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How Publishers and Developers Fuel Used Game Sales
by David Serrano on 03/30/11 01:00:00 pm   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

I came across the textbook example this morning of how and why many core developers and publishers are fueling GameStop's used game business. Let's take a look at Arcania: Gothic 4.

Here are the stats (I'm using the PC stats, console stats were N/A):

Released - Oct. 2010
Metacritic Score 63
User Score - 4.9
Sales - 31,304 copies in first month 46,729 to date.

Yet, as of today Arcania is priced as follows:

  • GameStop: New - $49.99 (PC), $59.99 (360) 
  • Walmart: New - $49.82 (PC), 360 Out of Stock
  • Best Buy: New - $29.99 (PC), $39.99 (360)


So both consumers and critics agreed Arcania was a bad game. Walmart no longer stocks the 360 version. But despite the low metacritic score, horrible user reviews and dismal sales, after nearly 24 weeks on the market the price of Arcania has only decreased by 17% at two of the three largest game retailers in the US. Amazingly, Best Buy is the only chain who had the good sense to discount the game by an additional 16%.

Now, Arcania hasn't officially reached the 6 month mark yet so GameStop's used price is still too high at $49.99. But in the next 4 to 6 weeks, they'll lower their price down to the $19 to $29 range. At which point JoWooD Entertainment and DreamCatcher Interactive will lose virtually every sale of the 360 version that follows.

And frankly, they have no one to blame but themselves. Because the game never should have released for $60 to begin with. Then after the bad reviews and sales nose dive by week two, the price should have been immediately been lowered to $29.99. Where it should have been from the start.

The fact that the price of a new copy of Arcania: Gothic 4 is still so high is absolutely ridiculous. It also highlights why many AAA developers and publishers actually fuel used game sales and why are doomed if they don't change. This includes giants like EA, Activision and Ubisoft.

Corporations insist the free market will always determine prices by separating good products from bad products through competition. That is, until the market works against them at which point they turn to lawyers, lobbyists, ad agencies and threats.

Like it or not, GameStop and other used game retailers are the free market in action. They represent the invisible hand that conservatism claims will cure all the world's ills. So the game industry needs to collectively stop playing games (no pun intended) and own it! Time to actually compete for those "stolen" profits instead of crying foul and treating the people who pay your bills like thieves.

The solution is very simple: consumers will start buying new games instead of used only when the price of new titles (and DLC) reflects the true value of the content, the actual quality of the content and the total volume or quantity of the content.

This means games like Arcania: Gothic 4, Naughty Bears, Venetica, IL-2: Birds of Prey, Sniper: Ghost Warrior, Splinter Cell Double Agent, and Mercenaries 2 to name just a few, must be priced accordingly. These simply are not $60 games.

When games like these release, they should be priced between $30 to $35. If the developer or publisher can't turn a profit in this price range, then don't make the game! Because the long term affect of selling low quality games like these for the very same price as higher quality titles like Red Dead Redemption, Dragon Age: Origins or Mass Effect 1 is it destroys consumer confidence in the industry as a whole.

Each time a consumer gets burned paying $60 for a low quality game, it hurts the entire industry, not just the publisher or developer responsible. This drives the consumer to GameStop for used copies of the games because dollar for dollar, it's the better value. 

Or... all of these developers and publishers can continue to flood the market with low quality junk and the industry can collectively keep working towards forcing the exploitative pricing on consumers through EULA's and the legal system. Which ultimately will put all of them out of business and honestly, that may be best possible outcome for consumers and the industry as a whole.

Seems like a pretty clear choice but then, I'm not one of Ayn Rand's elite "thinkers" so my opinion is irrelevant. According to some people. 


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Comments


Jack Garbuz
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After having rented and played a bit of Arcania, I wouldn't pay $5 bucks for it myself. But having said that, I don't think anyone should tell companies how to price their products. There is the old doctrine of "caveat emptor," or let the buyer beware! It's the job of the consumer to find out all he or she can about a product before buying. There are many options regarding this product, such as first renting it, or reading user reviews in the many websites and magazines devoted to video gaming. There aren't many products where the potential consumer has so many options to try before they buy. If they are too young and foolish and so flush with money as to be so cavalier about dropping $60 bucks, then they deserve to be parted from it.

