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Why Next-Generation Still
Doesn't Have a Clue
A counter-point to Colin Campbell's
horrifically ill-thought out damning of the used game market
Next Generation's Editor-in Chief Colin Campbell recently wrote an article in which he attempts
to argue that the used game market is ruining the industry. Besides coming off in the usual
arrogant tone that ruined the original publication from years past, Mr. Campbell even takes
pot shots at the retail level employees and even the customers themselves.
Below is his entire 4-page editorial, in white text. I have inserted my counterpoints in gray.For the record, Mr. Campbell is an industry journalist supporting the publishers. I am an
ex-industry journalist who now works at the retail level as an Assistant Manager in a store
that sells both used and new products.
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EDITOR'S VIEW: Used Games are Damaging
Last week GameStop announced Holiday sales up 45%. Games retailers en masse are whoopin’ it up, selling heaps of games. Which is wonderful for them, because, due to the lucrative used-games business they get to sell those little boxes of joy all over again. This isn’t completely accurate. What Mr. Campbell fails to mention is that he has blurred the line between two separate facts. From GameStop’s own press release are the following facts: · Total Holiday Sales are up 34.7% · Total Video Game Software Sales are up 45% What he also fails to point out is that the 45% is reflecting used and new games. It is also important to point out that GameStop’s Top 5 Selling games were all new releases. The silent fury of publishers toward their retail “partners” is a palpable force in game industry politics. Retailers such as GameStop, with its powerful network of 5,000 frontline stores, are coining up to $1 billion a year in used game revenues in North America alone. Add Europe and you’ve got to think about almost doubling that number.
We’ll get to
that $1 Billion comment later on; for now though, he does not illustrate
an important issue with the numerical value, and again I point to the
official GameStop press release, just for argument's sake. At the very
bottom, there is a 9 week period break down of sales. The total sales in
new software for that time reach $1 Billion. The total sales for
all used products (games, systems, and accessories) are only $411
Million. All three used categories don’t even add up to half of the new
software sales. Publishers don’t see a dime, nor even a eurocent of the money. And they’re not happy. Especially because there isn’t a darned thing they can do. Both the law and the balance of power within the game industry presently favor the sell-it-again retailers. Many gamers and consumers favor the used stuff too. What are you going to do, shut down eBay, garage sales, Craig’s List, pawn shops, video game forums, newspapers ads, etc? Once a person purchases a new item it’s theirs, plain and simple. What they choose to do with it is their choice. Not everyone wants to keep their games once they are through with them. In its last full fiscal year Gamestop's sales and earnings were up over 70%, and it’s certain that 2008 will be even more lucrative. High retail earnings are a sure sign that the business as a whole is prospering. But the problem for publishers – one that they only really articulate in private – is that retail gets to prosper just that little bit more than everyone else. Ha-ha! See that’s true, the last fiscal year was amazing. You know why? Two brand new game systems came out! If you were selling $500 - $600 models of a game system along side a newly christened $450 model with the wildly popular $250 affordable version, you’d be raking in mad sales too. He also fails to mention that 2007 contained a plethora of AAA titles that could not be stopped, particularly on the 360. Halo 3 alone pulled in $72 Million in its first 24 hours, and on top of that you have $100+ games like Guitar Hero and Rock Band selling right beside it. It was a golden era of gaming not seen since the original PlayStation’s mid-life cycle. GameStop’s used business is said to account for a third of sales and almost a half of profits. It generates twice as much percentage margin on used games than on new games. That’s an awful lot of revenue that isn’t being ploughed back into development or into marketing (a). All that money goes to GameStop, which doesn’t make games (b). GameStop opens stores in malls, sticks up shelving, hires inexpensive, unskilled local youth (c) and sells product. a. Of course not…it’s going to buying more used product from the consumer to resell, you think they just give it to stores? It’s also going to open more stores that will carry more NEW product along side its used products. b. No, but they do have bills to pay like everyone else.
c.
