't a critique of the article, as it is clearly relevant, but a critique that the industry is focusing on the wrong topic.

Luke Winikates
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I think David's right, but how can publishers give retailers an incentive to retailers to pass even a small amount of the profit from used title sales? I have no idea what the profit margin is on new titles, but presumably the sale of used games is pure profit to the store-- how can you convince them to give that up-- which would not only mean a percentage drop on their take-home from each sale, but also more costs associated with the simple effort of accounting for it all and reporting it in the first place. It seems like retailers and major publishers need to sit down and cooperate on getting that market segment in order; being adversarial will just keep them trying to gouge each other to make up for perceived victimization from the other side.

E Zachary Knight
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Why should they get a slice of the second hand market pie? No other industry get a cut of second hand sales. Not Movies, not music, not books, not autos, not furniture, not anything. Why are games so special?



If the games industry wants to increase their profits, they need to provide services and products that consumers think are worth the investment.



The idea of paying $20 to be able to finish a game you bought would kill even the initial sales of the game.



Publishers and developers need to learn a little thing called the price/value comparison. When a customer looks into buying a new product, they will compare the price of the product to the perceived value of the product. The value could range from anything from features to aesthetics to resale value. If the perceived value of the product and the price of the product do not compare evenly, the consumer will not buy it. They will look for something that has a better price/value comparison.



By limiting the resale potential of a product, the publishers and retailers are severely limiting the value of the product and fewer people will buy it.



This is what Gamestop is getting at.

Tom Newman
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The main problem is that retailers typically only make $5 on a $60 title, less on budget titles, making the profit margin on new games very slim. Without used games many retailers (including many Gamestop locations) would close down all together.



What is broken is the retail model - which makes it impossible for small businesses to sell videogames, due to resons discussed in past Gamasutra articles, and creates a business environment where used sales are necessary.

Ed Macauley
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Developers have no business collecting any of the profit involved in used sales. As Mr. Knight pointed out, no other industry works this way. I'm fairly sure that the law is with the consumer on this one with the right of resale and first-sale doctrine. So far the consumer has prevailed against the EULA.



If developers and publishers want to prevent used sales, we need to go to a subscription only model. Since a subscription model doesn't work for every game, I think the way to go is retail bonuses. Buy a new copy of the game and get some kind of perk with a one-time code, like an extra level, special gun, whatever...



Don't limit the basic functionality of the game. That's just stupid and possibly illegal.

Brenton Woodrow
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This topic was recently discussed at the Montreal International Game Summit at a keynote by David Braben. I believe he stated an excellent idea that could solve this problem. He posed the idea that publishers should release two different SKUs for each game: a full priced resellable SKU and a cheaper not-for-resale SKU.



Video Game trade-ins are not going to go away but selling not-for-resale copies at a price that is competitive with used copies would help give developers and publishers the opportunity to make long term money on their games.

E Zachary Knight
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But what would stop people from reselling those not for resale copies of the games? Sure Gamestop won't buy them, but people will sell them on ebay and Amazon.

Roberto Alfonso
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I don't see anything wrong with adding "extra value" to games. You can have the story mode and a branch at the end that can only be accessed through a code. In this case you would be able to finish the game without paying anything even if you bought it in a resale, but if you wanted the extra content, you would have to pay for it.

Maurício Gomes
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Unfortunally the way that industry is acting actually makes some nasty things happen :/



Like, I know a lot of people that will get Mirror Edge pirated, because they refuse to give any money to EA that they perceive as evil, when they want a soccer game they buy Winning Eleven instead of Fifa (original this time), and when they want a basket game they buy 2K Basket...



Unfortunally while some people discuss the ethics in games like violent games, I think that we should discuss the ethics in MAKING games, seriously, wanting profit from used game sales? Buying out companies and getting rid of their workers just for the IP? Saying that piracy is the fault of your crappy game selling 1 million copy instead of 2 million? Spending 20 millions to make a single game, then complain that profits are diminishing? Sell a game for the same amount of money that 50% of the world has to spend with food in a month?



Seriously, until companies spend millions to make a game, and try to sell to millions people for 60 USD we are in a stupid business model, also common, 20 USD for DLC? Are you idiot? I want to pay 20 USD for a NEW COMPLETE game, not for DLC! Expansion packs for 40 USD? Baaah...



