Selling back games will make prices RISE - BEWARE!

#1

Quote:This means there is LESS money for development and they may consider charging more to make up the difference in the future.

I'm sure they will consider it, but they will not be able to actually do it. Why? For the same reason any company can't just arbitrarily raise prices when sales are low - external competition.

Company XYZ cannot raise prices to compensate for lower sales because competition forces XYZ to price their goods in accordance with competitor's prices. If the demand of XYZ's game goes lower while prices of market alternatives stays the same, the price of XYZ's game must go lower in order to stay on the market. This adjustment of price to demand is why you see older games getting lower prices - certainly old game prices do not rise because of their decreasing sales! Raising prices in the face of lowering demand would be extremely detrimental to profits!

So it is, IMO, economically incorrect to say that a decreasing product demand could increase prices in a market as saturated with competition as this one.

But unfortunately, your argument is a little more complex. You say that demand has not necessarily decreased, but rather the market has created a distorted view for the publisher, and caused that publisher to misconstrue demand.

Now, if a properly run company experienced falling or inadequate sales, it would simply evaluate its distribution chain to see why sales didn't meet projections. Most distribution analysis start from the ground up - in this case where the actual sales are taking place. Certainly the retailor's sales policies would be one of the first things evaluated by company XYZ since this is where XYZ recieves its hard sales data. Company XYZ would look to see if there was anything that the retailor was doing that would hurt sales or distort sales data. And quickly, the company would see the distortion that you ponted out. So, in seeing the root of the sales data distortion, all XYZ has to do is take the retailor's policy into account, transform that retailor's sales data by offseting sales figures as needed, and update XYZ's total sales data to reflect the more accurate information.

And all this only if the problem were not already obvious! All companies realize that their new games must compete with used copies of the same game. Because of this, they may even have to LOWER prices of new games in order to keep them competitive with the price of used games. So the effect is not higher prices, but, if anything, lower prices.

But are lower prices a bad thing? Doesn't a lower price hurt the developer's bottom line, and decrease the quality of games?

Not at all! In fact, the biggest factor which influences a game's quality is competition. Competion, being the paradoxical thing that it is, gives us the best of both worlds - increasing quality AND lowering prices! Do we need to voluntarily subsidize XYZ's profit margins to insure low prices and high quality? Of course not! In fact, if everyone bought new games in order to prop up XYZ's development budget, then the demand for XYZ's new games would increase, and therefore so would its prices! So, it seems to me that the best way to _increase_ prices is to voluntarily pay more than you have to! In a way, you would be voluntarily subsidizing and therefore recieving higher prices! Isn't that the opposite of what we want?

So save the $5 now AND save $5 later. Market competition is all the has been and will be necessary to ensure high quality and low prices. There is no need for alarm, and there is certainly no "DANGER".

#2 Forbidding used games will be the final nail in the presence of PC games in the traditional retail space : it's the biggest source of profits for some well known retailers.
You don't let them make money, they don't sell your products.
Used CDs, DVDs, cassette tapes, books have had no discernible effect on their retail prices. What should it be different for games ?

And your maths are also flawed : no one counts the sell of a second hand item as an actual sale towards the numbers of units, so in your example, 50k units were sold, period.
Again, why should games be different ?
More to the point, what's your vested interest in this ? Why are you being so alarmist and worrying so much about this ?

Now, rentals being available on the day of a game's release, that's another story, and you might have a point if you had mentioned those...

#3 @Nicolas - How many used PC games do you see? Ever? You stated "its the biggest source of profits for well known retailers". If you are looking at strictly Gross Margin - then you would be correct, but what I am looking at is the best interest of game developers - not retailers.

@Nicolas - You state my math is flawed where "no one counts the sell of a second hand item as an actual sale..." Well, you just proved my point. Game Developers dont SEE the sales of a second hand game and cannot accurately track the popularity OR do they generate the profits from the sales of those games. In my original example - there are 10,000 units that the RETAILER makes ALL the money on - and the Developer / Producer / Distributor get NOTHING. Not to mention that the Game Developer does not get to see how popular a game really is.

What is my vested interest? My interest is to protect the game development community. Picture your company makes a hit game, only to be repeatedly undersold by the retail sector attempting to make higher profits.

@Bryan - you make an excellent point about "skewed data" results and getting the information from the retailers would allow XYZ Corp to get more accurate sales data. With the quantity of retailers out there each with their own set of policies and how sales are tracked, there is no unversal system to plug into to get that kind of data.

@ Bryan - you do mention that this could potentially create an enviroment where prices have to be lowered in order to "compete" with the used products. I have 2 counterpoints to that. 1) Look at another industry with a large "used" inventory - college text books. The prices for NEW books only go in one direction because the sales of the used books cut into the profits for the company producing the new products. 2) Lowering prices would reduce profits even FURTHER for XYZ Corp. First, they are not getting the profits from reselling the used goods and by your theory, they would now not be getting higher gross margins by lowering the cost of goods. And secondly, as the costs of development continue to rise, the prices of new games will continue to rise even futher.

