Used Game Trade is Good for Video Game Biz, Says Industry Watcher

April 9, 2008 -
While some game industry types and even the occasional game journalist criticize game trade-ins as harmful to the industry, a market researcher says it's actually a good thing.

As reported by Game Daily, Eric Villain of research firm OTX made his remarks at the MI6 conference in San Francisco this week. From Game Daily's account of Villain's talk:
We spoke to 2,000 gamers from March 14th to 17th. Is it good or is it bad? For now, it's actually a good thing. And actually fuels new game sales. Used games are only a fraction of the market. 

Gamestop has a phenomenal share of market – again, not a big surprise. We felt really good that a conservative estimate [of the used game market] is about 1.3 billion dollars in 2007.

Every game has different [trade-in] curve... Sellers are guys. The buyers are more evenly split, fifty-fifty... What's driving the retail market is people who are buying action-shooter games – RPGs as well... What we also expect is growth in the market for 2008. A lot more than a year ago. In the midst of an economic downturn, I expect more buyers.

According to Game Daily, OTX noted that used game sales create additional opportunites for in-game advertising, since multiple owners may use a single copy of a game. The practice also increases the value of some game brands.

Nearly two-thirds of gamers surveyed told OTX that they purchase both new and used games.

Comments

@ JOLeske
Yes and no... if you believe that most people that buy used games do not have the ability to purchase new games then that means that the demand for new games will not change. Because these people are purchase a game that would not other wise purchase one. Remember it gives the game a resell value that will also increase the value of a game and there for demand even on the sale of new games.

@ JoLeske

Let's say Bestbuy has 50 units of Box o' Rocks, but 500 people want them (yes I stole the product from VG Cats) now Game Stop has 25 New units and 27 Used Units, Now those used units didn't appear from no where so the makers got their money.

Yah so over all there were 602 units produced and lets say the price of the was 25 dollars a peice. Also remember the law of diminishing marginal cost. Over time the cost to produce the will drop per unit. So they make more on the 602th unit produced then they did on the first unit. That more the make up for the "lost in demand" for the 25 units that were then resold.

@JOLeske

So if Gamestop doesn't have the game then I will go to Target, Best Buy, Frys, Toys R Us, Circuit City, or one of the half dozen other Gamestops around town. As long as it's not a title aimed at a small audience (like Persona 3 FES, for example) I will be able to find it. I have often laughed when gamestop has tried to convince me that if I do not pre-order some major release (like a Madden, Sims 2, or Bioshock) that I will somehow not be able to find it at the Best Buy across the street on release day.

They under order because they don't want to end up like KB Toys who regularly under ordered popular items (not just games) and over ordered crap like "Bad Boys Miami Takedown" which could not be sold even on clearance for $5. That sort of tactic combined with fierce competition from certain big box stores is what played a large part in their bankruptcy.

I'm not saying I totally condone Gamestop's tactics, but I certainly understand them.

I don’t think the law of diminishing marginal cost really applies for the life cycle of a game. If a game is released in January and production of it stops in December the cost to make the box and CD won’t change significantly though that life cycle. CDs and boxes have been being made for quite a few years now I doubt there is a significant drop in manufacturing cost for them over the course of a year.

If you find Gamestop's pricing practices on buying and selling used games unreasonable, don't buy and sell used games from/to them. It's really very simple. If you find buying used games objectionable, don't buy them. If you find it REALLY objectionable, don't buy new games from stores that sell used games as well.

Personally, I don't see how buying a game second-hand is worse than buying a book, or CD, or DVD. And while there's a difference in that those products usually have dedicated second-hand stores, I think that's mainly because, by comparison, the total number of game titles released in a given year is still dwarfed by the number of CD, movie, and (especially) book titles (also, games age more quickly than books due to evolving hardware and possibly improved gameplay/interfaces). Simply put, if you run a bookstore, you don't want the added hassle of taking trade-ins as well, and if you run a second-hand bookstore, you've got enough on your hands just dealing with that side of things.