I’m 31, highly skilled, and love my job. I even worked in the
industry for 2 years Worse, the used games business restrains the market by keeping new game prices high and by depriving the publishers of investment income. In the long-term, it’s not such a great deal for consumers. Hardly - In fact, this current generation has seen some of the fastest price drops on new software in the history of gaming. Several PS3 and many Wii titles have dropped $20 to $40 within months of release. Many Wii games have launched at $20. He also doesn’t take into account the Greatest Hits-style releases, which are completely optional to the developer. It’s been reported that some companies do not lower their games’ costs simply because they want to maximize their profits. Nintendo is probably the most famous, since the majority of their 1st party titles rarely drop in price, Players Choice releases non-withstanding. He also leaves out one very important fact that destroys his whole theory. Video games, since their birth, have always been in the $40 to $60 range, even before the used market was born. Video games have been one of the few constant price structures in the retail market. I still recall Final Fantasy I on the NES costing my grandma $70! All the more galling is that significant percentages of publisher marketing cream is skimmed by retailers as “market development funds” which are essentially marked up in-store ads – often tied into the amount of stock a retailer orders. Timing is a big issue. If used games began turning up in specific used-game stores months after initial on-sale date, it wouldn’t be too bad. Nobody is going to complain about games turning up for sale in second-hand stories months after they have ceased to be hot. I’m bothered by his word choice here. Define “specific” – who are you trying to take a stab at? Secondly, many new games only last several hours. When you’re charging $60 for a few hours, a consumer is going to want to get as much back on his investment as possible, so he’s going to trade it as fast as possible. Especially if the title in question did not live up to its publisher’s hype. But games often turn up second-hand days after on sale date, and can be marked down by as little as $5 off the original asking price. They’re being sold alongside the new product. Given that the retailer is giving Johnny Consumer a store-credit of no more than $15 to $20 for his game, you can see who is making out big on this. Except that he’s wrong again. Reference GameStop’s online trade-in page and you’ll spot SEVENTEEN games that trade in for more than $20 as of this writing, with at least six of them trading in for at least $30. If John Consumer has the discount card, he gets 10% extra on top of that. A current promotion allows an extra 20% if 4 or more games are traded in, and he can stack the discount card on top of it. So right now, his $30 game could possibly be worth $39 in credit. Also, what's with the "Johnny" crap? You're treating your readers, who are the industry consumers, as if they were all children. So the publisher-paid ads are paying to promoting hot new games that the publishers spent millions developing but for which they paid dick after the first sale. I think he forgot to insert a “get” in there, especially since I can’t fathom using male anatomy as a currency. Go Editor-in-Chief! But, what the heck, GameStop gets to keep selling the games again and
again and again. So much so that a used game sale is way better for
GameStop’s bottom line than a new game. Take a walk into a game store
and you’ll see where the priorities lie. Used game boxes generally sit
central and close to the register or close to the front entrance. Now, in terms of wall space, there is a small conundrum that Mr. Campbell doesn’t take into account, and that is most EB Games and some GameStop store layouts use the “display all” method for used games. Basically, with new games only 1 copy is opened and displayed, unless it’s a new release, which usually sees 2 to 4 display copies. All used games have the discs removed and the case displayed, mainly to save storage space behind the counter. Since there are more consumers trading in games than there are new games coming in on a daily basis, obviously the used sections will be larger since there is a need for more space. He also doesn’t explain how the back of the counter is a new game paradise. There are usually 4 case shelves, with 64 total cases displaying new and upcoming new product. Many EB Games have their ‘live’ product or new back stock behind the counter on shelves. Newer releases are then front faced on these back stock games to produce a huge montage of new games. Most stores I know have Strategy Guides, Magazines, and candy or impulse items on the very front of the counter. There’s equal spacing for both new and used product. Used game sales are, in fact, a separate business to the game industry, one that is parasitical and offers little or no benefits to the business as a whole. If you look at the share-of-effort or the share-of-investment or the share-of-creativity that goes into making a game and bringing it to market, you have to wonder if this is a system that anyone could describe as being fair and just. Offers little or no benefits? You mean like allowing those on a lower end income to enjoy gaming as well. It’s more than fair and just to those people who can not buy a new $60 product. Some of the hottest used items we sold were outdated, out of print, and almost decade old software and hardware. Game Boy Colors sold just as well as 360s and Wiis did. $30 used Game Cubes sold out as fast as $130 new DS decks did. The retailers – when they deign to comment on this issue at all – say they have to sell used games in order to make up for the fact that margins on new games are so slender. Or they claim that used games are good for the business. They are good for business. In fact, they’re