David Serrano
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Very true. I've become extremely cautious when buying games simply because I can't afford not to be. I'm at the point where I now won't buy any titles when they release. I wait until the price drops below $30, regardless of how long it takes. But the upside of this is, when the price of the new copy is $30 or less, I always buy new instead of used.



Also by restricting the price range I'll purchase in, when I do trade in older games for credit it often allows me to purchase two two new games priced between $20 and $30 instead of one. I think purchasing behavior like mine is much more common that many developers and publishers realize. Just something to think about.

John Osborne
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A few notes -



1) Used games barely scrape 10% off, in many cases - a "used" $50 game can be between $45 and $49.



2) "When games like these release, they should be priced between $30 to $35. If the developer or publisher can't turn a profit in this price range, then don't make the game! Because the long term affect of selling low quality games like these for the very same price as higher quality titles like Red Dead Redemption, Dragon Age: Origins or Mass Effect 1 is it destroys consumer confidence in the industry as a whole."



I agree that the $30 price range should be considered. However, it is nearly impossible to tell what is marketable before the game is made. A $30 and $60 game will likely have similar development cost when it comes to big publishers.



3) "Like it or not, GameStop and other used game retailers are the free market in action. They represent the invisible hand that conservatism claims will cure all the world's ills. So the game industry needs to collectively stop playing games (no pun intended) and own it! Time to actually compete for those "stolen" profits instead of crying foul and treating the people who pay your bills like thieves. "



Gamestop makes far more profit on Used games than regularly priced games, and in most stores are encouraged to place the used copies side by side, as well as promote the used price. If the used price wasn't as comparable as it is (i.e. the aforementioned used $45 compared to new $50) this wouldn't be as much of an issue.



Most MSRP is a 30% markup. Now, used games are a 50% markup. That same $45 dollar game was bought back for $17.50 cash OR $20 store credit. Profit remains in the store. Gamestop prefers credit since it keeps customers coming back, and $20 is not enough to buy a single game, or a shovelware game with a remander. In other words, they'll retain a profit on a marked dowm $15 shovelware on store credit vs. cash. This is where the dishonesty lies.



For the most part, I agree that games need to be priced competitively with other experiences. In fact, a $30-$40 experience would be easier to try.

David Serrano
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1) I'd like to think most consumers are smart enough to know there is little to no value in any used games priced between $30 to $55. Personally, I think they are. If you take the GameStop audience as a whole, I honestly believe the percentage of people who buy used titles at nearly full retail price is in the low single digits.



2) I agree and disagree lol. Yes, it's difficult to exactly predict what will happen when a product is released to market. There are always successes and failures nobody foresaw. But every industry has standards, defined by market performance, which the likelihood of success or failure can be measured against. So the CEO or senior manager of a new title who has a small budget and a team with little to no experience creating high quality games has a pretty good idea of what to expect long before the game is in production. While I may not have much respect for them, CEO's and senior managers are not generally not idiots. They are smart enough to evaluate what they have to work with and predict the results. But the practice of prefixing prices lulls them into a false sense of security.



3) From what I understand, used games account for roughly half of GameStop's annual profits. Which is one reason why I think the industry has it completely wrong if it thinks GameStop earned approximately $4.7 billion by undercutting the price of lack luster new titles by $5. It's highly, highly improbable.



How GameStop positions titles on shelves has been consistent from store to store based on my experience. I've honestly never seen them place a new and used copy of any game side by side on a shelf. 360, PS 3 and Wii titles each have their own area. Each area is divided into two sections, new games on one side, used on the other. To the best of my knowledge there is always a sign above each section as well as some type of physical divider or open space between the two. The only exception I can think of may be the smaller stores in malls.