The PC market is not dieing, the publishers are dieing and are not noticing, my PC is full of non-pirated PC games: freewares (like the great Cave Story, Varia, America Army), open sources (FreeCIV, Sauerbraten) and plainly great reatail games that do not costed me a month of work (Audiosurf for 9,90 for the win o/)



Seriously, publishers are getting more and more bloated and mismanaged, and more and more greedy, then they complain of piracy ¬¬

Gregan Dunn
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----Tom Newman Quote---

"The main problem is that retailers typically only make $5 on a $60 title, less on budget titles, making the profit margin on new games very slim."

------------------------------



I can assure you that on a $60 game, retailers are making a sight more then $5. GameStop and all it's competitors all fight to get their 30% margin and are making close to $18 per game sold. On top of that they demand all kinds of market development funds to stock your product and display it appropriately, often demanding tens of thousands of dollars just to put your game on their store shelves. The business for new game sales is a solid one (why do you think 7-Eleven is making a move into the space?)



Used game sales are significantly more lucrative for GameStop though, with their margins shooting through the roof, way past the 30% that they get for a new game sale. It is not unheard of for GameStop to make 50% margin or higher on a used game sale.



A quick search of the web finds an article on Shacknews that states:

------------------

"In exchange for used games, GameStop offers in-store credit that's generally around 30% of the title's worth, with the game then sold for about $5 less than a new copy. In other words, the retailer buys low and sells high."

------------------



On a 60$ game, that gives GameStop about a 67% margin on a used game sale.

Christopher Plummer
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As with anything in retail, the wholesale price changes based on the reputation/perceived value of the item. In video games, we have set ourselves to a fixed price of $60. So when blockbuster sequel is up against new IP you charge the retailer more for blockbuster sequel because both you and the retailer know that it is a less risky sale and brings in customers.



IMO, publishers need to acknowledge that used video game sales have helped curb pirating on next-gen systems and have also contributed to these astronomical attach rates that make no sense when you look at the recession we are currently in.



Finally, I think the compromise that retailers and publishers need to come to is what is currently happening -

- Publishers make games that are worth keeping. (Fallout 3, better Sports games [NBA 2k9, NHL 09, FIFA 09], Rock Band)

- Publishers recognize that $60 is for AAA titles only and start hitting price points that are below that. Every game can't compete with Gears of War 2, Halo 3, GTA IV, or Resistance 2 nor should it try. Recognize that NCAA play can be just as thrilling as Professional play =p (Examples: Warhawk, Socom, Tekken Dark Resurrection)

- Publishers need to keep the retailers honest by using digital distribution and help make renting games a useful revenue stream again by cutting the costs associated with it ($8-$10 is too much for a couple of days with a game). Retailers need to do a better job of bringing games into the mainstream. We don't need them to bring us the hardcore dollars, we are capable of doing that on our own. We pay them a cut to reach out and touch the rest of the world and they aren't doing it.

Maurício Gomes
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I still think that the publishers are thinking in a too narrow market, if they sold their games for less and for a broader market they would sell MUCH more, thus high prices would not needed.



Also spending less is important too, today game development seemly wastes money fast.

Bryan Diggs
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Totally with you Hélder Gomes Filho, if it came down to selling more games at a lower cost, $30-40 buck a game rather than $60, and actually selling more games, or selling fewer at $60, sell more cheaper. If you could make the same money and have more people play your game, do it. I'm sure that would REALLY burn some of those execs. But if you do that more people will pick up a title and you could grow your customer base. Having more consumers hold up you company is better than fewer, ever if it means less money from each individual.

Gregan Dunn
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----Helder Gomes Filho----

I still think that the publishers are thinking in a too narrow market, if they sold their games for less and for a broader market they would sell MUCH more, thus high prices would not needed.



Also spending less is important too, today game development seemly wastes money fast.

-----------------------------



Thing is, retailers have been fairly involved/responsible in causing the market conditions that require publishers to make big budget games and to sell them for $60 or more.



- Limited shelf life (retailers will kick you off their shelf for the next new release) forces you to make a big splash and draw the most attention to your game.



- Significant loss of revenue to used game sales forces publishers to charge more for the new games.



I will also throw out that decreasing the price of your game isn't magically going to increase the sales of your game to the same point of revenue generation that you require to support your business. Dropping the price of your game by 25% doesn't magically increase the sales of your game by 30%-35% that will make up for the lost revenue per unit sold.

Bryson Whiteman
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Dropping the price by 25% may not magically make the game sell that much more. But I know that I buy 3-4 $30 games for every $60 one that I buy.

