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

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.