As an essential part of keeping in touch with the realities of the industry I frequently go and have a look round specialist video game stores. And there are always a number of significant trends to keep an eye on in this fast moving industry, such as the demise of PC and PSP games. However the biggest trend over the last couple of years has been the amount of space and emphasis given to secondhand games. They have gone from being just one small rack to being nearly half the store. And I bet they are making more profit for the store owners than the new games.
So what is happening here? Basically any business needs a USP and game stores once had this as they were the only place to buy games. Gradually this has eroded away, firstly with online retailers like Amazon and then with supermarkets, both of whom can beat the specialist on price.
Initially the specialists were cushioned from this price competition. Firstly because the specialist has a bigger range of stock, secondly because he has more knowledge and thirdly because of people’s buying habits. But now video games have become a commodity and those advantages have evaporated. In fact the supermarkets and mail order companies have the better business model now because they can buy in bulk and thus cheaper, they have far lower overheads as a percentage of sales and they can and do use games as loss leaders to generate traffic. It has reached the point where an independent specialist game retailer can buy his stock more cheaply at the local supermarket than he can from his trade distributor.
So specialist retailers needed a new business model that gave them a USP. And secondhand is it. With secondhand they are in an area where online and supermarkets would have difficulty following because of the very large number of buying transactions the retailer has to make. Secondhand runs at a far higher price mark up, which is very nice when new games are selling on price alone and so have decreasing mark ups.
This is very nice for the consumer. When a game first comes out he can go and buy it cheaply at the supermarket or online for mail order delivery. Or he can wait a couple of weeks and buy it even cheaper from his local video game store.
Now, of course, there is the precedent that you can also buy books, CDs and DVDs secondhand. But the scale of this is relatively low and happens on eBay, in flea markets and in back street shops. With games secondhand is big business on the high street. And there is a reason for this. Quite simply games are a lot more expensive to buy than music albums, DVD films or books. This is because they cost more to make for the number of customers. So there is a vastly higher cost per customer in the game industry than in the other main entertainment media.
The big losers in this massive growth in the secondhand market are the video game publishers. A specialist retailer can now sell the same game several times and make a profit on it every time. The publisher, who took the risk and made a massive investment, only gets a profit on the first sale. So from a publisher’s perspective secondhand games have exactly the same effect as piracy. Multiple customers get to play the game but in return the publisher only gets the profit back from one sale. And the customer who buys a secondhand game is making zero contribution to the cost of it being made.
Of course this in intellectually wrong as well as morally wrong. When you buy a game you are not buying the plastic and cardboard, you are buying the right to personally enjoy the IP embedded on it. But most customers don’t see it that way.
But the publishers are going to have the last laugh here. High street game retailers may be making record profits now but they are inevitably doomed. The whole business is in mid transition from delivering content on cardboard and plastic to delivering it online. And online needs no retailers. And there is no secondhand online.
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Presumably Bruce, you’ve only ever bought new cars then?
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This crusade against used game sales misses both basic economics and the law. First, having healthy resale value increases the value of the first purchase. People pay more for cars knowing they have high resale value – something car companies even promote to sell the car initially. Comic books are resold for more than the purchase price because they increase in value, but comic book publisher see none of that money because they know many comics are sold simply on speculation.
Further, used game purchases help keep games circulating. Publishers stop printing games leaving only those copies people want to part with. This helps give gamers cheap ways of finding new games and becoming bigger gamers. If game publishers wanted to compete with used games, they could release more copies of the game with new features or lower prices.
Legally, the first sale doctrine allows customers to do whatever they want with goods they purchase, including reselling them. Should home owners pay the builder every time that house is sold? Why should video games be treated any differently?
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First sale doctrine still exists (Adobe vs Softman). Or perhaps I should pay a royalty to someone every time I use a piece of clothing, or a knife? What if I donated something to charity? Should Oxfam pay a royalty to EMI when it sells a donated CD or a PS1 game? What about abandonware? Should titles disappear forever because you can’t get your ‘cut’? You’ve been paid for, and sold, the work. It’s not an endless royalty stream. What about housing? Should people who sell houses make claims against the people who purchased them when they resell them on in property flipping deals? Should employees in factories be paid more money when people sell the product on? What about the CD-pressing plants that pressed these discs? Shouldn’t they get a royalty? Where does it end?
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There’s strong arguments and views on both sides of this situation. What I find most distasteful is the blatant profiteering being conducted by the retail chains that indulge in second hand software sales.
I wouldn’t be so bothered about the single sale of a second hand game by one vendor and then the next vendor selling it on. What gets me is the scope that we have a practical monopoly on secondhand retail sales where the same vendor is selling the same box again and again and again.