This could also serious damage the smaller companies who do not have the excess capital in order to compensate from the reduction in sales and development costs for future titles.

There was an article recently on either Gamasutra or GameDaily about the next generation of consoles that the retail price point may very well start to push the 60 dollar threshhold as it is.

Perhaps I was a little over-zealous in saying that there was a "danger'. But with more an more companies getting into the reselling of used carts - and for some companies it being their profit model (like Game Stop) - it is certainly a distinct possibility.

#4 I think (from the console department) that game rentals are a far greater danger.

PC game sales are probably never going to die out completely, but they will continue to shrink to the point where the PC game display is no bigger than any one console. They are getting close to that now. You'll only see top-selling PC games, or games with such a huge profit margin for the retailers that they don't mind stocking them.

The trick will be getting players to 'discover' online game sales. And we're getting there, too.

#5 This argument can be applied to the second hand industry in general, a much wider scope than just the 'intellectual' products mention. You could argue selling furniture second hand harms the furniture industry as it hide the true popularity of products from the manufacturers.

@Eric the contested maths, those 10,000 units you're talking about, the publisher has already sold them and made their money on them. The only issue could be popularity as you originally mentioned, but again warez, sharing, copying, etc., all have the same effect (and I'd argue to a much greater extent than the second hand sales of games).

Rental might be an issue, but shops still sell thousands of DVD's even though you can rent them, people buy cars even though you can rent them, houses everything....

People will still buy new as long as items are competitivly priced and there are incentives to do so. I own all my games, though due to having a laptop and only 8MB RAM most of my purchases have to come from the budget bin!

I don't think second hand hurts anyone, if you're worried about it, sell all your items as personal licenses for download from the 'net and then no one can sell it on second hand!

Excellent

Nick

#6 Pfff... first, if people return the game to the shop, its not exactly a worthy hit game then, now is it? So getting excited about "those bastards are reselling my precioussss!" is kinda silly. Games are returned for a reason.

Second. I personally see it as a great window of opportunity for indies who are seriously looking into online distribution channels, be it their own or portals. PC gaming is not going to die as long as there will be PCs around. If retail will lose the interest in it, it'll just mean that online channels will become more and more popular.
Thats it.

#7 Greetings!

In the traditional shelf market it is likely that used games will indeed hurt the traditional industry. Apparently, this is already happening in Japan. If you're interested, check out this set of articles:

www.gamespy.com/articles/505/505177p1.html?fromint=1

I'd recommend the on entitled The Shrinking Yen to get a publisher's perspective. If I remember correctly, some of the other articles also touch on this topic.

One possible way around this is to not have a physical product at all as Nauris has alluded to above. It would be much more difficult to have a used market with online distribution, IMHO.

- LightWave Dave

#8 Pc gaming isnt going to die.
(Its been predicted many times before, ussually at the launch of a new console with go faster stripes.)
The PC game bussiness is booming again.?
According to the latest CGW, game developers view the PC market the other way around.
Console publishers making a mad dash to the Pc market.
Apparently they see the PC as a more stable platform.
becuase Xbox ,ps2 and gamecube have reached the end of thier life cycle.

That always happens and we get a flood of half assed rushed console ports with bad controls..(hopefully not this time around) lol
.........

I can see how the used game market could hurt sales in some respects.
really it might only hurt the smaller companies.
: A game youve never really heard of, just happen to see it on the shelves.
: A company who doesnt make the majority of its sales in pre orders.


Zmatrix

#9 There is a lot of second hand PC games getting sold. Ever checked out EBay ? :) Or your local second hand CD store ? As nowadays a lot of the second hand book and CD stores carry PC and Console games : they clued in before the major players on the cash cow there ;)

It's nowhere as profitable (PC second hand that is) as the console stuff, second hand or end of life rentals for all the usual reasons in the traditional PC space (ESD doesn't suffer from second hand sales ;)), and trying to do anything about it before even dealing with rentals is just misinformed, alarmist nonsense.
Dealing with it after regulating rentals like Hollywood does would still be foolish, and not following the example of the other entertainment segments.
Again, it did not kill the recording industry, the VHS/DVD industry, clothing industry, car industry, etc.
Why should it be different for games ?

Edit : for those who put words in my mouth to further their need to win an argument, or simply can't read...

#10 I always buy old (not used, just a few years old) games. That way I never have to may more than $30, often less than $10.

So I'm not worried about price increases.

#11 Reselling games, does not make a difference, the developer only sold 50k games, not 60, just because the game was sold to the store, who sold it as used, Does not change anything about profit the company would make. They only are out the cost of that one disk that was already sold, what happens after that, isnt really any of their concern..

