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Party's almost over for GameStop's used games business Exclusive
Party's almost over for GameStop's used games business
May 28, 2013 | By Matt Matthews

Since Microsoft introduced the Xbox One last week, the conversation surrounding it has been about how the company intends to handle trade and resale of used games. The company hasn't made all details public yet, and there is speculation that the final details are still being worked out, but the world's biggest video game retailer, GameStop, stands to lose significantly if there is a change to the status quo.

Last year, I began saying we should expect both of the new systems to try to block some video game resales and that now seems to be happening. It's time to look at how a change in the resale process might affect GameStop's business.

Instead of speculating about what sales will be like in the future and trying to model the changes in a used market and the launch of two new consoles, I'm going to look back at previous results and ask this question: What would GameStop's last four years of results look like if only a modest change were made in its trade and resale business?

GameStop's Segments and Margins

I currently expect that the resale of games on the Xbox One and PlayStation 4 will be permitted with retailers like GameStop acting as middlemen to handle the deauthorization and reauthorization of disc licenses. The actual details of the systems are not relevant to me, since the net effect of any new system will be to cut into GameStop's pre-owned product margin.

By way of explanation, let me begin by describing GameStop's business, as described by the company itself in its financial documents. GameStop typically breaks its market into four segments: New Hardware, New Software, Pre-owned products, and Other.

The first two are pretty straightforward, and as you might imagine that third category is a catch-all for the products that GameStop resells, including software, hardware, and accessories. The fourth category, Other, covers primarily PC software, digital content, cards for online services, new and refurbished mobile devices, and Game Informer subscriptions.

GameStop measures these segments with two key numbers. The first is net sale, or the actual amount of money taken in for products in each segment. The second is gross profit, or the amount of money left over after the cost of the products has been taken out.

For example, if GameStop spends $250 to buy, ship, and stock a brand new PS3 Super Slim in a store and then sells it to a consumer for $270, then the net sale is $270 and the gross profit is $20.

I'm going to think of gross profit as number of cents profit for each dollar in revenue, which is essentially gross profit margin. The gross profit margin on New Hardware is generally 5 cents to 9 cents while on New Software it ranges between 19 cents and 23 cents.

GameStop has a very efficient used product business, and its gross margin in that segment ranges between 44 cents and 51 cents.

The Other segment has changed in the last few years. Prior to 2011, the company's Other segment generally had never broken 38 cents per dollar of revenue, but since that time its gross margin has moved as high as 43 cents in a given quarter as the company has seen a greater uptake in digital goods and refurbished mobile devices, both of which have nice margins.

A brief history of these margins can be seen in the figure below. The shift in the Other segment is clearly visible starting around February 2011.

What if Pre-Owned Product Margins Fell?

Now, here's the basic thought experiment: What would the last four years look like if we moved GameStop's gross profit margin on pre-owned products down from about 48 cents per dollar down to 35 cents per dollar?

Roughly speaking, GameStop currently gets 50 percent of the sale price of its pre-owned products, most of which is used software, back in gross profit. So, for example, if it sells a used copy of Bioshock Infinite for $50, then it gets to keep approximately $25. Suppose Microsoft and/or Sony impose flat fees on the retailer that work out to between $5 and $10 per disc deauthorization and reauthorization.

Then, everything else remaining equal, the retailer would realize gross profit of $15 to $20 on that $50 resale, down from $25. That's a gross profit margin of 30 percent to 40 percent per dollar of revenue. (Depending on the base resale price of a game, such a flat fee would provide GameStop with a greater or lesser margin.)

In the table below, I've put together the actual data for the last four years, with the actual gross profit margins that GameStop achieved.

If the gross profit margin had actually been 35 cents per dollar during that period, and no other changes were made, the results would have looked like the table below. The figures I've changed are marked in purple.

(I also put together graphical demonstrations of this change, but it's somewhat less compact. You can see historical net sales and gross profit here, along with operating earnings here. The modified model, with the new margin assumption, are here for net sales and modified gross profit and here for modified operating earnings.)

