Best Buy vs. The Game Makers

An anonymous reader writes "CNN's excellent Game Over column brings word that Best Buy has begun selling used games in select locations as part of a test program. If successful, all of the store's 700 stores could begin doing so in the not-too-distant future. Not so happy about this are developers, including Epic's Mark Rein, who resurrects his 'no used game sales' argument, saying 'To have them resell the games, with developers having no participation, that's just wrong. That's just fleecing us.'"

Comments

Oh, how horrible

[kawika]

'To have them resell the games, with developers having no participation, that's just wrong. That's just fleecing us.'"

Yes, the only fleecing that should be done is first-generation fleecing, where the game developers and distributors get a good chunk of the money before the buyer realizes the game is boring and unplayable.

So why would someone be selling a game? Perhaps because it is no longer interesting to them? Maybe because it became boring to play after a few weeks? Whose fault is that? If the buyer can't even resell the thing without some sort of permission from the game company it sounds like there is less incentive for them to make a "keeper".

Is selling a used car wrong too?

[prezkennedy.org]

Sure, developers aren't making any money the second time around, but neither is a car maker when a used car is sold.

Mark Rein has a point about reselling Microsoft Office and how the MS legal department would attack voraciously, while reselling Halo is just fine.

Personally, I like finding older games I missed the first time around. The used game market simply isn't the same market as the new game market, and developers just need to get over it.

Re:Is selling a used car wrong too?

[justins]

Sure, developers aren't making any money the second time around, but neither is a car maker when a used car is sold.

Actually, the manufacturer has some ways of making money off a used car. Service and parts.

Here, we begin to see what the problem with Mark Rein's business model is. It's a small problem, really: the people supporting his software (the publisher supports it, not his company, his whining not withstanding) might have to support it for each person who buys the software, which in some universe could be construed as unfair to the publisher (or in Mark Rein's bizarro world, unfair to his company). The average person wouldn't consider this unfair, since a call into support generally means that the developer fucked something up, but still.

There is a simple solution. For any given serial number, the first person who registers the software gets 30 days of support for the thing, at which point additional support must be purchased. Boom, you're extracting revenue from those evil people who bought your game used, just like an auto manufacturer extracts some revenue from those older cars on the road.

I thought that's how a lot of publishers operated anyhow, so it's really hard to see how Rein's bitching is legitimate.

Re:Is selling a used car wrong too?

[Jacius]

You weren't kidding, your example is extreme. Downright ludicrous, in fact.

If 1 million people played a game for 10 to 20 hours before reselling it, even ignoring the time it takes to find the next customer, it would take 10 to 20 million hours (or 1140 to 2280 years) for all of them to play it.

If our game is on a standard compact disc, the original disc will long since have degraded (even if all 1 million customers were very careful, and got no scratches, and didn't accidently break it).

Even if we assume, for the sake of argument, that the CD is periodically copied to a new CD, so that it remains readable, it is highly unlikely that we will be using CDs even 10 years from now, let alone 1000.

Even if the original console and a television set to play it on, and an electric generator and circuit to power the console and television were all preserved and sold along with the CD (and I hope you won't try to claim that consoles, televisions, generators, and wires do not deprecate), do you think anyone in the year 3505 A.D. would give a rat's ass about a game from 2005? I don't even care about games from 1995!

I find your example to be preposterous, and will propose one slightly more consistent with reality:

A game developer spends 160,000 man-hours to make a game. They sell rights to the game to a publisher for, say, $7 million (this comes out to an average of $43.75 per man-hour for the game developer; the president of the company will of course be paid more than an intern will, because this is a capitalist economy). The publisher makes 250,000 units, at $5 per unit (including disc, box and manual). These units are sold to retail outlets across the U.S. for $40 per unit (a profit of $8.75 million for the sale, and a net profit of $1.75 million for the publisher). The retail outlets sell each unit for $50 per unit, a profit of $2.5 million for the retailer.

80% of the units, or 200,000 units, end up stuffed in the closet or thrown out after the first owner gets done with it. A few months later, the remaining 50,000 units have been sold to a used games retailer at $10 per unit (a loss of $30 for the first customer, or a cost of $2-3 per hour of fun he had). The used games retailer sells it again for $25 (the manuals are all ratty and the disc has some small scratches on it by now), making $15 per unit in the process.

A few months later, 10,000 units have been sold back to the used games retailer at $5 a pop, and sold to a third customer for $20 (the used games retailer has now made $30 per game over a period of 4-6 months). A few months later, 2,000 units are sold back for $3 a piece; 1,500 of them sit on the shelf for 4 months before being thrown out, because the sequel has come out and no one wants to buy them anymore.

(By the way, the sequel makes another $50 per man-hour for the game developer, a net profit of $3 million for the publisher, etc. etc. before the third game in the series comes out 2 years later, repeat ad nauseum.)

I'm sure my figures are a little bit off from the reality, but certainly more accurate than your example.

Your example of lemonade is absolutly useless and does not apply.