And i agree rentals are much more dangerous.

#12 @ Lonnie - the concept being - that there was an additional 10K units that were sold by the retailer that the Developer / Publisher did NOT make the money on.

So while the developer only sold 50K units - retailers may not be willing to purchase another 50K because they already have 10K units on hand from resells.

@ Nicolas - 2nd hand is considerably more profitable. If it wasn't, there wouldn't be so many retailers changing their profit model over to this structure.

Retailer buys "Golden Digger" from the publisher at $40 per unit and sells them at $50. A $10 gross profit (20% is about the average).

Retailer buys "Golden Digger" from a player 3 months later for $20 and sells them at the "reduced" price of $40 yeilding a $20 gross profit. The player with $20 in his pocket (or lets say $80 after selling back 4 games) now spends that money on more games resulting in a wash for the retailer (which they are counting on).

This is how the actual profit margin works for the retailers. Why do you think there is such a push for users to sell back used games? They know they will make more money selling used carts.

PC games are a little different because there really are no "Buy-back" programs out there.

But you can ask any economics professor why your text books at college cost $115 instead of $40 - and they will tell you that part of the reason (over the last 20 years) is the "buy back" program of book stores on products with a short shelf life.

I'm not saying that it will be the death of the industry, but we are really only in the first few years of this level of push of purchasing used games and reselling them. It will be interesting to see how this affects the price of games over the years - especially when the next Gen consoles come out and the regular retail is $60. Don't be surprised when everyone starts buying "used" and it pushes the prices up over $70.

#13 Rentals serve a purpose, particularly if there's some question as to whether or not the game is worth owning (as opposed to worth playing). Allow me to use a recent example.

A few months back, I rented the game Sudeki for the Xbox. I'd read reviews on it, wasn't quite sure that I wanted to buy it, but I certainly wanted to play it. So, I rented it from Blockbuster, played it a couple of days, thought "This is worth buying." However, I kinda regret that purchase, because I'd gotten farther into the game than I had initially realized and finished it in a ridculously short time. Moreover, it had very little replay value. Maybe in six or eith months, I might get a hankering to play it again, kinda like picking up a nice book again. Then again, I might not.

The thing to keep in mind is this: Blockbuster paid for each copy of Sudeki and every other game it rents. Perhaps they paid the wholesale price, perhaps not. But from the publisher's standpoint, that merchandise has moved. If publishers want to get in on the second sale action, they could offer to buy back the copies from rental places like Blockbuster for a fraction of the cost Blockbuster paid, then mark them back to up to a midpoint between what the publisher paid to buy them back and what Blockbuster paid in the first place. Bottom line, though, the publishers are going to have to spend some money to make some more money in the second sales arena.

#14 Having been to Japan, I can testify to the huge size of the used games market over there. There are several chains whose business is based primarily on selling USED games.

A month or two after their initial release, most games are readily available to purchase second hand, in flawless condition, for a lower price.

#15 Video tapes, DVDs and CDs somehow have managed to make it through rentals and resales just fine. I'd bet games will be able to handle it too.

I wonder how many people buy games knowing that they will be able to play it and get a certain percentage back? Sort of like buying a computer part because they are offering a $20 rebate.

After all, we're talking about games. As much as I enjoy playing or working on them, they are still not necessity items. Jimmy's mom might be against a $50 Gold Digger cart, but when she thinks in terms of a $35 Gold Digger cart (because of a $15 buy-back), she may be more open to the idea.

Now, if you really want to talk about something: How about refunds for games (and movies) that suck? I want my money back on that N64 Mission Impossible I bought, dang it! ;)

#16

Quote:Now, if you really want to talk about something: How about refunds for games (and movies) that suck? I want my money back on that N64 Mission Impossible I bought, dang it! ;)

I know the feeling, the amount of times I have bought something and its been terrible, you can't take it back! This is more or less unique to media because you can copy it. Most other industries allow you to return an object if its still in perfect condition.
When I was younger (I am old, BBC micro/spectrum is all I'm saying) I used to try out pirated software before buying, but I always did purchase what I used. Nowadays its a lot easier. We can go to our local video store and hire the new games for a few quid, if you like them order them online and still pay less than the RRP for a brand new title. The other advatage to hiring a game is that some games can be completed in a weekend, so whats the point of buying them when you can hire them for £3.
The other thing is that the gaming industry is now worth as much as the film industry. Halo 2 has sold stupid amounts on release. Fans will pay £40 for a title as soon as it comes out (I do with Tony Hawks every time) because they TRUST the software will be good. This trust is what needs to be brought back into all the software environments. People baulk at buying a new PC for £500 and then having to pay another £500 for MS Office.

