The Other Side Of The Used Games Debate: Gamestop Manager Responds

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News Posted: Mon, Feb 6 2012 10:54 PM
Our coverage of the content lockout in the just-released game Kingdoms of Amalur and whether or not studios deserve a cut of used games sales kicked off quite a debate last week. We heard from a number of you with strong views on the topic, both pro and con, including an irate GameStop manager who was willing to give us his perspective* on the used game market and GameStop's business model.

He writes:
The price comparisons on what we buy for / pay for are not dissimilar to what the Half-Price Books bookstore chain "makes in profit" on a given resold book. And I can guarantee you that if you walk into a pawnshop, they're selling all sorts of merchandise including used video games at far greater markup.

If gamers ever wanted to know why we constantly push the strategy guides, I'll be honest, it's because we generally make more money selling the guide than we do selling the new copy of the game. I have enough respect for the gamers to let them know this. We get hosed by the publishers, we barely make anything off of the sale of a new title, we make more off the book.

To keep our store open, we don't have to just break even. We have to manage to turn a tidy profit - a profit that Gamestop corporate takes out of our store at the end of the fiscal year. A store barely breaking even will get shut down because Corporate doesn't want to risk stores losing a ton of money in a bad 6-month run during a time when the only games that come out are pure garbage.
As for the used game market, our contact explained that gamers who take advantage of special trade-in offers and pre-order specials receive additional in-store credit. Perusing the latest circular proves this is true -- the local GameStop is advertising a 30% trade-in bonus if trades are applied to a list of nine pre-orders, while anyone who belongs to GameStop's PowerUp program earns an additional 10% credit on all trades and accessories. If you're a casual gamer who only buys the occasional title, GS doesn't offer much in the way of added value. If, on the other hand, you buy a lot of popular titles, GS can fairly claim to offer a substantially better deal over the cost of those same games if you're buying elsewhere.

Do game studios deserve a cut of additional game proceeds?

In our previous story, we wrote: "We're with the developers on this one. It would be one thing if GS actually kept its used prices even modestly in line with what it pays for the games in question, but the company exploits its market position to a huge degree."


Whether or not this is a good deal depends on if you've got an ancient DS or a PSP you got for Christmas

We're still not happy with the cash price GS offers for used games, but that's orthogonal to the question of whether or not publishers deserve a cut of used game profits. Regardless of a personal desire to reward good studios with a greater share of profits, there's zero legal or ethical precedent for handing game publishers a share of used sales. No other secondary market behaves in this fashion, save in rare instances where a distributor also owns a direct retail outlet.

Given this fact, why are used games perceived differently? Why do so many game developers rail against the practice, or claim that GameStop is defrauding them?  

We've got a few theories. First, look at the cost of game development from the early 1990s to the present day.



There's evidence that suggests the Wii has bucked this trend, with titles costing 25-33% as much to develop, but the Wii isn't capable of the same level of graphics fidelity. Factor in inflation, and games today are actually cheaper than they were in the early days of gaming. The problem is, there's tremendous pressure on game studios to build blockbusters that sell millions of copies. Skyrocketing costs makes it extremely difficult for studios to self-publish, while the publishers expect significant ROI in exchange for fronting millions of dollars in development costs.

The problem, from the studio's perspective, is that critical acclaim and high reviews don't necessarily translate into blockbuster sales. Worse, game studios can end up dying if their publishers croak, as THQ studios are learning to their sorrow. To studios and publishers, GameStop's profits represent cash that could be plugged into continuing operations.

We came down on the side of studios last week because we hate seeing great game developers closed down. It's also true that buying used doesn't show support for the developer in any direct financial way. After talking with GS and doing some additional research, it's clear that the situation is much more complex than we may have made it sound. There's no precedent for revenue sharing on used sales, and while GameStop might be wise to consider this before publishers really get aggressive with locking out used sales in the next generation of consoles, simply cutting a check to studios and publishers isn't going to fix the underlying problem of exponentially rising costs.

* - Opinions expressed by our anonymous manager are his own and not the official position of GameStop.
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DHampton replied on Tue, Feb 7 2012 12:11 AM

I think this was well put used games for some places are just like candy and popcorn at movie theater. They dont make a dime off movie tickets it all goes to publisher. It was interesting a manager friend for a cinemark was showing me numbers.

If movie wasnt at least 25% full they would actually have to use concessions to make up royalty difference. And even though they would make loads of money on when packed and 1 out of 2 buying concessions. Those months would be countered by a string of bad releases. On average they made 100k a year profit which is good but considering cost to start a single cine-mark is nearly 2 times that of a walmart which makes on average 3mil per store profit. Point is cinemarks gamestops have to have something cause developers are not making it worth their while.

Got a little off topic but my point is developers are expecting miracles the top selling game starcraft a decade ago has barely sold 9.5 mil copys in the past 15 or so years. But the game the year last year which was a bland repeat sold nearly 10 million first day. Their are way more people buying games prices are up.

