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Gamestop selling used digital games - not gonna happen
by Ian Fisch on 07/29/12 01:32:00 am   Expert Blogs   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.

 

The EU Court Ruling

Recently, a European Union court decided that Oracle could not collect damages from a German company that was buying used Oracle software product keys, and then reselling those keys to new users.
 
What this means is that in the EU, when you buy software digitally, you have the same right to resell that product as if you bought it on a physical medium, such as a DVD.  

A reasonable interpretation of the decision is that it forces a company like Microsoft to enable/facilitate the sale of a downloaded game from one Xbox 360 user to another.  

You can read the ruling here: http://curia.europa.eu/juris/document/document.jsf?text=&docid=124564&pageIndex=0&doclang=en&mode=req&dir=&occ=first&part=1&cid=773624

Gamestop's Plan

This ruling has fueled speculation that videogame retailer Gamestop will extend its used game business to include digitally downloaded games - those purchased via either the Xbox Live service or The Playstation Network.  Legally, at least in the EU, it seems like they will be able to.

Currently Gamestop makes the vast majority of its profits off of used game sales.  Gamestop typically pays a small amount for a used games it buys from a customer - much less than it pays game publishers for new copies.  It then sells the used copy for nearly the same price as a new one.

This works great for Gamestop, but probably not so great for publishers.  The above transaction gives money to the used game seller and Gamestop, but not the people who created the game.  

Whether console manufacturers lose out on Gamestop's used game business is a subject of debate.  Obviously console manufacturers don't get a cut of the money spent on used games.  Then again, trading in used games forces a customer to visit Gamestop, where they're likely to buy another game.

In any case, console manufacturers have had the technology to stop the used game market cold for awhile.  For instance, Sony contemplated tying new Blu-ray games to individual PS3 consoles, thereby preventing resale of the game to another player.

So far, console manufacturers have resisted implementing this type of technology because customers really, really like the used games market.  If Sony put a stop to it on their system, customers would buy Xbox instead.  


The Numbers Don't Work

The problem for Gamestop is that the economics don't work out.

As far as the sale of physical used games go, Gamestop has a huge competitive advantage.  They own thousands of stores in the United States.  They have the infrastructure for warehousing and distributing these used game discs all around the country.

This advantage disappears when we're talking about digital downloads.  There's nothing stopping Amazon, Best Buy, or any enterprising soul from setting up its own used digital game exchange and offering better rates.  Gamestop's physical infrastructure is a needless expense.  

Really though, by far Gamestop's biggest competitor in the used digital game business will be the console manufacturers themselves.  This is the reason their plan will never get off the ground.

Imagine two scenarios:

Scenario 1: Gamestop buys a used digital game from Bob for $5.  Gamestop then resells this used digital game to Bill for $10.  Gamestop makes $5.

Scenario 2: Microsoft buys a used digital game from Bob by giving Bob a $5 rebate off the purchase of another digital game.  Microsoft then resells this used digital game to Bill for $10.  Microsoft makes $10.

Gamestop loses here because it has to purchase its digital inventory, whereas Microsoft doesn't.  It already owns it.   

But Microsoft wins in this scenario even more.  

Let's say the used digital game that Bob traded in for $5, and Bill bought for $10, sells for $15 new.  

When Microsoft gives Bob his $5 rebate, there's no reason to resell his used game to Bill for $10.  Instead, Microsoft can just 'throw away' Bob's copy, forcing Bill to buy a new copy for the original $15.  It's all the same for Bob.  He doesn't know Bill nor does he care how much Bill pays for videogames.

So in Scenario 2, Microsoft is really making $15, since it's eliminating a used copy of the digital game from the world.

Since Microsoft makes $15 off the transaction and Gamestop only makes $5, Microsoft can afford to give Bob a much bigger rebate than Gamestop could ever match with cash.  

So unless Bob is sure he is not going to spend that money on another Xbox game, he has no incentive to deal with Gamestop.    

The same scenario plays out with Steam + PC Game Publishers vs Gamestop.  