E Zachary Knight
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Gregan,



Is that really the retailers fault? Let's ask this. When was the last time you saw a brand new copy of a movie from 1985? It was probably the last time you browsed the movie section at the store. Now, when was the last time you saw a brand new copy of a game from 1985? It was probably 1985.



The reason games are not capable of bringing in the profits needed to recoup costs is because were are stuck in an arms race in hardware.



Imagine how horrible it would be for the movie industry if there was a format war like Blu-ray/HD-DVD or VHS/Betamax every 5-10 years. They would have to remaster their movies too often to be worth it and they would probably abandon each prior format faster.



Now look at games. A new console comes out every 5-10 years. Each one with their own format. None of which support the prior consoles 100%. You have to quickly get out new content as you will not be able to rely on prior format games.



If we had a longer console cycle, we could see more long term sales potential for games. Currently, we can still do it, but it is harder with such short console cycles. As much as I harp on Sony for the PS3, their 10 year plan is a good thing. If only they kept true backwards compatibility. Can you imagine if Sony kept that, they could have kept the PS2 dev teams and let developers use that format for budget titles while the newer format for the blockbusters. That would have been nice.



Back on topic. The whole of the games industry needs to get their heads out of the short term and into the long term if they want to really profit. Flash profits cannot sustain themselves for much longer. They are only good for shareholders.

Maurício Gomes
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Again, this is the viewpoint from places where Gamestop exist, to start, I know several places in the world where there are no used game resell, only new games, the reason for that is that there are not even a culture yet that games can be resold, usually on the same places, since games cost too much, people buy only games that they think that is worth keeping, the result is that adventure games for example are widely pirated, the less replay value a game have, the more it is pirated.



Also people compare replay value with money value when buying the game, for example Guiter Hero series game are well sold here, they are really popular, there are even some makeshift guitar hero arcades here, while Assassins Creed plainly sunk on the market here (I am in Brazil for those wondering), strategy games also sell well here, as multiplayer games in general (Counter-Strike was selling like mad until the government banned it), also even Diablo single-player was well sold because of its random generator of dungeons.



Also games that were sold cheaply sold like mad, specially well known games (ie: one day King of Fighters showed up here for 15 USD, it sold-out in one day)



The main reason that I see that games are expensive is still publisher fault, here in Brazil we have "EA Brazil", EA Brazil is the biggest game distributor here, and one of their executives were my teacher at university, and once he explained how the pricing here was formed, he claimed that the biggest problem of selling "Jedi Knight: Outcast" here was Activision fault (Jedi Knight: Outcast gave EA Brazil a MAJOR loss...), because Acvtivion asked 40USD in royalties, bumping the price way too high in the final end.



Then people would argue: Oh, but retailers have 30% of profit margin, why they do not operate with a smaller margin?



People forget that there are taxes, and that in several locations of the world taxes are applied over the final price, if a tax is of 20%, this mean that the retailer get only 10% of profit, in some places where taxes are higher, it is impossible to operate below some margin, thus trying to force the more tax paying end to have less profit totally unsucefull.



The reason that I say that is that altough obviously a publisher must pay his taxes too, he do not pay a tax per copy sold unless he is printing the copy himself, and even if he do that printing a copy of a game is not expensive (usually from 1 USD to 5, depending on the packaging and media quality), if the publisher sold each copy for 10 USD, that would be a 50% of profit over the cost of printing, a already big profit in that terms (in relation to the cost of printing, not developing).



So I still think that like the guy above me said, the industry must think in more long term thinking, specially because shelf space is not a real limitation, claiming lack of shelf space is stupid, just do like retailers do here: place few copies of the game on the shelf, and store bazillions of copies somewhere else, you can put several games into the shelf, that thing about shelf space is bullshit.



Also complaining that used games dent sells on new games and that is hard to sell used games, why companies do not do like Ubisoft is doing here? Ubisoft is selling Age of Empires 1 & 2 (in the same pack, along with expansions), Splinter Cell, Sands of Time and several Rainbow Six games for about 10 USD each, and they are selling a lot (at least near other games sold for 60 USD), in fact altough I have ever bought only 3 60 USD games, I already spent about 500 USD easily in 10 USD games...



So, companies want to sell used games too? Just do so, take a look at www.gog.com and sell there, nothing stop them, but they should not prevent players from selling back their games.

Christopher Plummer
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Gregan, I don't see how that falls on the retailers shoulders.



- If your game doesn't sell then it has to make room for those that do. Is the industry selling these games on consignment? That might be the problem right there. Otherwise, I don't see why the publisher should have a say in where their game gets put if the retailer is buying the stock outright.