Honestly, used game sales do hurt the industry. It really depends on the deal that the developers have with the publishers but most developers get some type of royalty for games sales. Usually the publisher has to recoup the cost of making the game and then the developer gets a per game sale royalty. But either way the publisher is losing money which means they have less to put towards new games.

If you are buying used games then only the store gets the profits, the developer and publisher get nothing.

If you are buying a new game then the money goes to the publisher and in some cases to the developer.

But having said that I think games are too expensive and I have started buying used games more and more.

In my personal experience, used game sales are only a good thing. I know everyone isn't like this, but I'm the kind of guy who doesn't sell stuff once I've bought it-I'm a packrat. I keep everything. At the same time, there are games I might check out used that I wouldn't get new, for example if 1) I'm only partially interested in them 2) I heard some bad things about the game but like the developer/series or 3) I'm short on cash, which I usually am (I'm a college student). I have to pick my new purchases carefully, since good new games usually hit the 50-60$ price mark. I frankly can't afford that. So I probably treat myself to say, 2-3 new games a year, and after that everything else has to be either used, or long enough after release that the price has dropped significantly. So with used games, the industry gets more business from me than they otherwise would in terms of total dollars.

Buying used game does not hurt developers or publishers. The thing is that Retailers buy the game from the publisher or developer. If plenty of customers buy the game and there is a lot of demand then the retailer will buy more. If a customer returns a game; it ever mean that they don't like it, would not buy a sequel, or they want some money. At the worst, used game business does not increase or decrease demand for a game but it can't harm it.

The used game industry can only be good for the game industry as it helps get new customers into a series. If they like playing the used game then they are likely to buy a sequel new. As some have said before, it helps rare or unpopular games get new demand in there life time.

The problem with the Video game industry right now is that they see short term profits, not long term. They prepare only for the short term only which can affect the quality of the game and therefore is more likely to harm a game or the development of a game. Thats why there is always a focus on first day sales and not much focus afterwards. The idea is that they chug it out and move on. Bulletproof is and example of this as a lot of people bought on the first day and sales were good but when word got out that it was crap, the overall sales were not good.

One of the problems is that companies spend so much money designing games, using the most expensive equipment and wasteful efficacy. Part of that is that we put pressure on them to chug out amazing graphics yet when they make a great game with less then benchmark graphics, we ignore the game and dismiss it. We also promote this bigger is better mentality were they have to go over the top constantly to please us.

Another problem is that a lot publishers are greedy and want more and more money. The publishers can't wait to get there money so they determine a products success by how well it sells on the first day. They see gamers as a bunch of sheep that will herd to the prettiest product, so they push developers to produce so many games within a short time frame so they can sell them, The idea is that publishers are putting so many eggs in a multitude of baskets yet one one basket will make it to the customers. One developer will rise in fame yet they will still continue to release games in that rate in order to be a success again. Developers that fail will be cast aside or shut down because they failed to make instant success. If success was determined in the long period then many more developers would be successful today.

Another problem with the publishers is that they do not actively promote all their games enough. They only chose a few to promote and even then, many only promote on the internet yet rarely in non video-game magazines, TV, or places that are not gaming niches. Not all gamers pay attention to the niches so a lot of gamers can miss out on a game because it was not promoted more wide spread. This goes back to my previous paragraph were a talk about the eggs in many baskets yet only one will reach the customers. It's a lack of efficient advertising.

The last problem is the retailers cowardliness to purchasing games. As a person said above, they don't buy just any game, only the ones that they are sure that will sell. However, I doubt they actively research on this matter but instead, take a wild guess based on the name. That is why retailers will always sell a Sponge Bob game because they know that despite that hardcore gamers may not buy it, casual gamers and parent's with children will because it is popular on TV. They would be very hesitant to by a game called Opoona because they have never herd of it before and it dos not seem like it will be a good seller. They also probably base there purchase on how big advertising is as they would not want to miss out on something potentially popular. This results in a limited game selection for gamers to chose from and results in many new or unknown developers from getting any potential success. Retailers will not care about the long term as many only care about getting money as fast as possible so only potential sellers will be purchased.