Nice Try Gamestop
 
As digital distribution gradually takes over the videogame industry, Gamestop's decline seems inevitable.  

If the EU decision somehow makes its way accross the world, there's still no place for a middleman like Gamestop to take a cut on used games.

It's not gonna happen.  



 


 

 


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Comments


Eric Schwarz
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This is a good analysis and I have to agree. In fact, I'd say the ability to sell games digitally online almost entirely removes any potential middlemen - when all it takes is a forum post to advertise, there's no need to talk to anyone else.

Whether or not this is a bad thing is another discussion, but I don't think GameStop could offer anything that would make selling digital games to them worthwhile from a customer's perspective.

Sure, there's a small convenience added, but unless GameStop plan on selling back every digital license they get, I imagine they'd be taking a cut up front, something that could turn people away. GameStop's business model revolves entirely around doing the work for their customers - they sell the games, not you or I. But when there's almost no work and very little time involved, suddenly that service becomes redundant.

Then again, maybe I'm being overly optimistic - I'm sure lots of people will be happy to keep doing business with GameSpot out of loyalty or lack of know-how even if it's not the best choice.

What's much more likely to work in practice is individual publishers or console makers offering rewards programs, as you suggested above. It keeps people locked into the platform/publisher and creates extra incentive to buy more games. Of course, catalogue then becomes a big deal, since now you're effectively trading in games rather than just getting cash for them. I can imagine a lot of implementations by smaller publishers, or half-hearted attempts by bigger ones, completely falling flat in the face of bigger competition.

Axel Cholewa
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I think the "lack of know-how even if it's not the best choice" will keep people buying at game stop.

And don't underestimate visibilty: a forum post reaches only people in a forum, your own website only those that know of it, but GameStop, Amazon, Steam, the App-Store and all the other platform for digital purchases reach millions of people.

Plus GameStop has the stores. Digital distribution is a big deal and certainly growing, but as long as customers are still buying physical copies GameStop will have an advantage, and they will find advertising means to get the products to the people and the bucks to their pockets ;)

Marc Schaerer
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Yes it is gonna happen.
As per EU law and court ruling, it will required to allow transfer of digital copies, which will at least for the european space (one that pays much better for game devs anyway) bring to life the second hand digital market. If EA and Ubisoft want it or not does not matter here, as they have to play by law, at least from time to time (the Origin EULA still breaks several laws outside the USA)

David OConnor
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very smart and interesting analysis

Axel Cholewa
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"During its 2011 fiscal year, for instance, used game products brought in $2.6 billion in sales, making up 27 percent of the company's overall revenue. " (from http://gamasutra.com/view/news/174909/GameStop_looking_to_resell_
digital_games.php). So your statement that "[currently] Gamestop makes the vast majority of its profits off of used game sales" is not correct. They make more money from used games than from any other single product category (or whatever you call it), but a majority would be > 50%.

You're right, Amazon, eBay, BestBuy, everyone can sell used digital copies. But Amazon and eBay already sell used physical copies, and that didn't bring down GameStop. So that argument doesn't support you claim.

Next, the 2 Scenarios you present are flawed. If MS gives Bob a 5$ rebate and sell his used copy for 10$, they don't make 10$, they make 5$, because for his next purchase at MS Bob spends less money: the 5$ rebate. It's still a good business model for MS, though.

And another point: if MS throws away Bob's copied and sells Bill only the 15$ copy, well, enter GameStop: they'll happily sell Bill a used copy for 10$. And because he likes that, Bill will not take a MS rebate but simply sell his used copies to GameStop, so they're back in business (well, actually they'll simply never leave).

I sense this "anti-used-games" vibe in your article which is so present in all kinds of gaming/game making web sites today. Is that a disdain for GameStop? Because I totally share that! (Too expensive, discs usually in bad shape...) But - whether or not profitable for developers or publishers - I really don't understand what so many people of all colors - devs, game journalists, even gamers - have against the used games market. People sell used furniture if they don't want it anymore, and that's a good thing for many reasons. So why not sell used games?


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