- Also, where is the proof that used sales are hurting publishers?



- Also, how is it the retailers fault that publishers are spending so much on next-gen titles? 200,000 sales @ $45 should gross the publisher a respectable $9 million in revenue. On a $4.5 million budget they might be able to bring more than 2% of the titles into the black. Instead they keep going for $15 and $20 million projects which force them to have to sell 333K-444K units just to break even.



Despite all of the negativity that the PS3 has gotten, I feel they are at the forefront of this industry shift. 10 year platforms, publisher controlled digital distribution direct to consumers through the console, lower price point next-gen games, letting advertising pay for a chunk of the infrastructure costs...

Mike Lopez
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In 10 years this will be a moot issue since most all game distribution will be handled on-line.



And with the cost of distribution decreasing significantly for the publisher (vs. current brick and mortar distribution) and 100% of the revenues going to them how much do you want to bet that the price of games will be the same if not higher than they are now?

Gregan Dunn
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I'm shocked that used game sales are getting supported by so many people on here... I assumed that there would be more livid developers on here posting along with me. Odd thing to find a lack of developers on Gamasutra!



In response to Christopher Plummer:



Why does this fall on the shoulders of the retailers? For one, they demand incredible support from publishers (unique content for games sold in their stores, special treatment with promotions and sales exclusive to their chain, legalized bribes to get them to stock your product on their shelves otherwise known as MDF and the list goes on) and then as soon as you give them all that support, they quickly stab you in the back and sell your game used and make more money on that unit sold then you would as a developer on a unit sold new in their store.



You need proof that used sales are hurting publishers/developers? What proof do you really need to prove this point? If I'm a publisher trying to move my inventory through a retailer and the retailer is constantly under my price of a new copy by five bucks it's pretty obvious that new game sales are going to suffer. How big an impact is this having on the industry? What percentage drop in sales is this causing? I haven't seen specific data, nor can surmise how they would effectively calculate this. Regardless, if it's 5%, or 50% it's still impacting the number of new units sold.



With regards to the big budgets of the games these days, we're all to blame at the end of the day. We all demand these block buster hits from game companies, we all want to see the most cutting edge technology wrapped around our comfort food games of choice. My concern is that retailers are driving up the cost of new games by selling the used copies and cutting away a huge secondary market revenue stream from the publishers that actually fund game development.



GameStop needs to turn around and become it's own game publisher and start funding development of video games. Within the next 5 years or so their business is going seriously be hit with the impact of digital distribution and they're going to be completely cut out of the loop.

Christopher Chong
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It's a bit of a long shot, but maybe publishers can set up some sort of 'recycling' program. Have recycling stations/kiosks set up at malls, stores or even places like GameStop that will take your copy of the game and pay you for it (via credit/debit card or something).



In theory, someone else could then walk up to one of these kiosks and buy used games from it - like from a vending machine.



However, such a machine would also require some new way of packaging game discs - so that the machine can remove it from its box and test the disc. Of course, this means that it's a system that has to be widely adopted - maybe even by the movie and music industry - to justify the cost of setting it up.



Alternatively, the big console companies (dunno about PC games publishers) can set up their own stores - ala Apple Stores - to sell their wares. That way, they would be able to create their own used-games mark

Christopher Chong
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It's a bit of a long shot, but maybe publishers can set up some sort of 'recycling' program. Have recycling stations/kiosks set up at malls, stores or even places like GameStop that will take your copy of the game and pay you for it (via credit/debit card or something).



In theory, someone else could then walk up to one of these kiosks and buy used games from it - like from a vending machine.



However, such a machine would also require some new way of packaging game discs - so that the machine can remove it from its box and test the disc. Of course, this means that it's a system that has to be widely adopted - maybe even by the movie and music industry - to justify the cost of setting it up.



Alternatively, the big console companies (dunno about PC games publishers) can set up their own stores - ala Apple Stores - to sell their wares. That way, they would be able to create their own used-games market and get money out of it.

Christopher Chong
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It's a bit of a long shot, but maybe publishers can set up some sort of 'recycling' program. Have recycling stations/kiosks set up at malls, stores or even places like GameStop that will take your copy of the game and pay you for it (via credit/debit card or something).



In theory, someone else could then walk up to one of these kiosks and buy used games from it - like from a vending machine.



However, such a machine would also require some new way of packaging game discs - so that the machine can remove it from its box and test the disc. Of course, this means that it's a system that has to be widely adopted - maybe even by the movie and music industry - to justify the cost of setting it up.



