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GameStop: Used Game Sales Fuel Industry Growth
GameStop: Used Game Sales Fuel Industry Growth Exclusive
January 16, 2009 | By N. Evan Van Zelfden

January 16, 2009 | By N. Evan Van Zelfden
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    14 comments
More: Console/PC, Exclusive



Developers like Frontier's David Braben often point to the sale of used games as a revenue leech for video game companies, and publishers like Take-Two are looking aggressively at new business models to discourage it.

But GameStop chief marketing officer Mike Hogan defended his company's practices during a question and answer session with the audience of developers, executives, and attorneys at SMU's Game Business Law summit in Dallas.

To present his perspective, Hogan used the example of buying a new car every two years. "If you couldn't sell your old car -- would the industry sell more cars?" Without the trade-in value of their current models, Hogan argues, car owners wouldn't buy as many new vehicles.

"We track this fairly closely," he says, claiming that well over 90 percent of the used games GameStop sells are over 90 days old. "We believe we're extending the life-cycles of users."

Hogan also says 75 percent of all the credits that GameStop issues are utilized, immediately, to purchase a new game.

Specifically, Hogan says that more than twenty-percent of all copies of Call of Duty: World At War that GameStop sold had a trade credit attached to the transaction.

"I realize there are other perspectives," he says, "but ours is: trades and used fuel growth in the category."

After the talk, Gamasutra asked Hogan what the company would do if the ability to sell second-hand games was in some way diminished - perhaps by more online activation of retail titles.

The executive noted: "Obviously, we believe in the consumer's right to do what they want, and we want to champion that right. The consumer owns a product, and they want to sell it, because it provides a value to the industry, what we want to do is champion that."


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Comments


Peter Park
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His example is wrong and irrelevant.



A car is a necessity, something we must have at least one at anytime (unless you're in NYC). There is an intrinsic value in the car--the hardware--itself; without a car, you can't move around the town as fast.



A game, on the other hand, loses its disc's value once a player's finished with the game. The experience a gamer had with a title will still remain with him (although it will diminish over time) even if he resells the game for a few bucks. So, there isn't much loss for a gamer to resell a finished game; there simply isn't a need for anyone to keep a copy of that game at all time.



Game is a software. Playing a game to the end is akin to making a image of a disc. Reselling a game is like making a image copy of a software then selling it to another person to make the image.



Comparing game reseller market to that of automobiles is just plain dumb, and I had expected the GameStop rep to know better. I guess I was wrong.

Dave Endresak
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I cannot understand why this topic continues to be discussed. Buying and selling used (legitimate) merchandise of any type is perfectly acceptable and part of any product's life cycle. What is truly silly is how many people claim the SRP for games today is "too high." This shows a complete lack of perspective on historical development of the medium, including the fact that the SRP for games 15-20 years ago was $50-$70, or even $80 for game cartridges that included battery backups. In addition, imported games from Japan became a viable business about 1991 or so, and the prices were set according to Japanese SRP which was (and is) considerably higher than North America.



One should question why the game industry continues to discuss this topic when it doesn't raise any ire in other industries, including other media formats such as various print media or digital media such as audio or visual arts. The game industry has no reason to be so insecure and would be better off spending its time and energy on making products that appeal to a much more diverse audience. This would help the industry evolve even more than it currectly has, and would have a much more important impact on sales than worrying about what customers do with their property.



It's also somewhat amusing that there was little discussion of this topic 15-20 years ago, or even much more recently prior to GameStop consolidating various specialty chains such as Software Etc, Electronics Boutique, Funcoland, etc. Nor is there much mention of etailers such as Amazon or auction sites like eBay, Yahoo, etc (and the auction sites should raise the issue of piracy sales far more than any worries about used sales of legitimate products).

sean lindskog
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I'm not surprised this topic is still being discussed. The used games market cuts game developers and publishers out of the revenue loop. Whether it's fair or not, it drastically affects their business.



In the past, the general idea was: 1 new game sale = 1 user / household

With the resale trend: 1 game sale = multiple users



Obviously this can have tremendous impact on the bottom line. Maybe it means games will have to become less expensive to produce, and studios will need to downsize. Maybe it means more studios will fail to make a profit. Maybe it means different business models for selling games will emerge (e.g. downloadable content which cannot be resold). Any of these things are serious issues for the games industry, and should be carefully considered.