incredibly good for business. But I’ll let you finish your thought. Daniel DeMatteo, GameStop's boss once said, “The used games business does not cannibalize sales of newer video games. As a matter of fact, it does the opposite. We continuously increase the market for new games by allowing customers to trade in games that they are no longer playing. The used games business puts currency in people's hands." I typed that entire quote into Google. The only hit I got was Mr. Campbell’s article. Turns out if you go for a specific sentence, you discover an article written in early 2006 in the New York Times, who isn’t exactly well versed in video games. In the article, which focuses on the rough times companies went through during the Xbox 360 post-Christmas drought there is a revelation about how well the used game business and online gaming are doing during the same period. Everything Mr. DeMatteo said is true. It does put currency in people’s hands; either store credit or cash. Secondly, and most ironically, is that Mr. Campbell doesn’t bother to research the way trade-ins are handled. I’ll let him lead in… This is sophistry. It assumes that customers who are in the business of trading in games will spend their money on a new game, rather than on a cheaper used one. Lesson 1. Use a big word like sophistry if you want people to overlook your mistyping of ‘maximizing’ in the next sentence. Lesson 2. Never Assume. Lesson 3. Here are some fun facts. GameStop’s trade-in policy has always had a bonus offer if you put it towards a reserve of an upcoming new game, which was a bonus 10% in credit. Since merging with EB Games, there are now monthly specials called ‘Power Trades’, which give the consumer an extra 20% trade-in value towards the reserve. John Consumer can then use his discount card for another 10% on top of that promo. The client gets rid of old games, Game Stop gets inventory, the same client gets a new game for free / cheaper, and someone else gets to buy an older title for less. It’s a win-win-win-win situation. If GameStop believed there was no love for new releases, they wouldn’t have multi-foot long sections dedicated to just new releases now, or push pre-orders so hard now, would they? Let’s be clear. Games retailers are in the business of maximising (sic) retail floor-space. They are in the business of selling games. Period. They have no responsibility towards the financial wellbeing of their suppliers. Retailers care for the publisher as McDonalds cares for the cow. Holy cow…seeing how McDonalds served billons and billons of cows, I’m damn sure game retailers care about their publishers. Used games come from new game sales. The majority of used game sales come from older, out of print titles. And, for consumers, the short-term benefit of legally buying almost-new games at cut-price rates is undeniable. Consumers are absolutely right to seek the best deal that they can. They are doing nothing wrong. So then what the hell is the problem? So the real losers here are publishers, developers and the non-retail game industry eco-system. That is, the part of the business that actually generates content. Perhaps here is the real culprit at hand; not generating content, but generating good content. From Mr. Campbell’s argument, he is assuming (ha!) that all content provided by developers is great. There is more than just saving a buck or two on a video game by buying used. There is the angle of why the consumer went used. Being on both sides of the counter (or to be corporately correct, the cash-wrap) allows me and my fellow skilled coworkers to pick up these vibes. In no general order: · Faulty new games – I’ll use Assassin’s Creed as the example. Early adopters who plunked down the $60-70 for the game were awarded with terrible glitches, PS3 freezing issues, and more. More cautious folk hear about it, and decide they’ll wait on the used copies to come in to see if stories are true. · Shitty new games – Beowulf, Far Cry Wii, Man Hunt 2, Kane and Lynch, and damn near anything Bold Games puts out are tragic. Ubisoft even went on record to apologize for the crap they printed among a mess of other things. How can it be justified to apologize for something already bought and released to market? They never offered a refund to the consumer. · Better return policies. Games are like cars, once you open it and go off the lot, its value decreases. While I can’t speak for any other company, GameStop’s used program allows a 7 day return policy if you do not like a used game. Perhaps that’s what is holding back game companies; a better return policy. If they do not want customers to buy used games, perhaps it is time they offer a refund policy. If a customer doesn’t like a game, they should be able to get a refund from the publisher. Maybe the problem isn’t publishers and developers not seeing the money, but instead it’s them not putting the money where their mouth is. But, you say, if the publishers are having their throats cut, they aren’t exactly going bust. Well, no, but that misses the point. Publishers are not in the business of just staying in business. They need to grow. Yes, but they need to grow at a natural pace. Practically everything EA touches in their hungry wake goes down the tubes, including licensing agreements that lock out the creativity of other companies. Still other companies have had to join with their rivals due to their own dumb mistakes. I’d bet you my entire Final Fantasy library that Square wishes they never followed through on Spirits Within. Nothing like a $100 million boo-boo. This is a business that is already stifled by the high-risk factor of publishing games and the difficulty in turning a profit, both of which are exacerbated by the used games business. It is, in my view, indisputable, that with the added revenues otherwise lost to used sales, publishers would be able to invest more in product development and market growth.