Alternatively, the big console companies (dunno about PC games publishers) can set up their own stores - ala Apple Stores - to sell their wares. That way, they would be able to create their own used-games mark

Christopher Plummer
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Online distribution can't stand on its own unless consoles succeed in making the leap into replacing the cable-box and/or computer. Like I said before, with online distribution we're able to hit our hardcore customers without retail help, but we're not going to have the same success we currently do with the casual or gift buying crowd without a brick and mortar op. Also, think of how expensive consoles will have to retail for if retailers can't sell games...



Something is not making sense. Why would a retailer make you jump through all of these hoops? Are we pushing that much risky inventory on them that they need this revenue to balance their portfolios? Is this the blowback from having a $60 ceiling on game sales?



I think publishers expecting to be paid for used game sales is an over zealous reach and uncalled for. Our software sales are fantastic every month and instead of doing their job and trying to figure out how the average xbox owner can have 8-9 games in an average of 1.5 years they just assume, wrongly, that this was all their doing.



I'll give credit where it's due...trade-ins have helped our short tails positively. And I agree that they have hurt the long tails on all but the cream of the crop, but I see that as a challenge to the industry to satisfy its gamers with more classics and less retreads.

Mark M
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Lets not forget that the gaming industry is one of the few industries that is allowed to sale a product with a 'no return' policy. Trading in a video game for store credit is the only way most consumers have after being conned into buying a "bad product" from the gaming industry. As far as the legalized bribes game stop forces upon game developers I have no sympathy for them, the industry is willing to pay these bribes so Game Stop gets away with it.



Sooner or later we will have a video game bubble burst on us like it happened with Atari. The underlying problem with Atari was crap games. If (or should i say When?) game developers start moving into a no resell business model they better have the sense not to push a crap product on the consumer or they'll end up with games that don't sell until well after game reviews are published and only particular good games make a profit.

Maurício Gomes
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As I said in other article, and even here: Noon resell a game that they want, or at least not until the new copies are out of the shelves, because they are busy playing it...



Now lets see what happen to repetitive games, just for a example I will talk about a game where you kill people around and hide in a crowd, numerous times to the point of being repetitive (coencidences are... whatever you want)



I played that game, one alraedy started for my luck, because when later I played the tutorial I dumped it imediatly (man how that unskippable tutorial suck!), after some time playing (ie: 30 minutes) I got bored with the game (that on the first minute was really cool) and went away.



Happily to me I do not bought that game, I played it on my friend house that still had his copy... Why he still had his copy? Because it was pirated, he played it on a computer of another friend (original) found it to be not worth having, and got a pirated copy (that even that made he bored and he deleted because it was waste of disk), his original friend, bored with the game too, ended dumping it (because here no store buy used games)



Now suppose that all those bored people bought the original game...



Probably the person that pirated, would buy a used copy, get bored and sell it again.



The next person (me) would get also a used copy, play the stupid tutorial, and sell it again.



Now tell me: The company complains of piracy and used games, what they expect when their product is so crappy that they can not stay in the hands of a gamer until the shelf life is over? If the game was released one week ago, and half of its shelf is used games, certainly it is a bad game.

Jason King
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Video games are very much like movie... they cost a lot to make and can be pirated fairly easy... the way the movie industry gets around this is by releasing the movie in theaters which drastically reduces the pirating.



The solution which I've heard before is to require the gamestops of the world to not resell the games for some period of time to require the first flow of buyers to purchase at full price. Then you re-release the game at a discounted price to try to counter the resells. That way the first month sells at $50. The people who won't buy the game at $50 but are willing to buy at $25 will buy the game new (at the cheaper price) instead of through a resell... just a month later.



If EA, Activision, etc got together they could boost their flow through BestBuy, ToysRUs, Joe Bob's Unused Gamestore, etc and eliminate Gamestop altogether... everyone wins... except Gamestop.

Tawna Evans
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Jason King, that seems like a good idea. Though, it wouldn't stop people from selling games to friends or online through sites like Ebay. Though, perhaps there should be contracts with retail stores to require a wait time of a few months before they could sell used games at prices that compete with new games. However, I'm inclined to think that stores like Gamestop would probably choose not to stock the games that require such contracts. Hmm... The only way I see that happening would be for govement legislation to make it a law.

Tawna Evans
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Maybe games should become available to be played at entertainment centers like Dave & Busters before become available for purchase? Playing games at entertainment centers would then be the game equivalent of going to movie theaters.


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