Those arguing for resale tend to think of games as a piece of physical property. Fair enough. But I think it's equally valid to think of a game as an experience sold to a single person, kind of like a movie ticket. That's also a fair business model. The fact that games come on a disc which can easily be resold is really just a technical detail - one which can easily be changed in today's market where all major consoles have internet connectivity.

Matt Ponton
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"It's also somewhat amusing that there was little discussion of this topic 15-20 years ago, or even much more recently prior to GameStop consolidating various specialty chains such as Software Etc, Electronics Boutique, Funcoland, etc. Nor is there much mention of etailers such as Amazon or auction sites like eBay, Yahoo, etc (and the auction sites should raise the issue of piracy sales far more than any worries about used sales of legitimate products)."



I have to agree, and I just wanted to comment that the reason there was little discussion of this topic 15-20 years ago is that not a lot of people were privy to the retailer's cash flow as today allows. (Thanks Al Gore!)

Meredith Katz
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"But I think it's equally valid to think of a game as an experience sold to a single person, kind of like a movie ticket."



Still, the reason movie tickets are one-use things is that they aren't selling you the experience of the movie for that one-use ticket. What they are doing is renting you a chair for a specific time period in a limited-space area. It's not the same -- it would be if in order to play used games you had to go to the store and play it in a seat on a chair there, but obviously that isn't the case here.

Meredith Katz
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* in a seat on a console there, whups.

Bob Stevens
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The first sale doctrine exists, and many industries including this one have just dealt with it. You can argue that it doesn't apply to games or software due to "licensing" versus "selling", but it will mostly just be a waste of time.



The industry is putting up record profits every year. If it's leaking money it should take a closer look at its expenditures rather than spending so much energy trying to eliminate an intentional, legally protected consumer convenience.

Sean Francis-Lyon
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When you buy a game, you are not buying a physical product, but a license to play the game. The current industry standard is a transferable license that never runs out, but there is nothing wrong with different kinds. If you want to buy a license to play for a moth, thats fine. If you want to buy a non-transferable license, or one that runs out, thats fine. Publishers can sell whatever kind of license they want and if that license if worth the asking price, you should buy it. If they charge more than the license is worth you should not buy it.



If I had the choice between a $50 transferable license and a $40 non-transferable license, I would chose that latter, because the right to resell a game is worth much less that $10 to me.



The question is not what is fair. So long as both parties know what they are agreeing to then any license is fair. The question is what kind (or kinds) of license is best for the industry as a whole.



I for one think that people are paying too much for the right to resell their games and that both developers and consumers would be better off with non-transferable licenses (which is what Digital distribution is doing).

Christopher Plummer
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$60 games was just another misstep in the move to HD gaming. Games need to get less expensive not more expensive. Developers have no one to blame but themselves. If they want to charge more for games then they need to do it through DLC not charge more AND charge more for DLC.

sean lindskog
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Sean Francis-Lyon has it exactly right. I have no idea what "intentional, legally protected consumer convenience" the previous poster is talking about.

Saul Gonzalez
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GameStop is merely taking advantage of the fact that there's a large number of customers willing to resell their games cheap and early and/or buy them used at near-full price. This can only mean that there's a major flaw somewhere in the game industry's business model. I wish I knew more economics so I could tell exactly where it is.



This is an excellent post on the subject IMHO:

http://boesky.blogspot.com/2008/12/brief-reminder-of-gamestops-ad
diction.html

Lucy Bradford
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@Peter Park



His example is perfectly fine, change game re-selling to car industry. My father last year used his old ford focus in trade for a newer model. There is no way people flat out buy brand new cars because they're too expensive 15-20k range when used cars are 6-8k. In the car industry many people buy used cars from used car dealers rather then a ford dealer because it's too expensive!



I don't know where you get about NYC... your logic is very skewed, try something that applies to the rest of the world not a small minority. We're talking about "re-selling" after all not what a person does with their car from getting to A-B. In the correct context it makes sense.



Which by the way you will find that if I or anyone else trades in their car for a newer car that dealer will take your old car and sell it for more... This is something that's been going on for more then 50 years, auto-mobile makers haven't complained about it, it just seems game developers are very greedy, especially when you consider Halo 3 made nearly half a billion and complain that they're losing money to used game market...

Ken Nakai
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Jeez, this argument again. All of you who are arguing that it's a license to use the game, guess what? It doesn't matter. You really think developers and publishers are really losing that much money on used game sales? Think it through. Why are people buying the used game rather than a new copy? Most likely? A combination of two factors: price and the quality they expect from you the developer or publisher. If you push out high quality games at a reasonable price, people who have no problem paying for a new copy. But given the crap a lot of publishers and developers are pushing out (buggy, limited, similar to half the other games out on the market), it's no wonder people don't want to pay $50-60 to experience the same thing they just paid $50-60 for. Just look at the piracy argument. It's the same basic idea. The only difference is that you've got a section of the market that would rather pay than download a pirated copy.