I'd point you to the operating earnings line, which shows how much money the company has left from its net sales after the cost of goods sold and general administrative costs have been taken into account. Over the past four fiscal years GameStop's operating earnings totaled just over $1.8 billion.

If the only change to the company's business over those last four years were to reduce it's gross profit margin to 35 cents per dollar, those operating earnings would fall to $645 million, a reduction of about 65 percent.

GameStop's business leans heavily on the gross profit margin for its pre-owned sales. That means that even a change from 50 percent to 35 percent in that segment can have a much larger effect on the company's business overall.

As you can see, if GameStop's margins can be pushed down, even just a few points, publishers can begin to weaken the company's previously unassailable position in the marketplace.

One note before I finish up: GameStop had a rather technical increase to its operating expenses in its last fiscal year. That's not expected to happen again, and operating expenses for the current year are expected to return closer to the level of fiscal 2011. Without that extra expense, GameStop would have had an operating profit, not loss, in 2012.

The Beginning of the End

I admit that the thought experiment above is unrealistic. Naturally, one cannot simply drop the gross profit margin on used games in the way I've described. However, I do think that it is instructive.

Even if GameStop's Xbox 360 and PS3 software sales were replaced with Xbox One and PS4 software sales, this would probably not alone bring the margin for the entire Pre-owned product segment down to 35 percent. Pre-owned games for Nintendo's platforms as well as pre-owned console and handheld hardware from all manufacturers would still carry a stronger margin, unaffected by whatever new consoles choose to do. So moving the margin as low as I did above is probably too strong a change for GameStop's business even in the next three years.

On top of that, GameStop's New Software and Other segments would likely be affected by any change in the Pre-owned Product segment.

In terms of New Software, as GameStop has repeatedly noted, customers put $7 out of every $10 in trade value back into new game purchases. If the margin on pre-owned software is reduced, then GameStop could respond by offering less trade value to consumers -- and that would reduce the available trade credit to go toward new games. Therefore when consumers are trading less in at GameStop, publishers can expect to see retail sales of their new games go down as well.

Alternatively, if GameStop continues to offer aggressive trade-in values, it can still retain some of its pre-owned product margins by raising the price it charges the consumers who then buy those pre-owned games. However, raising its selling prices would make GameStop's pre-owned products less attractive to consumers, and decreasing the net sales in its Pre-owned Product segment.

Even GameStop's Other segment, where it puts its digital revenue, could be harmed by a change in its pre-owned business. GameStop has been at the front line of attaching DLC purchases to games sales, both new and used. If either new or used software sales decline at retail, it is quite likely that retail DLC sales will go down as well. Consequently, harming GameStop's Pre-owned segment also diminishes its digital business.

Finally, GameStop has built an impressive network of 30 million Power Up Rewards customers worldwide, each of which has a unique card identifying what they have bought and traded. Even that relationship will be under attack with the new generation of consoles. Both Sony and Microsoft will try to leverage connections to social networks to reach consumers directly, and add their own innovations like Sony's Share button on the new DualShock 4 controller.

Those consumers will likely be presented with options to buy games directly based on the activities of their friends, obviating a trip to a physical store. If Microsoft or Sony begin to build incentives into the system, it could be even more powerful. For example, a game might be offered to you with a small discount if you buy it through a friend's recommendation -- or your friend might be offered a small virtual currency gratuity for a successful recommendation.

My point in this discussion is not that GameStop will soon be dead -- but I do think the company could be gravely diminished in the next five years, especially as the next generation of consoles supplants the old one. It is clearly benefiting from the decline of Best Buy, and is positioned well for the launches of the new systems. GameStop is still growing its mobile resale business, and the margins on resold iOS and Android devices are apparently quite high. And while its digital business looked like it stalled a bit last quarter, it could still be earning over $1 billion in digital revenue by late 2014.

But its greatest strength, the pre-owned game business, is under assault and any changes to the basic assumptions of that business model need to be thought about carefully. Regardless of which side you're on, it's going to be interesting to watch.