Considering how very much the retailers take from first hand sales and how very little they actually *do* I can’t say I’m sympathetic towards them profiteering so heavily for so little effort – especially when they could be doing so much more to improve the perception of games as a whole – like not selling them to underage patrons.
As Bruce forecasts, I suspect digital delivery will squeeze the retailer further and further out of the equation.
As for the sentiment that developers and publisher are greedy, I don’t agree. It seems to me that without people developing and publishing games there wouldn’t be much of an industry left for anyone else to profit by. Marginalising developers and publishers doesn’t strike me as a particularly well thought out long-term plan.
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The comments so far seem to miss the point spectacularly. Nobody is suggesting that publishers should get royalty payments on second hand sales. It’s the irresponsible way that retail has exploited second hand sales that’s the problem.
Books, CDs and DVDs are not sold second hand on the high street and yet games are. Second hand sales don’t offer the ‘benefit’ of keeping out of print titles in circulation, they highlight how badly broken games retail has become: HMV and Zavvi stock films and CDs going back decades, but games (barring a few evergreen titles) are lucky to remain in stock for more than a year.
Knowing that retailers will aggressively try to resell their products multiple times puts publishers in a weak negotiating position, and ensures first-sale prices are jacked up by retailers with ever-diminishing royalties going back to the publisher.
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There’s a significant flaw in your argument. If I know that I can sell a game when I get bored with it and recoup some of my cost, I am likely to buy more games. It is not at all clear that killing the second-hand market would increase sales of new games. It could very well decrease them.
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It is stories like this that really make me question why on earth Microsoft is even considering delisting games on XBL Marketplace. Downloads are an easy way for publishers and MS to make money from every sale. Why cut off the long tail?
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When a lot of people look at a game they think, I could pay £40 now but it would end up being more like £20, while others are unwilling to buy it until it goes down to £25.
The only way you could make all these people buy it one time only is to drop the price to £25.
This is impossible.
The money is shared out between developers, publishers, retailer, distributer, etc, and only just hitting the profit margins at £40 if it sells well.
Isn’t it better to make money if you’re only getting a cut from 60% of sales, than making a loss with 100%?
Also, shelf space is difficult for any game to grab. Only game stores can offer the variety and the ability to browse for many games to make a profit. I know I waste my lunch breaks browsing in those stores.
Supermarkets will only buy in the games that are going to sell loads in bulk. Mail order online companies are good for looking for specific things to buy on the cheap, but not much fun to browse looking for something new.
Games still need game stores to sell. This won’t always be the way, but for a few more years we need these stores to make a profit to stay open. The only way they can do that is if they make the most of the second-hand market.
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“Books, CDs and DVDs are not sold second hand on the high street and yet games are”
I’m not sure that CDs, DVDs and books are the same kind of product :
first hand books/dvds/cds are much cheaper than videogames, therefore second hand sales are not always worth it : you can spend just a few more bucks and have a new one.
This is quite different with videogames, which are usually much cheaper when bought as second hand sales.
“but games (barring a few evergreen titles) are lucky to remain in stock for more than a year.”
I agree on this : second hand sales are sometimes the only way to get a game when stocks are gone.
Digital delivery could indeed be the solution for both publishers & gamers : if publishers sell their games for years, with a price that will decrease at nearly the same rate second hand videogames do, then second hand market will decline.
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Comparing sales of entertainment media to knives, autos, and houses is comparing completely different things.
When you sell a game you will not always be replacing it, thus stimulating the economy of the industry that created the item in question. The game is a diversion and a luxury that the money may be invested in another venture altogether.
If you sell a house, you are going to have to buy another house, you will either get a new one, or another used house. If you get a new house, that will stimulate the economy of businesses that build homes.
If you sell a car, somewhere, a new car will be replacing that car in the supply chain. Either you buy a new car when you sell the used car, or someone who sold you a used car will buy a new car. It is being replaced either way. Cars get old and depreciate and stop functioning.
The real flaw with the used games market at Gamestop is that there is really no saving for the customers other than $5. You pay $5 less for the game. I would rather spend the extra $5 to enable the publishers to keep their staff employed to continue to make more and better games than save $5 and encourage Gamestop to rip off more kids and games publishers.
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You bring up a good point Keith. Gamestop buys the games back at ridiculously low prices, and then sells them back at roughly 70-80% the value of the new game. That is a heck of a lot of profit that they are making, and the publishers don’t see a single nickle from that sale.
I agree that selling games online is really the best way to solve this problem. With the ability of consoles to be connected, as well as services such as Steam and GameTap, it makes sense to start delivering content online for both the PC, as well as consoles. On top of that, the publisher gets the lion’s share of the profits, and there’s no re-sale online.
