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What can used games sales tell us?
Lolthien | 2:07 PM on 07.16.2009 7 comments


These recent stories about a rebellion against used games from the various game makers has gotten me thinking. Why are used game sales so bad from a producer's standpoint? Why are so many used games being sold? Is there anything that can be done to resolve the conflict there?

The first question is pretty easy to answer. Basically Game Publishers, and by extension the development companies that rely on the publishers for their royalties, only get money from the first sale of any particular game. And they get a large portion of it too. A retailer may only see a dollar or maybe two in profit on new game sales, the rest of our $60 goes straight to the publisher, and from there a portion goes on to developers, marketers, etc. Therefore, they see each used game sale (from which they receive NO money at all) as a lost sale. After all, if a used version of RTS Shooter 2k..er 10, is not available, then a customer would simply pay full price for a new copy, and thus for each used copy that is bought, one less new copy is sold.

Obviously from this goes our second question, why are so many being sold. Obviously retailers are pushing used games hard because they receive 100% of the profit on that used game themselves. The only cost is the pittance they pay those who turn in used games, and instead of the one or two dollar profit they would see on a new game, they might see twenty, thirty, or possibly forty dollars in profit from the sale. Therefore any retailer would be crazy not to push used games as much as possible.

To the consumer, the choice is obvious. If the game plays the same, and is indistinguishable from a new retail copy except that it is five or ten dollars cheaper, what kind of person would pay full price?

And I think therein lies the solution. Price. If games cost $30 instead of $60, how many more new copies would be sold during the first week before any used were available? In my head I can already hear some of you saying, "Twice as many.. duh".. out there in internetland. But from some basic research already done on the Steam Network suggests that the increase in sales could be ten times or more. As many other non-video-game experiments with markets forces suggest, there is a threshold most people have in their head relating to disposable income. Anything below that mark doesn't seem to register as money even worth counting as spent. (Yours for only $19.99 anyone?)

In fact, 2K games tried this YEARS ago with their last officially endorsed NFL game NFL 2K5. And not only was that game well up to any measurable standards of the time, it is widely considered the best of any of the NFL 2K games, and enjoyed a huge surge in sales large enough to scare EA into signing an exclusive deal with the NFL, effectively shutting down 2K Sports football franchise.

Reduced pricing for games really is the only option for these game publishers to short circuit the chain of used game sales being exploited by Gamestop and others is to lower the retail cost of new games when they are still brand new. Obviously, the executives and stockholder boards at these companies are scared pantsless that lowering the initial cost will make their rampant profits over the past decade or so go up in smoke... and I'm no economist so that might be true. But it seems to me, that if there is a market for lower priced games (not necessarily USED games) they would be fools to not find a way into that market.

So that's my challenge to the game publishers: EA.. make the next Madden cost $19.99! Ubisoft.. make the next Splinter Cell priced at $19.99! What is the worst that would happen? You only make one third the profits if the exact same number of people buy your game. And yes, that would be bad, but if TEN TIMES the number of people buy your game, then you've increased sales by more than three times. And profits come pouring in from there.

So, I invite comment from the Dtoid community, am I crazy? What have I forgotten? Is this the best idea ever and you happen to be president of EA and want to offer me a job as VP of Marketing??? Just let me know below!



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7 comments | showing # 1 to 7
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Phantom Spaceman's Avatar - Comment posted on 07/16/2009 15:41
Phantom Spaceman
$20 is probably unrealistically low, but $60 is definitely too much to ask for most games.
ShadokatRegn's Avatar - Comment posted on 07/16/2009 21:01
ShadokatRegn
The problem with used games themselves is: Publishers don't get the sale, at all. Used game sales are at a store-level only. DLC is starting to alleviate that quite a bit, and publishers are still getting the bang for their buck - it's a shame they start out so expensive or this probably wouldn't have gotten so out of hand.
Lolthien's Avatar - Comment posted on 07/16/2009 22:31
Lolthien
Shado, that's pretty much my point. The only way for publishers to break into the used game sales is to lower their prices to used game prices. If people bought the game new, they'd have no reason to look at used games.


And to Phantom, I chose 20 bucks because that was what 2k5 was selling for brand new. And there is a reason Billy Mays always used to sell his stuff for 19.99.