The whole problem with selling video games is a cycle of fear and uncertainty that they brought upon themselves. Short term greed is the cause of this problem and it is actually hurting them without them knowing.
Publishers want money, they play the basket game, many developers get hurt, retailers play based on popularity, and rinse and repeat. So it is not the used games industry that is the problem, in fact they are probably keeping this cycle from becoming a complete disaster. This problem is about greed and things will not change unless something is done about it. so the next time someone says used games are the problem, just remember that the used game industry in a scapegoat for the real problem, greed.

It's really not that complicated. When I sell an item to someone, it isn't mine any more. What the buyer does with it after that is none of my business. I certainly don't have any kind of a right to "potential sales", the sales I might have gotten if someone had decided to buy from me rather than buying used what I'm selling new.

I suppose I could try to make it my business by making part of the purchase price an agreement never to resell the item, either in an explicit contract the buyer and I sign, or a shrink-wrap EULA. If the developers want that kind of perpetual income, they'll have to pursue such a course. Good luck enforcing a first-sale-doctrine-negating shrink-wrap EULA in court.

We need some "proper" trade-in contrast (i don't know if that is the right word). For example, the popularity of the game, and the disc condition, should be taken into account when determining the value, rather than randomly choose a number.

I got Two World(360 title) from my friend couple month ago. I don't like RPG, so I went to local EB games to trade it in. The game is BRAND NEW! It doesn't even been opened (completely with plastic wrap). The guy at EB games told me it worth 10 bucks. WTF! They can just put this on the shelf and sell it for the normal retailer price (something like 30 or 50).

So, do we have to pay Ford when we buy a used car, or the original builder when we buy a house from an owner, or anybody originally when we purchase from ebay or a pawn shop? I agree that some games don't trade in for much, but some of the ones that go down the fastest are the sports games because a new one comes out every single year. I never understood where people thought that every game they bought 3 years ago should be sold for the same price..or (as I see from time to time at my part time job as a Gamestop mananger) wanting more for the games. Plus they make it a bit of a better deal with the game cards because you get a percentage more for the trades and a percentage off of the used games.

Well, in my XBOX/PS2 heyday, I bought used for both systems with the rare occasion of a RPG. Now that I have a 360, I usually buy new.

One reason is an irrational belief that a used/damaged disk will somehow damage my system. Secondly, surprisingly, there has been a steady supply of RPGs on the system. With the exception of Eternal Sonata and Enchanted Arms, I haven't regretted buying the games new.

Now when, I do buy used, it is normally because I am curious about a game but am pretty confident I won't like it. For example, I purchased BioShock for 20 at one store, played it, hated it, sold it to EB Games for the same 20 bucks. On the other hand, I managed to get a gem at the bargain bins - The Darkness and Crackdown. Those games are a riot. Now, if there was a sequel to either game, I would probably buy it new.

Also selling back games increases their perceived value at retail. Early adopters don't really know if the game is any good or not, but knowing that you can sell it tomorrow if you don't like it for $20. Granted the best trade in value is early on, and the value isn't THAT great, but I've been worried about downloadable games becoming the big thing because that's $20 value cut out of a $60 title.

[...] [via GamePolitics] [...]

Why is my comment awaiting moderation? Have I been banned?

We know what your suggesting Monkey. You want to treat a store different than an individual.

So if I am a store owner and I purchase a used item to be sold in my store, you say I should pay a penalty to sell my own property? You're saying that other individuals do not have to pay a penalty simply because the individuals don't have a store? What has the business done that deserves penalties that an individual hasn't? Because it buys it's used games cheap?

The last time I checked they don't force you to trade in your games, and you can walk out if you disagree with what they are willing to pay. If you do agree to it that's your fault.

Making certain people pay extra to sell thier own property and not doing the same to others is bullshit plain and simple.