The "sales strategy" lol... has also been consistent. I'm laughing because most of the kids who work there do and say whatever they want. Which kind of makes it hard to enforce a corporate strategy. If you bring a new or used game to the counter, it's a two way street. They'll tell you if a used copy is available for the same price or cheaper and they'll also tell you when a new copy is available for a few dollars more. If you're a "power card" member, they'll always point out when a used copy is available because members receive a discount on the advertised price. Again, I don't think that's an issue because the price of the used game isn't a factor for most buyers until the difference between new and used is in the $15 to $30 range.



I understand what you're saying about MSRP vs. used game mark-up prices and I can see why it chaps the industry's collective ass. However, looking at it strictly from the consumer's point of view, the trade-in credits ultimately provide them with more spending power. But only if they are smart about what they buy... and when they buy it. Which translates into never paying GameStop or the developers for overpriced products.

Hayden Dawson
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Quite valid points, which also were noted in a main thread news article a few months back which discussed the lack of 'middleware' in this generation. As you note, the lack of 'middleware' may not be the result of such titles not being there, but publishers making middleware work as a huge budget AAA title.



The new product $30-40 price point not been allowed to develop with this gen which means customers immediately peg a product that is not $60 as junk. Compare that to even the PS2 where a lot of work was done by titles at $20-30. It was still quite possible to get great games and experiences at the 'value' level, just a different type of game and experience. Now, the only titles that even see such pricing are pure Wii knockoff shovelware and absolute dogs.



I agree the industry needs to reestablish a multi-tiered pricing structure, but think they have already done a lot of damage with the newest customers about product expectations.

E Zachary Knight
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I completely agree. We have AAA titles that are well worth the $60 price tag. But the major publishers need to learn that AA, A and B games deserve respective price tags in order to turn a profit. But they don't want to do that because for some reason only MBA's understand doing so would devalue the AAA games.



Confusing I know.

Tim Tavernier
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Nintendo's Satoru Iwata talked about this like 5 years ago, where lower quality games should indeed be lower priced from the beginning, but stay at the price.

Maurício Gomes
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Nintendo model is kinda broken...



I for example had a friend utterly mad, that some really old castlevania titles for Nintendo handhelds never got price drops... And because of our taxes here, it means shelling 150 USD for them... (his "solution" was get them pirated...)



At least he had the consoles... (I don't have enough money even to buy the hardware)

David Serrano
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Business schools will probably spend years trying to dissect and figure out the game industry. It frequently makes choices that fly in the face of conventional wisdom and those decisions almost always come back to bite them in the ass. But they just keep repeating the same mistakes. Baffling!

Banksy One
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Its a hoodwink when a game developer tries to sell his annualized franchise for the same opening price as a game that took 2 years of more to make, but when people who don't care about the cost or quality of these games buy them, does it still count as a hoodwink? I would say yes, because all the marketing and hype that has gone into the product (including pampering gaming journalist, buying TV advertising space etc etc) has made it seem more important than it actually is. The price is the final trick, a deceptive marketing tactic used to make quick sales. I didn't complain when i got Dante's Inferno for $12 though, so does that make me a swindler too? Didn't the developer deserve a bit more from me?

Ali Afshari
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I recently purchased a new copy of Brutal Legend for $10 from Amazon. I like going through Amazon because I get a fresh disc (I bought/returned used copies of Resident Evil 5 (4) times at a local Gamestop because they wouldn't read on my Xbox) and the price is usually much better than a used copy at Gamestop. I'm thoroughly enjoying the game and I feel a little guilty that Double Fine didn't get some more money from me.

Baldwin Yen
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It's been a while since I was on the publishing side, but my understanding is a lot of the console manufacturers won't LET you sell a lower priced, budget title until the console has aged to some extent. Something to do with the console manufacturer wanting to guarantee the quality of titles on their machine.

If you immediately discount your title (2-3 weeks) after release based on the reviews, then who's going to buy the game opening day? Sure, die hard fans might, but everyone else is going to wait until the reviews are done so they can get it cheaper. If the game reviews well, are you proposing they also up the price? That might solve that problem, but it would be a pretty odd system.