When I first started gaming 20-30 bucks was all a game would cost. Now it cost $60 and they sell 10-20times more copys on release cause gaming is more mainstream. And instead of celebrating this they cry cause once in a while they create a game so crappy that no one will buy it and blame it on pirates. But fail to realize they made a broken crap game that got reviews bad enough that no one wanted it.

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"publishers expect significant ROI (in exchange for fronting millions of dollars in development costs")

Redundancy in brackets.

I work retail, but I do sales. I dont work on commission and since there is no incentive to sell the stuff that makes us more profit... why bother? We face the same scenarios... We sell TVs below cost constantly, if it is on sale, 80% of the time it is below our cost. Now, more often than not we receive credit from the manufacturer, but that still means no profit. So we have the warranty (good deal since we send people to fix the TV within the next three for 100-200 one time cost), we attach HDMI (price tends to be six to eight times that of the actual cost, so even on sale, there is still 10-20 dollars profit) and whatever else we think you may need.

Same reason phone cases cost so much. If you are buying outright or already have it, we make (next to) nothing. If youre signing a contract, then we make money and we can sell the case/charger/etc close to cost.

All business works like this. Used games arent for me, but Ive also stopped bitching about them. How devs try to stop them, that, that is not cool. Stupid online codes.

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Yeah they do front millions in development cost but gamestop fronted billions buying realestate putting buildings up with employees and insurance. Saving the developer from having to distribute it on its own.

Whether its best buy marking up hdmi cables and thumb drives or cinemark selling overpriced popcorn and drinks or gamespot selling used games.

My problem is developers going poor me poor me when on average games cost 10-20 million. Most games pull 200-250 mill first day or two. The biggest budget games like halo 3 put 60 million and got 500 million back to date.

But I find the current tactics like if hdmi cable company made their cables analog instead of digital to protest bestbuy.marking up products so much(Cause more people would buy the cables if best buy didnt charge 800% markup) Or if movie companys made sound cut out half way through to protest cinemark not giving them half the concessions stand money.

Make it work for you dont lock out content but instead come out with steady stream of dlc. That way firstly keeps more people interested in franchise so more sale when next game comes out. Secondly more money and third people are less likely to sell game back if theirs content they havent done yet. Plus its better pr than trying to charge someone a extra 15 bucks to complete game they paid for.

People should get paid for what they do but where ceo like the one for netflix within a single year he took one of the largest growing companys 5 years running. And literally sliced the value in half while still receiving a salary and bonus in the millions making in 15 minutes what their average employee makes in a entire year. Honestly if you want to look at why are economy so screwed. Is rich find ways to ding and dent us oh your poor you loans going to be higher oh your rent was a day late so pay extra oh your account went in the negative pay extra. Because 1% of total population holds over 95% of total wealth. Our politicians hand out money in form of bailouts to big money. Right laws to protect interest of those with money to get them more money.

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JCrosby replied on Tue, Feb 7 2012 8:47 AM

I was an ASM at GS for about two years back in the XBox/PS2/GameCube days. The way stores are run has changed a bit since the acquisition of EB and the advent of readily available digital distribution, but the business model hasn't really changed.

This debate really touches on the transition from one era of gaming to another - physical to digital. Way back when, going to the video game store was awesome because you could ask the guy at the counter to put in a copy of a game in their test kiosk, and hoping to make a sale, they generally would. You really can't get that experience anymore - sure, go to a GS and try it. The folks working there probably won't because they are contractually obligated by MS, Sony, or N to have their demo disk in the kiosk.

Dev's complaining about used sales? What do you expect with any physical copy of a game? So long as you are publishing some sort of physical media, there will be a way to trade it. Now unlike other industries where products you buy are a necessity to daily life (your car, your house, the clothes you wear), video games a are simple accessory, so why can't the people that bought your product sell it when they're done? If you try and hard code a physical copy, you're just providing that much more of a reason (like DRM) for people to not buy your product or pirate it.

GS has to have the used business to survive. You can trade in a newly released title for less than half of its value and GS turns around and sells it for 95% of the cost of new. Instant $30 of profit, and customers are willing to do this because they save $5. This is the only way they can turn a profit, so why are devs angry at a business that helps you distribute your physical inventory?

The end result is going to depend on how customers value games and how devs and pubs control the ways in which they distribute them. Corporate greed is only good for those inside the corporation...

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Joel H replied on Tue, Feb 7 2012 11:22 AM

DHampton,

When I first started gaming 20-30 bucks was all a game would cost. Now it cost $60..

I don't know when you started gaming, but if you adjust retail prices from the early 1990s for inflation, most premium titles end up in the $60-$70 range. Gaming has gotten cheaper, adjusted for inflation.

JCrosby,

"so why are devs angry at a business that helps you distribute your physical inventory?"

I think this is the key problem and I tried to address some of the reasons above. My theory is that video games occupy a unique niche in the entertainment market. They're far more expensive than used books/movies/music (meaning consumers expect a higher degree of value) , but they increasingly require the efforts of dozens of people over several years. Publishers put enormous pressure on studios to deliver sales in order to justify their own continued operation.