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Kujel s
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Interesting peice, thanks for posting.

Maurício Gomes
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"I currently expect that the resale of games on the Xbox One and PlayStation 4 will be permitted with retailers like GameStop acting as middlemen to handle the deauthorization and reauthorization of disc licenses."

Why PS4 too on this phrase?

Mark Kilborn
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Jacob Germany
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@Mark So, because of a report on a report by a web-tv host speculating what he thinks publishers will "allow"?

And how could Sony handle this deauthorization and reauthorization without an always online connection? It would either be impossible, or at best, workable as long as the user doesn't simply enable offline mode, which you could anytime you wanted to play a used game.

If there's a rumor that's been spreading that I've read and never seen the slightest evidence supporting it, it's this one. Sony's worldwide studios president claims they never considered an always-online console because of key markets that simply don't have that capability. That alone makes it nearly impossible to derive some "restricted used games" architecture.

Jed Hubic
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Jacob keep in mind EVERYTHING is speculation at this point.

Jacob Germany
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@Jed Is it, really? Because I hear people say that it's "all rumors", yet there's quite a bit that's confirmed. Sony really doesn't have "always-online" functionality with the PS4, while the XBox One does. It's confirmed that Microsoft will be controlling used game authentication, while the PS4's lack of "always-online" would make such a feature excessively difficult and easily circumvented. None of this (the above) is speculation.

Matt Matthews
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Quite simply, I believe that Sony is going to have a system in place that may be different in its mechanics but achieves the same goal: giving the publisher and platform holders a slice of pre-owned sales.

Everything I've seen and been told suggests that Sony has a plan to do something similar to Microsoft. I don't think EA, Activision, Ubisoft, and other publishers would be on board as strongly as they are if one platform holder were implementing such a system and others were not.

Sony's answers on this are intentionally vague, I believe. The famous quote from Yoshida about how the PS4 can play used games doesn't answer the question at all. Journalists really need to be much more specific, and the disc is not the issue. The issue is the license. That's what game companies are really selling. Everything else is about as important as a jewel case or cardboard box.

As soon as someone pins Sony down with a question like "can a single disc be used by multiple consumers to obtain distinct valid licenses to play the game without reauthorization by Sony or its intermediaries", or something carefully written by an intellectual property lawyer, we might (emphasis on might) have a real answer.

Jacob Germany
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@Matt And again I would ask, how could this system be implemented? I'm not saying the PS4 isn't always-online as an off-topic remark. Any authentication system would require some means of checking lists of previously authenticated games. A system that can be kept offline has no means of checking said lists, thus the hardware has no means of determining if some disc is new or used.

It's even feasible that online games have some authentication system. But offline, single-player games? The only system one could manage would be an authentication system that occurs when and only when the system is connected, which is easily circumvented by simply keeping the hardware offline. It may even be, in the very worst possible scenario, that you must choose between ever connecting your PS4 to download titles and play online, or keeping it offline so it never authenticates used games. But, even in this scenario, it's still simple to circumvent the system.

There is no "They'll just authenticate a different way". It either connects to authenticate, or it doesn't.

Now, what you're saying now, that publishers "get a piece of the profit", is definitely possible without an always-online scenario. In that legal deals could be struck with big-name used retailers. However, this system would also be easily circumvented by anyone who simply isn't under such a contract.

So, again, how could this system work? What would these "different mechanics" be like? How could games be authenticated or deactivated on a local, offline machine? I'm not making these points to be difficult, or to blindly believe rumors for fun and profit. I'm simply at a loss as to how the speculation, rumors, and fears of PS4 restricting used games could possibly occur given what we know about the hardware and software.

[User Banned]
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This user violated Gamasutra’s Comment Guidelines and has been banned.

Matt Matthews
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@Jacob I am not privy to Sony's plans, but traditional CD keys are a primitive way of doing this without online. Just put a key in the box when you sell it, required for initial installation on a system. Each additional installation requires a new key. AFAIK, this is not ruled out by anything Sony has said.