Whenever you question the current system, any system, just think about the money. We're a capitalist society, that's what drives it all. In addition, if you make games with a price point of $30-$40, you're going to have overall worse games. I've worked on budget titles. The amount of money spent on a game and it's quality are not a direct one to one.

Also, as John Osborne points out, it's in Gamestop's interest to sell used games. If the publisher or developer asked Gamestop for less money to buy their game, Gamestop could simply NOT pass that savings onto the buyer, and then pocket even MORE money on initial sale, then short change people AGAIN on used game sales.

Dunno, just a lot of problems with this article.

Hayden Dawson
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But something like Deadly Premonition is not a bad game just because it launched at $20 and many of the titles the author mentioned above -- and I know we all could come up with a list beyond this -- never belonged as full dollar games. Having tiered pricing on past generations was not the reason shovel titles existed, the customer base just learned to recognize and sometimes embrace value minded products. It became a treasure hunt to see what you could find at $5-15 for a PS1 game or $15-20 in the PS2 generation. Titles with basically no advertising or 'release dates', slapped together localizations or products done to just keep a team busy in between larger titles.

Sean Farrell
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Raising the price... Hmmm... Now that is a interesting idea. That might even entice some buyers to buy early, since the price might go up... or down...

David Serrano
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Thanks for the info. You've actually given me a few ideas for my next blog lol!

Kim Pallister
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Baldwin hit the nail on the head. It's impossible to address this subject as simply as this, esp without knowledge of the terms of the contracts with both retailer and console owner.



Even putting that aside for a moment, the argument being made here is flawed. Price discounting won't change the fact that the margins are likely better on used games for the retailer *regardless of price*. Heavily discounting a game will in turn have them discount the buy and sell price for the used title.



e.g. AAA Game new goes for $60, gets bought back for $25, gets sold for $55; $30 or ~55% margin;

or

B title gets discounted to $45, gets bought back for $16, gets sold for $38 used; $22 or ~58% margin;

(*some rounding on these numbers, which I pulled off a site listing used game prices; the second title is the game used in the above post).



So, regardless of price, the retailer will continue to find a business in used games if (a) the consumer believes the difference is negligible, and (b) the profit on the sale doesn't need to be shared with developer/publisher.



The above post drifts from the used game issue to an altogether different topic - that of over-priced poor quality games. Agreed, this is a problem, but it's distinctly different than the used game issue.

Maurício Gomes
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Notice that this model also allow players to buy more...





Buy game for 55, sell for 25. Only a 30 USD loss, or in reality a sort of 50% of discount on the new game price.

Adam Bishop
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Kim, I think your argument is accurate in the case of releasing new games at a lower price. But I think one area where David's argument is accurate is in the lowering of prices post-release. Let's look at it this way:



Super Platformer EX is released at $60. The company plans on lowering the price to $40 after two months, and then lowering it to $20 after three months. Now in order for Gamestop to be willing to buy the game back from consumers, they have to make an important decision - can we sell this game back to another consumer before the price drops?



If Gamestop buys the game from the consumer at $30, and plans on selling it used for $55, then their profit is $25. If, however, they can't sell it in that two-month window (probably less since the consumer isn't selling the game to Gamestop the day of release), their profit drops to $10. If they can't sell it in the three-month window, they've now lost $10. This makes Gamestop's used game business extremely risky. So the key to cutting into it may simply be to reduce prices at intervals that make the used game business too risky.



I don't know enough about game retail to know if this specific example would work, but the actual dates and prices in that example are somewhat arbitrary so you can adjust them as necessary to make the numbers fit the real retail world better.

Pallav Nawani
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Gamestop will simply adjust beforehand and buy the game at a even lower price, or buy smaller number of copies etc.

Adam Bishop
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How many people are going to want to sell their games back to Gamestop when the price falls, though? If I just bought a game for $60 two weeks ago, and all Gamestop will give me for it is $15, why would I sell it back to them? That's the whole point - to take the incentive away from both sides, Gamestop *and* the consumer.



And if they buy a smaller number of copies from consumers, that's a good thing. That's pretty much exactly what I want to see happen.