So, what do you the irate developer, who dreams of an extra million you'll never get, want to do? You'll try to use DRM or something like it to shackle the gamer who shelled out for your game. Meanwhile, the pirates gain more allies and more reasons for people to torrent down a cracked (yes, your DRM doesn't work) version of the game and now you're losing even more money.



You want to use comparisons, let's do that:



Cars: Are generally a necessity so it's a stupid argument but let's roll with it. A car is no longer an asset, it loses value and isn't worth the investment. Selling a used car means you get to move on to a new car, most likely. That's good right? If you're a car manufacturer, you want people buying new cars since that's where you make your money. How did they deal with the used car "gray" market? They invented "pre-owned" sales, dumbass. You want to make money off used sales? How about you buy back your super valuable game you dream about every night and refurbish it and resell it for 40% less except now you've got margins of 50% or better? Wake up.



Movie tickets: Really? Here's the simple reason people are willing to do it: THEY'RE PAYING $5-10. Oh, and here's a funny thing...it's for the experience, it's like going to Disneyland for a Peter Pan ride. Sure they can shell out for the movie on DVD but they want to sit in some ride and enjoy it with others. Later, they'll go and buy the DVD and...oh, look...they might sell it used to someone else. How did the poor movie industry take it? Have you heard of Previously View movies? Funny, the industry has. It's recapturing some of that value.



How many times do we need to have this stupid argument before all the naysayers, all those developers that don't have business degrees and keep thinking with greedy little brains that they can some how capture more money by screwing over the consumer. Guess what? It doesn't work. Why? Because the consumer has free will and can choose another product. Or, wait, better yet, they can chose to torrent a cracked copy of the game and you lose even more. Pay attention to the piracy issue and to how Stardock and others have been dealing with it. They may not gain customers because of their actions but that's because they're operating the way everyone used to operate. You on the other hand feel it necessary to make it harder to play your game which means all you can do is lose.

Christopher Plummer
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@ Ken



Yes, I do think developers are losing a lot of money thanks to used sales. It's just not the developers that most people think of because they don't have the highest profile. The problem with GameStop is that they are the largest Retailer of Video Games in the world and are also the biggest retailer of used games. The conflict of interest is crippling smaller developers and smaller titles.



Your big budget AAA titles are going to sell no matter what because they have the marketing dollars to get people to buy a huge amount within that first month. It's the lower tier titles that have to survive on the long tail of their games and word of mouth that royally get screwed. Why? Because now that GameStop is making phat lootz on resale they have no motivation to buy products past a certain point (unless it's a Wii title with a peripheral). They can just move inventory around and sell the customer who comes in to buy Tier II game X Tier I game A which they have 15 of used and a couple brand new.



I blame the Publishers not GameStop though. Imagine if Daimler AG, Porsche, Chrysler, GM, and Toyota got together and said we're going to price fix and sell our vehicles all at the same price. Well that's what the Games Industry did. The Publishers are supposed to be doing the leg work to make all of their titles sell. But instead they got lazy and decided to push the small stuff through as a combo deal with the large stuff. And they were going to do this all AT THE SAME price to the consumer and the retailer (roughly). Gamestop turns around and puts them in check by upping their resale arm. Now, it's the publisher's move.



I do agree with you that going the DRM way is going to take more money away from them. Personally, I think they need to stop the illegal price fixing and run their business legit. Otherwise, their highway robbery is giving others license to commit highway robbery with their products and their industry. It's also a big reason why these budgets are so ridiculous. Notice how many of the best selling titles have add-ons or an insane amount of content giving them unique value over most games:



1. Wii Play (w/ Wii Remote)

2. Mario Kart (w/ Wheel)

3. Wii Fit (w/ Balance Board)

4. & 8. Grand Theft Auto: IV (HUGE SP campaign and Multiplayer)

5. Call of Duty: World at War (SP and MP with a hardcore Multiplayer community that is greater than anything else out there, except for World of Warcraft - but's it close).



This is one area where the Playstation 3 did get it right. Although the platform (PSN) is not viable enough to support most developers yet, the potential to be able to sell smaller high polished games at a lower price point and a lower cost is a big game changer.


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