With the SEN account system accessible through iDevices and Android devices now, it would be straightforward to handle new/additional keys through a mobile device or web browser over dialup. In a pinch, numeric keys could be handled through an automated phone system.

Even GameStop could be authorized to sell you the key. In any case, a fee will be assessed.

Nothing I've seen says they won't tie games to your account by some means. Just that they won't require you to be online to play it.

Jacob Germany
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@Matt Without being online, the console would have no means of determining if CD keys were used only on that system or had been used on many previously. CD keys only prevent discs from being used to play games without a valid CD key, it doesn't prevent CD keys from being utilized multiple times. This method simply wouldn't work.

@Dan If that NFC device can alter itself on the disc itself? I suppose that would definitely work in preventing that disc from being used on any other hardware. But this method presents a number of problems, including replacing or owning multiple consoles. Further, this device of which you speak would need to be capable of un-bonding with the console in order to be sold used, which Sony has confirmed is at least possible.

Honestly, I don't know nearly enough about NFC to know if this is even possible, but it's certainly a scary future. I also can't imagine Sony believing such a methodology being wise considering that some hard-coded bonding to the console would be far more draconian than even the Xbox One's method.

Matt Matthews
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@Jacob Yes, you are right. However, I believe Sony will require systems to have an account associated with them, even if it contacts the outside world only occasionally. As soon as a system reaches out, even for a small period, any unlicensed copies will be revoked.

The NFC method mentioned above is interesting, but my recollection was that Sony had indicated (in a squishy way) that it wasn't intended for PS4. We'll see.

[User Banned]
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This user violated Gamasutra’s Comment Guidelines and has been banned.

Jacob Germany
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I'm curious as to why the assumption is that Gamestop will struggle because of Microsoft's choices restricting used games, instead of the alternative scenario where Microsoft struggles because of the consumer demand for the used game market that is so popular. I imagine gamers have a stronger tie to "cheap games" than they do "Microsoft loyalty".

daniel birchal
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If Microsoft don't remove such restriction it will be in serious trouble!
Specially if Sony don't use this kind of anti consumer action!
People won't just gave up their ownership on the things they buy!

Jacob Germany
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"You always buy a license, not the product"

Always is quite an unusual word considering games as a service over a product is a fairly new concept.

"No idea why this is such a news, but in the PC sector you have billions of people giving exactly that up."

PC games are inherently different than console games. They are modable, price-dynamic, open to all developers, and (short of always-online games) not locked to a specific hardware or account (save for Steam/etc, which are locked but even more price-dynamic and cheaper than other retail games). What is on the table is much more draconian than what exists in the PC industry.

"People do anything. Sim City sold awesome, so did Diablo 3. Occasional 2-day shitstorm, then everyone forgets."

Diablo 3 had a small hiccup in the beginning, that was quickly remedied. Sim City hardly "sold awesome", but didn't do poorly. On the other hand, there were so many returns to Amazon, it was removed from the site for a period, then returned with a warning (!) to consumers. Sim City, to my knowledge, mostly (eventually) solved the major surface problems, and the majority of consumers (and media outlets) were never even aware of the more serious problems that remain to this day.

""Blockbuster has revealed that since its announcement last week the Xbox One has broken all previous pre-order launches in Blockbuster’s 24-year history.""

This, actually more than anything, confuses me. Not that there are so many people in line to buy the Xbox One, but that Blockbuster is standing behind it and "excited", considering that all signs point to the inability to play rentals on the system.

Mario Kummer
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I agree. And what people in my opinion forget by arguing with steam and app stores is the price. I don't care about the account lock with apps for 1-5€ and I don't care for steam games which I also buy mostly from 5-20€. It will not work for 69€. Even if it works for some games like Diablo, i doubt that it will work for all games. MS will have to lower all prices to around 29€ or less if that system should work. I mean, for some people which play the games of their family or share with friends this will double or tribble the game price... I don't talk about the used marked, only about people how share games. And all that without or with less used game income. I expect the marked to decline drastically.