David Serrano
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I don't think you're giving the average gamer enough credit. If given the option, most would prefer to buy new instead of used. It's just common sense because all used products carry risks. But most consumers have limited budgets and when an industry is completely oblivious to this fact, it leaves consumers with few options.



Look at it from their point of view, do they care about the reasons why prices are prefixed, legitimate or not? Or which company gets what percentage of which sales? Or how one company's contract affect another? No, they absolutely do not. And when they pay $60 for a new game or $30 for a used copy which turns out to be low quality junk, who do you think they blame? The retailer who sold it to them? The "system?" No, they blame the developer, the publisher or both.



One very basic rule of business is: don't turn your problem into the customer's problem. So collectively, the industry needs to deal with their internal problems instead of continually shifting the blame and burden onto others. Because nothing is forever and eventually something new will come along that will threaten the market. Companies who built brand loyalty will have a chance to survive. Companies with nothing to offer but excuses will not, regardless of how deep their pockets are.

David Serrano
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@ Pallav Nawani: If GameStop did that, they'd lose a significant number of trade-in's which in turn would seriously impact their profits. It's a balancing act for them but currently the industry is making it very easy for them. Also, gamers are not total idiots lol. If GameStop doesn't offer them enough for the their trade-in's or if they don't keep enough inventory in stock, people will just start buying from someone else.

Darren Tomlyn
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The real problem here, is that the market as a whole for video games has yet to fully mature. Consumers have yet to fully realise just how much power they have, since the industry isn't yet mature enough to cater for everything the market wants - the whole ecosystem is in it's 'teen-aged angst' years at the moment.



But it'll happen. As this or the next generation grow up with such products, with expectations to match, both sides will start to improve. It'll still take a while, though - these things happen at their own pace.

Ed Alexander
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My favorite item when talking price points is Gabe Newell's 2009 DICE keynote. Valve had found that when titles were discounted to 75% off during their Steam Holiday Sale, it ended up generating about 1500% more sales than at full price.



This lead to 15% more revenue at the sale price (75% off) than at the full price. The theory being that as you make the price more accessible, you will see a bigger payout in the way of quantity of units sold rather than "quality" (price point) of units sold.



I, for one, am convinced. My personal buying habits include hawking Amazon's Deal of the Day religiously to look for a good deal. It's like a potential Steam Holiday Sale every day, in that I've bought about half a dozen titles that came up on sale that I haven't even played yet. Some of them I've had for about a year now... (Doh)



Before I came into the industry I used to buy used games from Gamestop. The way I saw it, if the disc isn't super scratched and I can save at least $5, why not? Games are already cost prohibitive, so every little bit helps.



The sad thing is, there are a lot of games I was pretty pumped about coming out that I still haven't picked up simply because they're so expensive. When you are one of three titles coming out in the month, all at $60, I can't afford all of them. I have to pick and choose, and as a result, I still haven't played Castlevania: Lords of Shadow to this day. =/

Sylvester O'Connor
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Ed, I really feel what you're saying. Personally, I have to be honest and say that times have changed. I really don't buy new games anymore at all. I have also had to ween myself off of getting every game that comes out. I know it sounds crazy, but I am always about 1 year behind when it comes to buying games. I didn't buy Fallout 3 until a year and a half after it came out. Then, when talk about the Game of the Year edition came which would include all 5 DLC's, I waited for another year. And I also buy either off Amazon, or I wait till Gamestop has those buy 2 get 1 free sales and take advantage of the deal. They recently did that and I was able to get 2 24.99 games and then the third one was free.



Although my example might be extreme, the games are too expensive these days. Would I buy a new game for 49.99? Maybe. For 39.99, more than likely. I realize that the price of production these days are on par with and sometimes exceed even movies, but there has to be a better way.

Kevin Reilly
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Retailers also have an interest in carrying higher priced games on their shelves because it increases their profit margin on those units regardless of quality. Each big box store and specialty shop has X amount of shelf space and they need to attain certain profit levels per box. What's in that box doesn't really matter to them if they can tack a $60 price on it because their cost of selling doesn't change from high price units to bargin bin units in terms of overhead (rent, wages, etc.). Also if a game starts at a higher price and then discounts, they can apply for price protection credits further insulating their profit margins on poor sellers.



