Web Retailer Bails on Games Industry, Hard

Online retailer DVD Empire has gotten out of the sale of videogames, and on their way out the door they made a point to call out the industry on a number of sore spots. As reported by Gamespot, the company felt that they actually lost money by offering games to customers. In their eyes big publishers only care about large chain stores, leaving small and medium-sized retailers to pick up enormous overhead costs on the titles they carried. They have an extensive list of frustrations on the former 'games' page, including: "When we sell a game we make on average 8.3% gross margin. That does not take into account any of the cost to store the video game or labor to receive/ship an item. The only way we can make a profit on an item is to sell it over the MSRP, but unfortunately we are not allowed to do this. Take a $400 console; we only make $5 on the sale--that is a .01% gross margin (note the decimal point). The game companies make their profit selling to us. We make no profit selling to you." Besides Gamestop there are two other videogame stores in my town ... but both of them are exclusively used game resellers. Are used games the only way to make videogame sales profitable?

Comments

Price fixing?

[Fozzyuw]

"The only way we can make a profit on an item is to sell it over the MSRP, but unfortunately we are not allowed to do this."

I've been wondering about this for some time. Video games, unlike many other items, are always sold at MSRP. If I got to large retailer 1, 2, 3 or small specialty store X, Y, Z the price is always the same. There is no competition going on. *Maybe* I'll see a special sale on a game, but it's rarely for newer releases. Last 'special' I ever got was when I picked up some DDR games and got a free dance pad and a "buy 2 get one free" deal at Toys'R Us looking for some Xmas gifts, which is a very rare promotion to find (outside of used games that is).

It only makes me wonder, why do I never see one place have a sale (besides there 'bargain bins') on some games to compete with others. I guess the above answers my question. It appears game companies/publishers are forcing a fixed price to the point that there's very little profit to be had.

Is this necessary to recoup the multi-million dollar investment to make a game these days? It is a weird industry.

Cheers,
Fozzy

Not allowed over MSRP?

[sqlrob]

There's games (not used) over MSRP at Gamestop. Some of the $29.99 DS games are there at $34.95

Game Store Provides No Value To Me

[patio11]

For PS2/Wii games, I go to my local game shop because that is the only way to get them. For PC games, I get it from whatever online retailer has the lowest price/shipping combo or Direct2Drive if its an option. My heart bleeds for you, video game stores, but the high schooler behind the counter trying to upsell me into a strategy guide provides no value to me, and since I only go to the store when I have a specific game in mind I don't need his advice (and if I did need advice, I could get better informed advice online -- sorry, kid).

The money from a video game sale has to get split three ways: developer, publisher, point-of-sale. Everybody thinks the other two get too much money. Publishers need developers, they can't make games without them. Developers sometimes need publishers, because AAA games cost $$$ to make and you don't want to have to self-insure against not getting a hit. Who needs retailers? Um, nobody, if there is an alternative distribution model which can move the same number of units. For products targetting the core demographic (which is perfectly capable of downloading games already... TOO capable, to hear many tell the tale), distribution via download works now and will only get better as bandwidth increases. In the next couple of years, we'll hear of a name game being distributed as an Internet exclusive. After one publisher proves that they can make mad, mad bank doing that (not on the scale of GalCiv2, on the scale of WoW), and keep it all, you'll see a stampede of PC games out of the current retail channel.