If video games were that low they would constantly sell out. But I'm willing to take any price break they give as long as they're serious.
ANevskyUSA's Avatar - Comment posted on 07/16/2009 23:40
ANevskyUSA
I'm not sure the Steam experiment is valid. What it looked like to me from reading the article you linked is that Steam had a sale. This doesn't tell us much about the long term profitablity of a permanent price drop. All sorts of people buy during a sale, but this includes people who would otherwise have purchased at full price, but just took advantage of a sale. Also, note that the Steam sale occured near the holidays and so the demand curve is distorted anyway--which should give us more pause in relying on it for determining retail game price from the developer side.

The question is really a question of the price elasticity of demand for video games. Are games more like gas and cigarettes or more like casual, sit-down dining? I suspect that video games are more like gas and cigarettes, i.e. relatively price inelastic, especially for hardcore or semi-hardcore gamers--the ones who are willing to drop $400 on a PS3 or $200-$400 on an XBox 360 just for the opportunity to play games (The Wii is a different story, but then again, we don't hear complaints about the price of Wii games to often, do we?). If this is the case, then dropping the price on new games will only mean lost revenue.

The reason why developers would rather attack the used games market rather than lower price is because they know that lowering the price will not actually increase revenue, because games are price inelastic. They know that if you are looking for a $50 used copy of whatever game you are looking for but can't find it, you will just suck it up and pay the full $60.
Qalamari's Avatar - Comment posted on 07/17/2009 00:43
Qalamari
Maybe it makes me a bad person, but I refuse to pay full price for all but the rarest of new titles. I don't pirate games, but I will borrow, rent or scour used-game bins to get my fix. For me, the price point is right about $30. And if I wait about 6 months after release, that's generally what I can pick it up for. I'm not sure how many other people are like me, but if the companies would start the game out at $30 I'd certainly buy a lot more new games and a lot less pre-owned.
snoogans775's Avatar - Comment posted on 07/17/2009 01:22
snoogans775
Well, when the developers of Prototype said that they "broke even" after selling 1.5 million new units, that's THEIR fault. If you sell 1.5 million of ANYTHING that costs $60 retail, you have failed at efficiency.

This is starting to sound like the music industry, but I think it's much harder to sell shitty games than it is to sell shitty music.
Lolthien's Avatar - Comment posted on 07/18/2009 11:17
Lolthien
ANevskyUSA

That is an interesting point, except I disagree that the price of games is inelastic. My point about NFL 2K5 is evidence prices are quite elastic. A 20 dollar price point, and suddently the 800 pound gorilla called madden is down in marketshare by 30 percent or more, so much so, that they effectively put 2K out of business the SAME YEAR by going exclusive with the NFL.

Also Gas is quite elastic in price btw, over the last year we have seen more than a 50% swing in the average price of gasoline in the united states, and in fact the price of a barrel of oil is so elastic that the producers in the middle east throttle production up and down dramatically in order to keep as consistent a profit margin as they can. That would suggest that without that market manipulation, gas prices would be much cheaper.

Also, games are a luxury item, they are not food, they are not gas, they are not shelter... I think your analogy with cigarettes is much more valid. People addicted to a product (cigarette smokers = hardcore gamers) will pay whatever price, within reason, is necessary to get their fix. But the pricing scheme of the Wii goes to show a lower priced gaming system and games will sell MUCH more profitably to non-addicts (non-hardcore gamers). And the market for non-hardcore gamers is HUGE. Much larger than the market for people like us who read gaming websites.

That is something people in the gaming community have a hard time understanding I've noticed... simply by reading Dtoid, YOU ARE A HARDCORE GAMER, and therefore one of a relatively small market. A small market with deep pockets I'll grant, but a small market nonetheless. Sure, we can tell the difference between Prototype and inFamous, but how many people we are aquainted with can do the same (a small portion I'm sure.)

So to sell to more people, make the cost of entry lower... three or four hundred bucks for a system and sixty bucks per game is a damned high cost of entry for someone who doesn't even know if they like it yet... 100 bucks for a system, and 20 bucks a game, and you'll get MILLIONs of people trying it out.
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