Well, you seem to be the expert on absolutely useless examples, so I'll have to take your word for it. For some reason, I thought that a can of lemonade powder (which costs $2 and lasts 3 days of normal use before it is empty, or $0.67 per day of use), could be compared to an automobile (which costs perhaps $15,000 and lasts 10 years of normal use, or $4 per day of use). For some reason, the idea got into my head that selling a used car was similar to selling a half-empty can of lemonade powder.

Thanks for setting me straight.

As for the obvious anti-communist stance I would like to see if you can find me an example of a non-Stalinistic Communism that has be attempted let alone one that failed. I can show you at least a few examples of successful socialized societies.

Are you

Counter-arguments

[alphaseven]

The New York Times ran an article about Amazon selling used books (Reading Beteween the Lines) arguing True, consumers probably save a few dollars while authors and publishers may lose some sales from a used book market. Yet the evidence suggests that the costs to publishers are not large, and also suggests that the overall gains from such secondhand markets outweigh any losses.

This is the paper cited, it's about used books but I wonder if the same arguments could be applied to used video games.

No fleecing here

[Jtheletter]

It's the doctrine of first sale. Once you sold it, it's out of your hands. Does that mean you have to like it? No. But there's nothing that says you should get another slice of the pie.

Ok, having said that, I can see hwo this is potentially a huge blow to the already struggling games industry, at least as far as smaller develoeprs go. Right now there seems to be this boom or bust tendency with games, and if you don't hit one out of the park on the first try there's little chance of getting another shot. In addition huge development and advertising costs can be hard to recoup for smaller companies, and having such a major outlet as BestBuy resell used games makes it even harder for them to make those all-important first-sales.

As a consumer this also worries me, given the used games policy of GamesStop and EB (before it was bought out) we can probably expect BestBuy to buy abysmally low and sell insultingly high. I'm sorry, but when I know a business is making outrageous margins of upwards of 80% (I did RTFA but my personal experience has been that their margins are much better than the 40% quoted) on these used games it sickens me. Basically the consumer is getting shorted on both ends. Will BestBuy reverse this and actually keep used games margins more reasonable? Probably not. Although even a $5 difference in price between them and GameStop would be a blwo to GS's used game income, and I don't doubt BB has the clout and Money to start a price war, however I do doubt that they could overcome the greed of the high margins to truly start one.

In summary to a lot of rambling, I think this could possibly be slightly good for the used games consumer, bad for the games industry, but totally inline with supply/demand economics and doctrines of first sale. I want the games publishers to do well, but if their only recourse is to legislate against reselling of used games (or reselling w/o a cut to them) I have to draw the line, once I own it I can do what I liek with it, including getting ripped off reselling it to BestBuy.

I think I know the real source of his whining.

[solomonrex]

The games industry lost a lot of money from used PC games being sold, when they were simply copied and kept and shared among friends. But that's why consoles are popular, and that's why copy protection exists.

But the idea that software makers exert any kind of control over used marketplaces is ridiculous. Best Buy doesn't sell used appliances because they actually age. But my Warcraft disc will pretty much be the same 5 years from now. Same with the DVDs and CDs. Publishers have to understand that this is the nature of their business. If you make computer games you are exposed in ways that console games aren't. You basically need new versions of Windows to be incompatible with your old games, or people won't buy new copies. Or you stick with consoles. But there is a thriving used marketplace for a reason. Videogames have huge margins for profits - they are good investments for a reason.

The simple solution is to mark new games down to $20 - undercutting used games (or at least the large profit from used games) and live with reduced profits. Ha. I can't wait to see that.

Developer's best bet

[xenocide2]

Nintendo is probably the first of the large vocal companies who figured out how to deal with rentals and used games. For a long time, they were very upset with the american practice of game rentals. Apparently in their home country of Japan rentals and resale are illegal (without permission, presumably). A very nice priviledge, but it certainly draws much ire from the consumers who discover that they're being denied a second-hand market. Nintendo of Japan's wrath was such that they sued Blockbuster, denouncing the practice as unhealthy to the game market (technically, their legal recourse was only reguarding copying of instruction manuals). They've since made up and become good friends, much in the same way that movie companies now tolerate rental stores because they comprise a heavy section of demand for their product. A couple companies have even released rental only versions of their software! I can't recall whether Nintendo themselves has engaged in the practice, although I do recall a Clayfighters game getting such treatment.

Nintendo has come to the realization that the best strategy against the second hand market was to make games that people want to keep. Most single player games outlast any interest the owner has in the game. Eventually, you've collected all the shines, beaten the final boss and found all the secret endings. Nintendo tries to add multiplayer to every game, whether it makes sense (Metriod Prime) or not (Pikmin 2). The other tactic they've taken is their Player's Choice games. Once demand falls off for a game, lower the price to 20 dollars. This pretty much destroys the used game market margins for the games in the list. For all I know, Best Buy could be trying to get their suppliers (Nintendo, Sony, Microsoft) to extract more cheap titles by threatening to sell used games. The test run would then be a method of verifying their estimated profits on the endevor. The used game market becomes a form of blackmail whenever wholesale channels can't meet asking price.