The only issue that I can see with delivering content online is the fact that you will have to deal with long download times, and you are cutting out any potential customers that don’t have access to ADSL or Broadband connections. I think a way of handling this issue is to deliver content in a similar fashion that is used by Second Life. Essentially, the user downloads a very thin engine that will get them started, and playing the game. While they are playing the game, the rest of the content continues to download in the background. This could cut down on the initial download time, and if done right, the rest of the download would be seamless to the user. So what would potentially be a 3GB download could be a 200MB download that gets you started while the 2.8GB of content downloads while you’re playing.
Of course, my potential solution above still doesn’t cover folks that don’t have access to a fast connection. I really don’t know how to solve that particular problem without using the current model of cardboard and plastic, but perhaps someone here could come up with an idea. 🙂
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“Of course, my potential solution above still doesn’t cover folks that don’t have access to a fast connection.”
You have to get cable to watch cable tv …
Internet downloads are just the way things are going.
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Comparing secondhand games sales to piracy is frankly OFFENSIVE. The publishers are so accustomed to enormous profit margins that they are blinded with greed.
Personally I never spend more than £25 pounds for a game. EVER. I wait until they drop in price. I very rarely buy secondhand. £40-£45 for a game is just taking the pi55. Does that make me also comparable to a pirate because I refuse to pay their preposterous price?
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Just an example: when Diablo 3 was recently announced by Blizzard, a ton of gamers decided to go back to Diablo 2 and refresh their passion for the series.
They were greeted by a host of online retailers that offer Diablo 2 CD keys for just $4.99. That includes the expansion too!
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Piracy? I think not. I buy second hand cds, books and dvds on Amazon.com all the time for 1-20% of the original cost primarily because it is a great way to save money. Why would games be any different? A download model with a periodic price reduction would solve this problem for game publishers. Just like the price for other content on cds, dvds or books decreases over time so should the price for older games as newer versions are released. Just like the music industry lost sales when they failed to embrace online music downloads initially so will game publishers lose on potential sales. I will not buy second hand games from retailers on principle because of the ridiculous mark-up. However games publishers are really missing the boat by not going head to head with second hand retailers and selling cheaper online versions.
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As a loyal videogame customer and even as a programmer I have to say I have little sympathy for this industry and its new found crusade against pre-owned. Selling second hand games is not “intellectually wrong as well as morally wrong”. Putting DRM on games that stops me playing them a year later on a new PC is morally wrong. Putting DRM on games that has potentially destructive consequences for the customers PC is morally wrong (e.g Starforce). Poor customer service is also typical of the industry and has been for many years. Back in the days of the Amiga if a game needed patching it was normally the pirate community that did it, if you bought the store bought copy you were out of luck! I remember saving my pocket money to buy Mortal Kombat 2, only for it to be incompatible because I had a RAM expansion card! Luckily my friend at school had a pirate copy that was patched.. I’m still waiting for the official patch!!
Nowadays we are faced with the choice of an illegal version that just works, or one that will potentially break down and cause us to have to ring some sort of customer support number and spend hours convincing the representative that we’re not software pirates (If I was a pirate I’d be playing this game already!!!)
I don’t want to buy download versions, I love videogames and I like buying a boxed product, but if the DRM trend continues that is what I’ll be forced to do (kudos to Valve for taking a stand against destructive DRM on STEAM)
So, instead of moaning about second hand, try treating your most loyal customers, who WANT to buy new games with a little more respect.
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To go against the other comparisons that have been made here, I’ll offer this one:
Compare buying a video game to the purchase of a movie ticket. The theatre is selling you an entertainment experience. For your $10 you get to sit for 2 hours in front of their big screen, big sound, and watch a movie which may not be (legally) available to you yet through other channels.
Well, the developers who make games are trying to sell you an entertainment experience also. It usually costs around $60, but you can play it in your own living room and as often as you like for as long as you like (or until you get bored of it). But don’t think they are just greedy — you have to realize that it took several years for them to make that game that you got bored of in a single week. Dozens or (more likely) hundreds of people worked really hard to make that thing and get it shipped and into a box and on the shelf so that you could buy it.
My opinion is that as a customer, the (morally) right thing to do is to pay the $60 for a new copy so that the creators get some recompense for their efforts. Paying $55 to some reselling middlemen at GameStop, and then selling it back to them for $28 so they can resell it to another guy at $55 (and again five more times), is the morally wrong thing to do, because the people who worked hard to bring that game into existence and make it possible for you to play it, get nothing in this scenario.
Yes, you can probably tell I’m a game developer. I always buy my games new at retail, unless its an old game that I can’t get anywhere except used. I would even rather spend $60 on a game from one of our fiercest competitors, and give them some money for their efforts, than buy their game used and give that money to GameStop.
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Games are too expensive. I was just looking at Steam today at two new releases that intrested me: £34.99 and £39.99. Sorry but thats just not going to happen.