Wait…when did
opinion become indisputable? It doesn’t matter how much money you throw
at a company, they’re still going to follow their own ways. If extra
money really helped I’m pretty sure we’d all still be playing new
versions of 3DO and Sega hardware. Maybe even the Phantom? Alas, publishers know better than to kick up a stink about the situation. They are in a position where antagonizing massive retail customers would be a terrible idea. Clearly, any argument that retail might be harming the game industry (by depriving its source of content of revenues) is going to be rebuffed. Yet he wasted 4 pages of the internet to say that. Likewise, consumers who think they’re getting a great deal, would rebel at the very idea of losing access to slightly cheaper used games. Grand Theft Auto III used - $5.99…new - $19.99 – You make the call! Legally, there’s little room for manoeuvre. The First Sale Doctrine protects resellers from shifting copyrighted content – which is why it’s okay to buy second-hand books or records. Games are seen in the same way by the law, even though games are different. I’m going to completely ignore that snotty use of the word manoeuvre and go for the “WTF!?” of how games are different. Unlike books and other media, games have a short life in the hands of consumers. Books, DVDs and CDs are keep-ables, sometimes for years. Games, once they’re played out, are often not. Wow. Just…wow. So I guess all those web-sites dedicated to classic and not-so classic games are completely wrong in still playing their games past whatever the hell a “short life” is. If games were truly played out when they were first played Microsoft’s Live Retro titles and Nintendo’s entire Virtual Console would cease to exist. As would every Collection, Anthology, Chronicles, and Museum release, ever. For the record, all 4 game series I just referenced were all Greatest Hits on their re-release. Old habits die hard. What’s more, games packaging tends to stay in good condition (a) (especially if sold back to the retailer a mere week after sliding off the presses) so a used game looks like a very attractive deal against a new game. Console games are also less copy-able (b and c) than PC games, which, curiously, the sell-it-again retailers don’t sell used (unlike console games, it's not legal, falling under special legislation brought in to protect business software makers). a. This man has never worked a day of retail in his life. If you only saw some of the games I have seen after it was in someone’s hands for a day you’d be shocked. Hell, most portable games have their packaging tossed by the gamer. We get CD only games in all the time.
b. Did he
just advocate the copying of video games, you know, piracy? You’ll note, big-chain booksellers and big-chain music-sellers don’t fill their show-floors with used stock. Has this man ever walked out of his office or house…at all? Coconuts, FYE, and several other music store chains all carry used product that’s all mixed in with the new product. Music CDs and DVDs. Coconuts uses bright purple stickers that say USED on them. I have personally traded CDs there myself, and then used the credit to buy new CDs. Neither books nor CDs carry large margins, but the likes of Barnes & Noble seem to manage just fine. Why is that? That’s easy. They’re too busy selling used video games. You know, because Barnes & Noble owns GameStop. Or you know you could go to Barnes & Noble’s online search engine for USED BOOKS and maybe find the Cliffs Notes edition of “How to Research a Paper about the Game Industry.” Humor me if you will; aren’t like all new release books in the front windows and front displays of book stores always at least 15 to 30% off of their marked price? If the margins aren’t so large, how do stores allow for such large discounts on a book’s launch? You could make the argument that used games are keeping consumers playing games that they otherwise wouldn’t buy; keeps them interested. But that just doesn’t add up. These are not consumers who are looking for any cut-price entertainment experience. These are very often core, knowledgeable consumers who play a lot of games. They are taking a better deal because they can. If they save $10 on a nearly-new title, good luck to them. That’s $10 they can spend on another nearly-new game. I’m running out of hair to pull. You just answered your own question. It DOES keep people interested. We have people pick up older titles that they missed the first time around while they wait for the often delayed new releases to come out. “They’re taking a better deal because they can…” Tell me…if you saw $10 on the street, you’d walk right past it because it didn’t come new from a bank? Also, we have more than just core gamers shopping in our stores. We have single parents on a budget; we have children with allowances; we have grandparents getting into gaming, and everyone else in between. One of our regulars is over 50 and he’s right up there with the rest of them. Heck, I work in the store, and I usually try and wait for a used copy to come in, unless it’s a new game I have to have, than I buy new. You can happily support both sides of the fence. There is also the argument that consumers buy more new games because they know they can get some money returned by selling the titles back to the store. Again, this ignores the fact that the used game business is offering consumers a pretty good reason not to buy any new games in the first place, or at least to buy as few new games as possible. There will always be people who prefer new over used, regardless of what sales there are. We have some who won’t even take a display copy – must be sealed new. The used market isn’t for everyone, and not everyone trades in games. No one is trying to stop anyone from doing whatever it is they want to do. If you work in the game industry – as opposed to the retail industry – this is all bad news. This is, from top to bottom, a story of how games that are hot right now are selling in large numbers, with none of the revenues going back to the makers