Johnathon Swift
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Because Microsoft doesn't earn money from used games sales, it gets a cut off each new game sale but not used. It's a game of chicken with Sony. If they both cut used games neither really suffers, in fact they both win (more new games sales, more money for them). If one does and the other doesn't, the one that didn't cut used games has a higher chance of winning over used games buyers to their console. If they both allow used games neither wins.

It's "The Prisoner's Dilemma" in as real a world scenario as ever you could ask.

Mario Kummer
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@Johnathon Swift - I don't know if it will really be a win for both. I would expect that it as well could be a loss for both of them. It's like with illegal copies, not every illegal copy can be counted as a sale if coping is preventer and not every used sale will translate in a sold game. If families which used to buy 1 game now would need 3 or more they might not even bother to buy the game at all.
I just know for myself without money from my used NES i would not have bought a SNES and without the money I collected with used PS2 games I would not have bought an XBox etc. etc. Maybe I am the minority but with this restrictions and the current game prices I will not buy the consoles. I can then stick to steam, which has the restrictions as well but far better prices.

John Owens
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@Jacob - You don't know that it won't be able to play rentals.

They might sell a different disc versions to blockbuster (which could be played for a certain time period) at a greatly inflated price which would then drive people who would normally buy used to Blockbuster.

A win/win for Microsoft and Blockbuster.

Personally I like it. I think it should bring the prices of games down and encourage more story based games to be made that don't require an online component (which I hate).

Besides I never buy used because I know that the money doesn't go to the developers but rather retail.

Jacob Germany
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"It has been the same for every piece of software in the past, technically."
"And all in all, I find myself actually re-buying games from before these times to avoid technical problems rather then spending a tremendous amount of time getting the old discs (if even) up and running. "

You just contradicted yourself. You're buying older games on new platforms specifically because those older games were products. So, no, software was not "the same in the past", technically or practically.

"I find that more of an old myth about PC games then the truth nowadays. Not only have several major publishers established their own online-DRM system, Steam is extreme popular and does exactly that: prevent re-sale. "

I already mentioned Steam in that, while it prevents resale, consumers allow such practices largely because they're purchasing much cheaper products and the Steam service provides many benefits, such as cloud storage of saves, cloud storage of uninstalled games, contests/prizes, and more various gimmicks, though the core benefit is the pricing model.

@John Owen
"You don't know that it won't be able to play rentals."

Didn't say I knew. I said all signs point to that fact. Except for Blockbuster's apparent excitement, all signs still point to that fact considering the void of PR telling consumers that rentals are safe and available with the new console.

"Personally I like it. I think it should bring the prices of games down and encourage more story based games to be made that don't require an online component (which I hate)."

You think it'll bring the prices of games down... why? Because a small percentage of used games will go to publishers? So they won't mind dropping the pricing model they've held onto adamantly for multiple generations?

Remember that the pricing model they use is not in response to used games. Their response to used games has been to create "Online Passes" and "New Game Exclusive" DLC which you can purchase separately. If used games offer a percentage to publishers, these are the practices you might (but might not) see disappear. I can't see the console makers dropping a pricing structure they think is solid enough to utilize through multiple generations just because they net some fraction of used game sales.

As for whether you personally buy used, does it matter? Many do, and not simply because of the fear-inducing dramatic story publishers use where someone faces a $60 new game, a $55 used game, and decides to hand all their money to retailers. New games eventually stop being sold, and even when they aren't, many buy used simply because they become much more affordable after a set amount of time.

James Coote
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Excuse my ignorance, but what is to stop AAA games being released purely on digital download? How many sales would that game lose by not being available in shops?

daniel birchal
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The game will be avaliable on shops, but the disc will be just to the user avoid long downloads.
It will be the same thing as Games on demand, but installing the software from a disc instead of downloading it.

Tyler Shogren
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Why isn't anyone jumping up and down yelling "antitrust" yet? Microsoft is in direct competition with the used market. DLC anyone?