Arguing for lower priced games is ok, if you are willing to sacrifice quality to get it. Metacritic and the bloggerati demonstrate time and again there is no appetite for these types of console games. So in effect you are asking for less quantity of games at retail . If you want lower retail prices, then the model will have to shift towards DLC which calls into question the quantity of content being offered. Many retailers will resist this for a few more years in order to preserve profits and gamers will still complain they are getting gyped. It's a tough business.

David Serrano
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I think the point you are overlooking is, developers can't sacrifice quality where it doesn't currently exist. Meaning Mass Effect, Modern Warfare 1, Red Dead Redemption, etc... are the exception, not the rule. They are few and far between. For each quality game released worth the price tag, there are 10 to 20 low quality games which are not. I've already mentioned some of them. So the very sad reality is there are now so many low quality games out there, they represent the overall quality level of the market. Whatever reasons the industry has for prefixing the price, valid or not, there's absolutely nothing about these games that justifies a $60 price tag for the consumers.



We can all agree to disagree but one thing is clear, the pricing structure has to change in the very near future. If it doesn't the industry is setting the market up for disruption. My hope is all involved will wake up to the urgency of the problem and begin to deal with it internally.

Eric Schwarz
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I've thought for a long while that the games industry has missed out on a huge opportunity in pricing products more aggressively. You see it happen with films - not only do you have tons of options available to enjoy a film, with you paying a premium to get the "better" experience, but the prices are far, far quicker to go down. Hollywood figured out a long while ago that you can't get everyone to buy your product at full price no matter how much you try to market it, so they do the next best thing: realise most people who really want what they're selling are going to buy it within the first few months, and then try to get the stragglers with gradually decreasing prices. This is also why film rentals, online streaming, local/indie theatres, Blu-ray/DVD, special edition releases, "classic" releases, etc. are so common: they know that everyone with even modest interest has a price they're willing to pay, and create a product line that is sensitive to that fact.



Very few games publishers seem interested in doing this. Why they aren't baffles me, but I imagine it has to do with the longer shelf life of most games. While it's true that successful games tend to sell for years, those publishers are likely losing out on a lot of money by waiting so long to lower prices, because by the time you can actually get something for what you're willing to pay, there's probably another game to hold your interest. I find it very difficult to buy a game for more than $20-30 these days, simply because I'm so used to buying them cheap, and have a very limited budget... I'll likely never play Call of Duty: Black Ops, Pokemon Black/White, and others, simply because publishers would rather not have my money.

Sylvester O'Connor
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You're right Eric. I remember some time ago in an article that I read here on the site about THQ and Motorstorm. They were saying that they wanted to sell the game for 39.99. However, this would at least give the bare bones of the game to people that want to play it. They said that they would release DLC for it for a small additional cost so that if people wanted a much deeper experience with the game, tehy would be able to have access to that. The DLC would be track packs, car additions, and other in game abilities. I thought that it wasn't a bad idea especially considering so many people watching their pocket.



And to add to what you said about having different avenues to access games, I know many people that enjoy their subscriptions to Gamefly. I only recently found out that Gamefly allows people to purchase the games that they rent for a reduced price. So if Fallout just came out and is 59.99, and you rent it and like it from Gamefly, they would allow you to purchase it for 45.00 in which they just send you the case and manual for it.

Eric Schwarz
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It's interesting that THQ is one of the more aggressive publishers when it comes to price, especially with PC games. It's not uncommon to see year-old titles from THQ selling for as low as $10-20, which is quite reasonable in my opinion. EA has also been pretty good (Dead Space 2 is now $40 on PC instead of $60), though it begs the question of whether the reduced prices are a result of trying to compete legitimately, or an indicator of poor sales.

David Serrano
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By the way... thank you to all the folks who took the time to comment. This was the first blog I've posted on Gamasutra and I was shocked to see so many people actually read it lol! Thanks again.


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