If you're a studio, those "Used" sales represent revenue that you aren't getting *credit* for having created. In a situation where every dollar is being scrutinized to see if you've justified continued investment, that's a problem.

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AKwyn replied on Tue, Feb 7 2012 11:58 AM

I understand where you are coming from; selling new games isn't exactly making profit so they have to sell pre-owned games for 5 dollars less to make a profit but then again, what's the use for GameStop when we can buy those same games on eBay for way less. I mean sure, we're not supporting the publisher as well but when there are other ways to get used games for cheap then where does GameStop come from? Sure, GameStop does serve a small (if nonessential purpose) in the video game market but do we really need it; we can get most of our games at Target/Best Buy and digital distribution is proving to be able to allow us to get any game that's uploaded on the service with most of it going to the publisher.

GameStop does have used games but it doesn't have the people interested in video games or the atmosphere that even feels like you're in a place dedicated to video games; it just feels like every other store out there with a lack of individuality, especially with the methods they're using to stay in business. I've been in a few local GameStops and the people there don't look like people who play games, they look like people who were looking for a job and just happened to be hired by GameStop; so if it doesn't connect with the hardcore gamer (who's not into pre-order bonuses and cash in bonuses) then what purpose does it serve?

Additionally, in regards to video game stores? How is it that local game stores manage to stay in business (selling used games for lower then they should.); I mean they're selling games and they seem to be mostly thriving. Is it that they have more of a connection to the community then these faceless corporate stores, is it because they actually serve to gamers, the hardcore gamers who's business is very important. How they stay in business is a mystery but I will say that they serve the community more then a GameStop would in it's lifetime.

While used games are harmful to the market, I can't justify what GameStop is doing; even with the additional graphs added up. If they wanted to survive then they'd find better ways to survive and attract new customers who aren't going to feel like they're going to get ripped off at gunpoint.

 

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Yes its a dying business model, honestly this next while the tech industrys are going to be the big d**** wars no mines bigger no mines bigger. Honestly while digital downloads is the future alot of gamers I know avoid credit cards and then alot of the interest group is just to young to have them.

The problem is I buy game 60 bucks from xbox live. They decide to no longer host or come out with patch that blocks content ect. Or even something as simple as I cant pay my monthly fee that month for xbox live and no longer have access to the game.

While I buy copy from bestbuy gamestop regardless I own the disk and can play it as I purchased it no if and or buts.

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For my money, GameStop can simply close up shop and vanish. I buy direct from the publisher any more; GameStop's "support" is nonexistent anyway.

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SRubio replied on Tue, Feb 7 2012 7:29 PM

I miss Funcoland : )

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sweenjm replied on Wed, Feb 8 2012 4:38 AM

Screw LameStop.

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SAnthony replied on Mon, Feb 13 2012 10:40 AM

I simply do nto repsect nor use gamestop. THey are a very poorly ran company with staff that typically is clueless. THeir practices are a shame.

I have shopped at both gamestop and half priced books, and im sorry givign a kid 19.99 for a game and sellig nit back at 52.99 is wrong. HAlf priced boosk markup isn't even 100%. I can by a 30.00 book for 8.00 there. I sold one at 6.00 and it was resold at 8.00.

In other words the Gamestop CEO lied.

THe onlvievoucher pull was also a very shady tactic. Onlive paid for that deal, and gamestop was given a FCC warnign and fine so they ended up pullign the pc title all together.

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JCessac replied on Mon, Feb 27 2012 7:22 PM

I'm the creator of Playnext. Playnext offers a share of its used games profits to developers, publishers, and console makers. Currently, we take this share and buy new copies at retail price from their websites. This way they all benefit from the used sale at once. Visit playnext.com

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JBarnes1 replied on Tue, Apr 24 2012 2:42 PM

Of course, if used games aren't an option then maybe I'll just pass all together on that next Madden or Assasin's Creed game since I can't trade the previous game in to defray the cost.

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TOTISK replied on Thu, May 24 2012 9:28 AM

I have to completely agree with you on the pressure that developers get. Developers, like Take-Two, are actually losing money despite their great games like NBA 2k12. They rely on their new game sales substantially or they risk go under, especially when used games are purchased because none of that money goes to them (Gamestop makes a lot of money off these used game sales). Especially during console transitions, developers struggle to adapt to the new technology and that's when some win and some lose.

I quoted you on this in an article about why games are so expensive and what's being done about it (http://totisk.blogspot.com/2012/05/why-videos-games-are-expensive-and.html). I found it significantly interesting that Gamestop stores actually make more money on guides than new games. There's a lot of complaining about video game prices, but at the same time not much can be done due to these pressures that developers experience.

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eavedrop44 replied on Tue, Jun 26 2012 12:23 AM

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If you are buying outright or already have it, we make (next to) nothing. If youre signing a contract, then we make money and we can sell the case/charger/etc close to cost. world of tricks

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