of the games. Um…sir? A new released game that is hot, is hot because it’s selling out as a new product. If said game is so hot no one in their right mind is going to trade it in anytime soon, allowing for more new games to be sold. Players that don’t have the normal funds to buy into that new game hotness can trade in the games they aren’t playing anymore to help fund the need. Is it really that hard to piece together? Sure, retailers serve a necessary role, albeit one that is not specific to the game industry (selling games and selling shoes is much the same skill-set). You’re right. As a seller of video games, I must make sure the video game is the perfect fit to its buyer as the shoe must fit the consumer. You’re also wrong. Most parents know their children’s shoe size. When they come into our outlets, they are strangers in a strange land, and we must hold their hands to show them what it is their children are looking for. After hearing how a father spent $600 on a PS3 for his 3 year old, and was then dismayed by there being no children’s software, you begin to understand the skill set a game store employee must have. No one walks into a shoe store and goes “I know nothing about this stuff, it just keeps the kids out of my hair.” It’s always said in a game store. Where a shoe person can simply slide a foot into a measuring tool and point to a size on the wall. We must mentally hold hands with customers who do not understand the simplicities of the hobby, much less the intricacies of the ESRB, and difficulty settings, and how not to tilt a 360 while it’s moving. From your written word is it obvious you have never worked a day of retail in your life, or if you have, you’ve shunned it from the public eye ever so deceptively. But then if the sophistry shoe fits… My argument here is not against the way they do business (I’d do the same in their position). My argument is rather, in favor of publishers quickly finding alternatives that don’t damage the game industry as a whole. “I’d do the exact same thing I’m bitching about!” Colin seriously…you’re starting to scare me. If the publishers could do something about used games, they would, in a heart-beat. No publisher I know has a single good thing to say about the used games business. The only people who like it, are the ones who profit from it. Remove trade-in offers and the used market and watch how fast the industry crashes. Especially in an economy that is beginning to chip away at the corners, the used market is what’s basically keeping the market open. You’re focusing too much on the selling part, and not the buying back. If there’s no used games, piracy would begin to run even more rampant. Second, customers are spending their money on the cheaper product and liking the savings, yet they aren’t profiting from it. Kind of screws that theory, no? He’s also missing the point of what to do with outdated titles. In my store alone we’re still sitting on double digit new copies of the original Oblivion and Fantastic Four: Rise of the Silver Surfer. No one is buying them new anymore because they’re outdated games. The publishers already got their money from the original purchase value of them. Where does a store make up that loss of profit? Remember the rumor that Sony was contemplating selling PS3 games as non-sell-on-able licenses? It never came to pass, but a licence-based model would be a highly desirable outcome for all the hardware companies and third party publishers. This won’t happen because there are way too many legal and publicity-based barriers. Not to mention friends could no longer borrow games between each other. You’d also lose all of the rental markets. You can’t rent a 1-owner media disc, so you’d put Blockbuster, Hollywood Video, Game Fly, and more out of business. Not everyone wants to own every game they play. Which is why online, digital distribution is growing so fast. This is a market stripped of messy boxes or resell issues. It has a much more fluid pricing structure and a lighter cost burden. This is also why publishers are increasingly keen to sell base units of games relatively cheaply (at retail) with revenues that can be bolstered by downloads. (You can guess what the retailers have to say about that model.) It’s a market that is ripe for less profit thanks to playable demos of the game, as well as the nightmare of patches and constant upgrades. EA is notorious for charging for ‘the rest of the game,’ and Activision took a hit when people realized they were paying for downloadable content that was really already on the disc (Xbox anyone?) Not only that, but it is NOT fluid. Many publishers have complained about Microsoft's pricing structure for Xbox Live and how there should be more free content, or adjusted pricing per specific items. Retailers are fine with digital distribution. There are still plenty of us that like our boxes and manuals and inserts and CDs. You ever surf eBay for a Stadium Events instruction manual? The publishers are using technology and the purchasing trends that underpin them, to fight back against a system that is grossly unfair to their businesses. It will take many years. But it will take. In the meantime, retailers and consumers will collude to deny revenues to publishers and developers of which they, rightfully, deserve a share. Not every game can be Halo 3 or Super Mario Galaxy. Some games don’t deserve to be profitable. Some games aren’t worth the $60 investment. The consumer decides the fate of the used industry, and it’s pretty obvious the consumer likes the used games approach, and there's no sign of new or used sales hurting the other. Maybe if developers made their games truly worth the investment, you'd see more people willing to take the initial plunge. You also have to take into consideration all levels of income - the used market is the saving grace in many instances for all walks of life. The only thing hurting the industry right now are the pundits who believe their poorly researched opinions are indisputable facts.
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