Thanks to student debt I barely make enough to afford 1 new game every month.
The only games that will get that sort of money from me are games that are ART.
This hypothetically applies to an open ended RPG with lots of story, providing options for every path I would realistically want to take and with NO CUT CONTENT.
Bleating about having to make tough choices because of not enough time will only mean i’m picking up your £40 game gold edition for £10 with expansion packs a few years later.
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“But the publishers are going to have the last laugh here. […] And online needs no retailers. […]”
Good point. Online sales do not need publishers either, though – they only need a distributor. Steam fills that role, Amazon could come up with something similar – or simply partner up with Valve – and even Google might not be above stepping in. Traditional publishers like Electronic Arts will ultimately go the way of the dodo.
And there IS a second-hand market online. Selling Steam accounts may be a violation of usage terms in some countries, but I have yet to see Valve drag their own customers before a court. Although I’d really love to see a judge slam the first sale doctrine into their face so they implement a reliable and safe procedure to transfer licenses to other accounts.
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It’s called capitalism. If you don’t like it there is always china.
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The point is, they are both con’s. The attempts to restrict the use of a bought product should be banned, downloaded or not. That’s what happens when you buy something, it is yours. It is “morally wrong” to restrict the consumers use. It is blatant profiteering to expect residuals on each transaction down the line. This article doesn’t argue so much for the elimination of the secondary market as it does for moving the ‘profiteering’ up the ladder. Shame.
I have a Sierra ‘InAction’ magazine from the early 90s. It claimed games will drop to the $5-10 range, as the result of CD-ROM’s eliminating piracy; however, with this chance at hand, it still didn’t happen & shortly thereafter, CD-burners & media became affordable. A missed opportunity.
Further, games are terrible these days. The demos are often more like videos than the shareware of old, they often restrict user-generated content in ways the old never did (i.e., test drive unlimited vs. test drive 3), and then try to charge piles of cash for minimal amounts of additional content or even patches. Regardless of who is driving this trend, the motive is greed. The result is dwindling profits, no surprise.
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No one here denies that what used-game resellers are doing is wrong. It’s blatantly wrong.
But you are a serious whackjob if you think that people should be refused the right to resell their property. I bought a game, I bought the right to play and use it, therefore I should have the right to sell that right to anyone else, for any compensation I deem worthy. It’s that simple.
Therefore, there are two groups of people to blame for the sorry state of things. People that are willing to buy second-hand games at rip-off prices. And two, the video game publishers that have ruined the second-hand industry without invasive DRM that essentially makes all games “rented” and not “bought”.
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“There’s a significant flaw in your argument. If I know that I can sell a game when I get bored with it and recoup some of my cost, I am likely to buy more games.”
Game stores in this country give a discount to people trading in games – there is a catch – only on 2nd hand goods. So it keeps the cycle going. But there is a chance both scenarios would happen.
There is nothing overly wrong with 2nd hand gaming IF companies (take for example Bioware and Dragon Age’s one off DLC offer for new purchases) prepare themselves for this scenario. DLC, in game adverts* and price drops can all help soften the blow of a 2nd hand sale.
*if a game managed to score a deal discretely advertising a drink or something similar there would no doubt be some compensation – hopefully increasing revenue
I would say it would be wise for companies to pair piracy and 2nd hand in the same group of barriers to sales. Though bearing in mind that it should not intrude on legitimate consumers (i.e secuROM)
We gamers truly are a highly demanding, fierce, easily insulted and aggressive consumer. Temperamental to the core.
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so one persons buying one game playing it then selling it on is worse than 10000 people downloading for free and not paying nothing they are taking the piss its all about money they are just not happy that the game retailers are able to resell there games over and over again and they get nothing they are not charging them because they will just get took to court so they pick on the easy mark =us, whats next second hand phone charge or second hand music charge i hope people are not happy about this and that we can band to together and start legal action this is just not right so anyone intrested in stoping this spread the word on all social site and lets put this right and see what happens
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The problem here is just the big companies becoming crazy with the online benefits, the paid download shits they always try to sell us and now they want more… They just want us to buy even when the game dont worth it, they want our money, thats all.
You just have to take a look at the latest paid downloads for a game…sometimes their acting is close to illegal, like with Bioshock 2 paid downloads, which some are included in the retail game but blocked and others are just to get cash. Companies are getting into a dark age…piracy is the only thing that will make them to respect customers if they dont want to loose all of them.
If a game is really good, I would buy it just when it is out, the game, not a stupid extension for a pinky dress. But…how many real good games are out there?. Companies make me laught and angry at the same time, they produce shit and pretend to get the maximum benefit. Every day they are getting closer to the end of the golden profits age.