@ Bill

Well, the current system is still patently unfair towards devs. My suggestion probably isn't an ideal solution, I'm more than willing to admit that. However, suggesting that developers benefit from a situation that allows for four different people to purchase a game with the developer only getting paid once whilst the store keeps the profit is utterly ridiculous.

I just can't see how GameStop/GameStation getting to keep most of the return from any developer's work is justifiable. These days, if a game doesn't ship a million in the first fortnight (thereby justifying a re-order from the publisher), you can pretty much kiss any additional/residual profits goodbye.

* Ship = sell

Sorry!

"However, suggesting that developers benefit from... whilst the store keeps the profit is utterly ridiculous."

I don't pretend to know how it benefits them, but I do know that in business benefits are accounted for in more ways than pure monetary income. So I see it as possible, but I can't say for sure nor am I personally making that claim.

"I just can’t see how GameStop/GameStation getting to keep most of the return from any developer’s work is justifiable.”

That's called ownership.

GS pays or barters for the games. It's not like they get them for free, and then they either give people cash or trade for other items in their inventory.

Regardless of the method it is agreed between the two parties involved that ownership has been transferred from one party to the next and being able to sell one’s own property for profit is perfectly justifiable.

As a matter of fact retailers don't have to sell games for MSRP. Each store is charged for the games brand new then the stores mark them up usually according to MSRP, but they don't have to. They can mark them as high or low as they want. Do you know why? Because after they purchased them, they own the product they are selling.

Let me say this. If retailers had to pay a percentage to the developers for each used game they sell, it will end up being passed on customers in the form of higher prices. It wouldn't be the retail guy getting screwed it would be us. But that's neither here nor there.

Look, emotionally, I feel like you. I would love the developers to enjoy great success and reaphuse paydays from thier work.

But logically I can't get behind penalizing one section of people for engagin in legitimate business weather in the form of a brick and morter store or a virtual shop on ebay just so I can feel toasty warm on the inside.

@Ebonheart

You can finally get me back LOL.

"reaphuse" = "reap huge"

So to bring this arguement to a diffrent world but keeping the base arguement the same.

I buy a ford, 9 months later I sell it, someone buys it. Considering the car is mine why should I pay for 3-5% of what I sell it for; I'll stress the part that it's my property. Ford got their money when the car was bought buy the dealer, making it the dealers property, so on and so forth down the line. Party A sells to party B party B sells to C so on and so forth.

@ Ebonheart:

The car analogy falls down on *so* many levels, primarily because when you buy a car new you get loads of valuable incentives like free services, extended warranties etc etc. You're also taking about a private sale rather than at retail, which is the system to which I was referring. I understand that thge analogy can be extended to second hand car dealers, but they pay all sorts of taxes that private individuals don't, so the analogy again falls down. I think it's far fairer to compare this with movies and music.

The fact oif the matter is that it is hideously expensive to make a game these days. This isn't helped by the facf that *most* of the lifetime sales of a particular title will be through resale, thus denying developers with *most* of their hard-earned cash.

I don't think I have the solution now, but there is a problem here and it needs to be recognised. Digital distribution will hopefully fix this (although that then opens up the supply chain to piracy). Essentially, retailers are exploiting the resale market to rip off publishers and its the developers that pay the price.

Less money for devs = less R&D = less innovation = boring games.

This analyst suggesting that developers should be thrilled to see the bricks & mortar stores benefitting from their creative output is, quite frankly, insulting.

But then again, I think we've all established that I'm quite easily offended :)

@ MonkeyThumbs

Thats is assuming the car isn't sold back to a dealership. Honestly I couldn't care that my arguement is full of holes, I just wanted to argue. It's fun :P

A pawnshop is a business that deals in just about ANYTHING including videogames (and at least here in Florida, cars as well). They don't have to pay ANY of the people that originally made or developed any of the items they sell. They don't have ALL of the taxes that a dealership has in regards to cars, but almost all of those taxes are just pilled into the cost of the car for the next consumer anyways. Don't even get me into flea markets where you are just as likely for someone to make a knock off of something which kills even the original purchase of the original item.

