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Game Retailers Make Money On The Margins
This week's Escapist deals entirely with the business of selling games, and the article A Marginal Business details how EB and Gamestop make their money. From the article: "'Used games are keeping the entire ship afloat,' a vice-president of marketing for Electronics Boutique tells me. 'EB and GameStop make basically no money from new product.' No money from new product? But everybody knows the retailers are the real profiteers of the interactive entertainment industry, brutally extracting marketing development funds and ruthlessly returning product in the name of the all-mighty dollar. Right?"
I thought it was the gaggle of producers that got all the credit for money-grubbing. As in, EA. I can't recall hearing anything specific about the retail chains.
Your theory is right, your numbers are off a bit, the result is the same. :)
... which is what the article and your OP rightly draw attention to. That's a better gross than selling current titles new.
New game sold for $50, wholesale price from distributor was $36 (this is typical, and is in TFA). Gross $14 to Gamestop/EB.
Current title, used, buyback at $15, if you're lucky. Re-sell at $40. Gross $25 to Gamestop/EB.
Back title, used, buyback at $5 (again, if you're lucky. $3 is common now). Resell at $20. Gross $15 to Gamestop/EB.
Total gross over three cycles (assuming it doesn't get sold back as a back title ad-infinitum) is $54. But the title could be re-sold several more times at backtitle prices, at $15 gross a pop
The lesson to take home from this is distributors are charging too much for their product. It's no wonder the second-hand market is florishing. This is especially true for high-volume console titles.
-EvilMagnus
Do retailers ever refuse to buy back or sell used stuff based on EULAs? Just curious if anyone has an example.
When I worked at Gamestop, we couldn't take back any game with a serial key like Everquest (PS2) or Phantasy Star Online (DC, et al).
I have been working at online retailers since college. I've worked at retailers in high school and during college. They always work on the margins, and sometimes, their profits from sales amount to negative.
Where do they get the money to keep afloat? From other sources. Some companies get paid by their distributors or manufacturers to advertise. That's right, Retailer Y gets paid money by Manufacturer X to advertise Retailer Y's store. Since advertising is money that has to be spent anyway, this translates to free cash. Others get cash from investors who believe if they can hold on one more year they'll hit it big. Others have some other service or plan that they are selling besides the product.
Retail is about living life on the edge, with barely enough ground to stand on. When times are good, they are really, really good. (And Christmas is a really good time for everyone!) When times are bad, numbers turn red, and managers start sweating more and choosing which salespeople to let go. For most of the year, no one really knows whether they'll get bonuses or get fired.
It's a tough game. It's tough because if you are a clerk or a salesperson, unfortunately, your higher salary works against you. One store I worked at told me upfront. "If you're good, we'll give you a raise." And then the manager said, "If you make too much money, we'll let you go!"
But this is the same everywhere. Publishers are trying to find out how to whip out more product from their factories for cheaper. Distributors are trying to justify their take on the supply chain, wining and dining both suppliers and buyers. And retail shops are trying to manage the head-ache that dealing with people instead of lifeless products brings. Add to that the workers who want to bleed every dollar from their employers, consumers who are about as loyal as a goldfish, and then the government who wants to tell you how to run your business and take their cut of your money as well, whether or not you are profitable. It's a game where everyone is pitted against everyone else.
Remember, one reason the internet is great for retailers is because you can now run your mail-order business for much cheaper and have more content that interacts better with the catalog readers. We've come a long way since Sears has published their first catalog, and we have a lot of ground to cover yet, but all signs point towards the internet solving a lot of problems mail-order has.
But you know what? All of this uncertainty and stress and competition leads to a superior product and distribution chain. In America, you CAN buy almost any game you want in almost any condition you want for a pretty decent price in pretty much any locality. Not so in most of the rest of the world. In America, you CAN start a new publishing or producing company to compete with the big dogs. It's not easy, but if you are good, you'll succeed. It's what makes it all happen. It's all because we have these free markets where people compete for money and no one is coerced to do anything they don't want to do (except in special cases).
The radical sect of Islam would either see you dead or "reverted" to Islam.
Hokey/hostile copy protection schemes such as Steam and Starforce aren't helping matters either. No sense ragging on Steam since it has been hashed out here before, and Starforce's hardware/software-hostility has a cult following of gamers who stay informed of titles NOT to buy.
How is Steam an Evil copy protection scheme?
It seems to be quite the opposite of what most companies are doing. I can play any Valve game I've bought since 1998 on any computer that can handle the software without digging for any discs or serial numbers for those games.
This is not a dream, not a dream...we are transmitting from the year 1-9-9-9.