"I got a monitor, speakers, dvd re-writer and a super fast computer for £500, how come a CD costs the same?"

People are so used to buying a game or package and it being completely rubbish (license titles for instance) so they become wary of buying another.

"I'll just get a copy off that man at work for a £5 and see if its any good!"

They intend to purchase it, they truely do, but once they've played through it they kinda forget. Buying second hand titles doesn't mean much other than more sales. People tend to sell their old games to buy the latest version. People who are not sure about the 'New big game' will buy the old one at a discounted price to see if they like it.
Games get played by many different people anyway. You lend your mates some 8 months old games, you no longer play. Thats another lost sale, but the game industry is still thriving, piracy and re-sales are not crippling the market.

The copyright lawyers are getting into a panic over the wrong things. Most people actually 'WANT' to be legal and buy all the software, but they cannot afford it. So they buy what they can. I for instance use Paint Shop Pro because I can afford it. I couldn't justify £400 for photoshop.
People download pirates all the time from the P2P networks. 90% of them stay on the HDD and never get used. Those that are installed are usually only played with for a while and then forgotten. The last 10% are the ones who cost the industry. Those that use these apps on a daily basis. That means if the piracy figuires are 1,000,000, thats really only a 100,000 lost sales and those people either don't give a damn or can't afford it.

#17 There are a few ways to resolve these issues

Make the products so good that the fan base always buys the new version
"If its good they will come" and spend their money. If you build confidence with good releases, people will always come back for more and trust in business is worth more than anything else.

Bring down the prices to a reasonable level for higher end apps
After various MS products, Photoshop and 3DS Max are probably the most pirated apps. This is because their prices are so high. These apps used to be specialised and specialised apps are expensive because they have low sales figuires. Now they are common place apps and could easily sell 100,000 of units if the price was lower so normal mortals could afford them.
The software industry is finally realising this and producing home versions, about time too! They are making some silly mistakes though. Cutting the wrong features and crippling them in stupid ways. What makes a difference between a professional user and a home user? Productivity. The best way to make home packages is to include all of the core features, but not the tools that make workflow faster. Time is money professionally so if your using an app all day, you'll pay the extra for the time saving utils.

Expand, Expand, Expand
If your developing a game, make sure you build expansion packs into the original brief. Shelve them and release them later. Offer free add-ons and goodies, this will encourage users to continue to use your game and come back for your next product. A days work to produce a new official skin, will pay back the wages no end as everyone passes the news about to their friends.
I have been so encouraged by some mods that i've bought the original game I never intended to play!

Support, Support, Support
Support your product. Build a good community by giving away those freebies, offering help and improving what you've done. Most high-end packages that cost the earth have no free support either! You have to pay for that too!

This has turned into a bit of a rant and gone off topic as usual.

#18 Just my 2c regarding selling software online (not the original topic - sorry):

Something LightWave Dave said got me thinking:

Quote:... is to not have a physical product at all as Nauris has alluded to above.

I seem to remember somewhere a study in CD sales and they found that sales went up if the CDs weighed more. I can hold it, it's heavy, it's WORTH something. I know people who purchase games for the packaging as WELL as the game but they will just use pirated copies of software that's available online only. THOSE people are not TOTAL pirates but not for any moral reason. I guess this kind of mentality has always been an issue for software creators.

I just hope that online only doesn't encourage too many people to SHARE too much ;) When the time comes, I myself would like to offer hardcopy (post you a CD) for a little more. When buying software, I would pay more for the box. I know many DVD pirates however I buy ALL my DVDs (235 last count) because I like their physical existance - maybe it's just me :P

Anyway, sorry for the rant, I just thought I'd mention it.

#19 Well, while I was still running my shop, I dabbled in second hand games, couldnt compete with the local competition though. You will find games being resold a couple of days after they come out. Why? Some people buy, copy and resell, some games can be finished the same day so get resold pdq etc....

Of course the main customers for second hand games are kids, its all they can afford with their pocket money, so its not really a lost sale for a new game.

I dont think blockbusters rent PC games though, but I could be wrong.

#20 The main presumption of Lamendola's argument, if I understand it correctly, is that everyone that buys a game used would by a new one if the used wasn't an option. I respectfully think this is fallicious thinking.

I'm sure there are some of that 10,000 that would buy a new one. I'm also sure there are those of the 40,000 that wouldn't buy theirs for the "rebate" suggestion I listed above.

Nauris is correct in that a good game really should last beyond the first couple of months in replayability. Just look how long people have been playing Quake III, Tribes2, or Halo1. By the time people tire of those, there should be such a glut in the used games market they'd be worthless to buy or sell anyway.

OTOH, where do we think the money goes when a teenager walks into EBGames and sells several of his well-worn games? It might be for a used copy. Then again, it may go toward something new.

Edit: BTW, was Eric L. talking about used computer games or console?