So basically, Nintendo's strategy is to trot out Miyamato to talk about innovation and quality, while quietly fighting the second hand market with every available resource. Whether they succeed on either front is an individual opinion.

Re:Developer's best bet

[kisrael]

It's kind of a tangent, but...I think "local" multiplayer is almost a whole 'nother animal than online.

For what little I've dabbled with it I find online irritating, full of highly skilled jerks and also cheaters and I can't always tell one from the other.

"Couch" gaming is my favorite, keeping it social, knowing who you're gaming against. It's like a making love in a committed relationship vs. anonymous sex in a restroom.

Does this philosophy hold for other things?

[fmaxwell]

Note: I stopped buying used video games when I was a teenager.

Oh, you're so virtuous! It's making us all damp.

I want to support the developer of a good title with my hard earned money for creating a title I want.

Support the Developers!

Does that philosophy extend to other things in your life? Do you also believe that no one should be selling used cars? Should we be supporting the people who work so hard to design and build cars by only buying new ones? When someone wants a new car, should they be forced (by the market) to either scrap their old car or store it, unused, for years and years?

Should we also buy and sell only new paintings and sculptures, boats, houses, and computers so that we support artists, boat designers, architects, and computer hardware engineers? Should the only option for disposing of older books be paper recycling bins?

Or is there something unique to software engineers that justifies us being held in such a lofty position relative to all other creators of art and intellectual property?

It's beyond that

[Fen14]

I thought about the issues of automation before I pondered transhumanism. When you are a self-sufficient machine, the whole idea becomes moot. It's like arguing about horse rights for the military--completely moot.

By the way, I do know of transhumanism--and the movement is only going to grow. It's international, atheistic, and going to explode!

I used to manage for Best Buy

[CTD]

Until just earlier this summer.

This is a slick move that I didn't know was coming, it's the right move to make as BBY looks to penetrate the growing gaming market, and you can bet that more things like this will happen in that chain.

Fact: People buy used games. The smaller retail chains based on gaming earn most of their profit from the lure/sale of used merchandise. Need a second controller? Why not get it used? Want to try a game that you know is not great, but may hold your interest for a week? Why not get it used? Used sales happen. There is a market for them.

Fact: BBY is a publically traded company with a bottom line need to protect and grow shareholder value. So they are going to make moves that allow them to gain 40% more margin on product sales. That's good profits and good for the bottom line.

Fact: BBY is currently in a program that is targeting customers and adapting the stores to fit their needs. Doubt me? Do a bit of google on Best Buy and the Demon Customers that made headlines last year. The company is focusing on customers, meeting their needs, getting their loyalty, keeping their sales. Gamers spend money. Crazy video card upgrades, consoles, and games, games, games. Moving to a used games model makes sense. Sell the game, buy it back cheaper than you sold it, then sell it again for profit. Wash, rinse, repeat. It makes sense in the capitalistic world.

Fact: Traditional boxed sale publishers can gnash their teeth all they want, but they will not boycott Best Buy or another major retailer that has hundreds of outlets to push the 'new' boxes out in.

Bottom Line: It's good for pofits, will draw in more repeat customers who will buy used, new, and whatever else they see on the way through the store as they shop, and you have a winning prospect.

The largest hurdle I see here is getting the stores on a program that is adequate for showcasing the used games available, and getting the manuals and cases together when a purchase is intended.

It works easy at GameStop for them to keep the manuals, etc. at the counter, there are two of them tops in any given GameStop. At Best Buy you have a bank of registers so there is some convenience factor to work out... beyond that it is gravy.

Expect this to roll out, not to every Best Buy, but to a good number of them.

Re:I won't buy a used game anyway...

[KillShill]

here's something you may not know.

gamestop/EB/generic gamestores sell used games as new.

they use shrinkwrap machines to package up used/returned games as new.

it's better not to shop those stores and buy it online, like amazon (even though amazon is evil they're big enough not to screw with their customers).

Data point

[metamatic]

I buy quite a few new video games. When I've played the game through, I sell it second hand, generally on eBay. Since I look after my stuff, the games are usually in "like new" condition, and I get 50-75% of the initial outlay back.

What happens to the money? Without exception, I use it to buy another game. When someone bought my copy of "Ratchet and Clank: Going Commando" for about $15, every penny immediately went to the game industry when I used the cash to purchase "Ratchet and Clank: Up Your Arsenal".

Suppose I couldn't sell games second hand. What would I do? Well, for starters I wouldn't pay $50 for a game, ever.

Hence, I find it very hard to see that my selling games when I'm done playing them is doing major harm to the industry.

Umm...

[Chmcginn]

For every copy of a game sold on their platform, they get ~$10-15 .... I got the numbers during my tenure at EA.

A.We're on the interet. You could be a homeless guy at a library for all we know. We don't want "Well, I used to work at location X". We want a link to a respectable web site that says what you just said.

B.) I'll certainly believe that Bungee gave Microsoft 15 for every copy of Halo 2 at its launch. But for a $20 game, like their "Platinum Hits" (or PS2's "Greatest Hits") 75% of the money going to the console maker... well, that just seems silly.

Wow, I really didn't mean this to look like a flame.

Oh, well.