All you guys do is point out flaws, not come up with solutions. So far, Zen, you've even failed to recognise that a problem exists.

Microsoft has already declared their intentions. In their eyes, digital downloads are the future for TV, movies, games, etc. Very rapidly, their business model will shift in this direction. Sony will move in a similar direction because they are competing for the same consumers. You will continue to see more games sold as downloads as opposed to retail. Giving download customers extra DLC and exclusive perks will accelerate the shift. The next X-Box may not have a disc drive at all.

Nintendo is still selling hardware at a profit, and Nintendo consumers don't tend to be as savy as Hardcore gamers. I don't see parents shop around for bargains on Nintendo games. Their kids take them by the hand and tell them what they want, when they want it. Nintendo will be slower to make the change.

@ Monkeythumbs

"All you guys do is point out flaws, not come up with solutions. So far, Zen, you’ve even failed to recognise that a problem exists. "

True, I don't see a problem because there seems to be NO issue with moving to a medium like digital downloading where the maker gets all profit, all of the time, but the person that PAYS for the game/movie/song/etc gets a VERY limited use on it, and can't use it outside of what they are told. Steam has a great use where you can actually put a game you buy on multiple computers (I did it for Audiosurf so it would be on my wife's laptop as well) but I still have to know ahead of time to set it for offline mode if I want to play while the internet is off. Worked great when I brought the laptop to work to show friends, sucked the other night when my ISP dropped for the night with no warning. Same goes for Xbox live. My system just red ringed on me, and I spent a LOT of money on DLC especially for Rock Band and Guitar Hero 2/3. All three of those games are great for taking to a party, but now I have to make sure an open broadband internet connection is always available or else screw me on money spent. Plus, developers (EA is a big one for this) are making money on any version (new or used) with DLC as well like paying REAL money for FAKE money in Godfather, or ruining Need for Speed for people by letting you unlock everything, day one, by paying more for that DLC. So I don't cry for all developers that want every penny for themselves, but I do push for new on the smaller ones and for those games (Zak and Wiki is pushed big time because it was such a great game) that were great but didn't sell well. It's an open market that has MANY other stores (not just Gamestop but Play-N-Trade, FYE, etc.) that sell used games too.
Final note...Blockbuster buys games in bulk at a lower cost, rents them multiple times for a few bucks each time, then sells them off used anyways in the end.

@ Zen

You seem to be confusing developers with publishers in much of your post above.

@ Monkeythumbs

You have a point. :) Don't get me wrong, I may work for Gamestop (part time...my "real" job is for a Naval contractor), but I don't want to be viewed as a bad guy. I'm a collector and have loved gaming for most of my life, as well as getting my family (my son is starting his own collection to be like his dad :) ) into gaming. I still don't think that the ability for any business to be able to buy and sell used games hurts the market as bad as people say. The example given above by myself and a few others of a person buying a used car from a used car dealership was told that it didn't count because they had to pay taxes on the sale. NONE of those taxes go to the original maker, they go to State and Federal government agencies so those charges don't really count. And when an individual sells a car, the person who purchased it is charged tax on the sale, as well as the seller being charged tax on the money that they get from the sale. None of that goes to the original maker either. Used games help people that can't afford to purchase new EVERY time to be able to either purchase more games and spread out what they like to play, or at least think "ok, if I drop 60 dollars for this one game, I can bring it back later SOMEWHERE and get SOMETHING for it towards something else". If Gamestop or any other store had to break from other retailers by paying the original makers money each time for the same item purchased from them, then that cost would only get pushed down the line onto consumers like you and me. All of the games (probably the new ones as well market wide) could see a price increase of 3 to 5 percent to cover that new cost to the company so that there sales figures don't look like they just took a 3 to 5% market loss. (sorry if this comes out sounding a bit dis-jointed...I'm thinking of what to say and type while running around working).
 
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