Mike Higbee
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I really would love to see GameStop fail. They treat their employees like it's a sales job without the benefit of commission, which in turn leads to pushy sales tactics and treating customers like walking moneybags.
Then there's the issue of them putting a good chunk of the mom and pop shops out of business.
They don't even treat their used games well either, they seem to accept any disc even if it looks like a cat used it as a scratching post, or a console that is a roach motel covered in god knows what bodily fluids, then toss away all the packaging and manuals or place so many stickers that are impossible to remove without damaging the packaging, not to mention the pricing.
All the ridiculous retailer specific pre-order DLC seems to be a result of them as well.
Also I'm sure I'm not the only one in one of the regions that does this, but they also have multiple stores in the same malls or within a couple blocks from each other.

Tyler Shogren
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GameStop is annoying. Is it more evil than registering games to your console?

Joe Rielly
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Matt, another great article with some good analysis. I am curious why you only mentioned Gamestop as the only used game retailer. And secondly, you know the numbers well, why did you not disclose that Gamestop issues $1 billion in trade credits, which, as you pointed out, $700 million goes to subsidize new games.

When you look at the whole used market and factor in the other used retailers like amazon, ebay, best buy, craigslist, and others. The entire used market could easily be in the $2.5-3 billion range. Using Gamestop’s model that would be $2.1 billion being used to subsidized new games and this is on a yearly basis. Over a 7 year console cycle that would be in the $15 billion range.

Used games act as a subsidy to buy new games. Get rid of used games or tax them like Microsoft wants to and the used retailers will pass the tax on to customers by offering them less for their games. People will not be as eager to trade in their games and buy the next hottest game.

Used games play an important part in the video game economy. Tax or ban them and publishers will suffer.

Matt Matthews
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Joe, thanks for the kind comments. You are, of course, right that GameStop is not the only retailer taking in trades and giving out credit, but they are the one for which we have the clearest data.

The $1 billion figure has been cited by GS execs several times. Not that I doubt them, but it is kind of a squishy number to me. They set the trade values and their accounting comes up with the $1 billion figure. I guess I wasn't comfortable with it, because I worry it overstates the size of their contribution. The $7 out of $10 seems more reasonable to me, because it jibes with my experience watching real consumers in their stores. (I have never been an employee, just to be clear. I'm speaking from my own experience as a consumer walking through their stores.)

Bringing up the other retailers is an interesting angle. What if much of the trade money generated outside of GameStop is done by smaller shops that aren't part of a large chain? What if MS and Sony aren't interested in working with anyone but large chains? Well, then that will have a pretty big impact too.

Like I said: This will be very interesting to watch.

Jorge Ramos
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Because for most intents and purposes, Gamestop does have a monopoly on the market. They're the only retailer that would even accept trade-ins on hardware or games and have a physical presence.

They also seem to be the only chain to have the kind of clout to be entitled to certain perks for those willing to fall into their preorder trap. Unlike amazon or ebay or any other online retailer, Gamestop is pretty much about the only place you CAN go to where you can physically see and inspect the item before purchase.

Joe Rielly
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Matt, I think the $1 billion is accurate because it fits with the used revenues. Gamestop has to acquire each used game one at a time and can not simply buy them in mass. If they were off by 10 or even 20% we are still talking about 100s of million dollars, a substantial amount of money. Gamestop does play a significant role in the industry they are the only dedicated game retailer in the US and in many countries around the world.

The article today delves into my next question. The impact on the industry. I think the impact is understated because it leaves out two important things install base and market size. There is not an infinite amount of consumers that are interested in video games and every game that is released.

This is basic econ 101 the usual example is apartment rents and the effect a subsidy has on them. The used game market has allowed publishers to achieve higher prices and keep those prices higher for a longer period of time.

Johnathon Swift
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Or... Microsoft and Sony could just "leave DRM up to the developers/publishers" who then disable all used game sales.

No used games hasn't hurt the PC, they can get away with it, and the second devs/publishers get a chance to many of them will; and all the whining in the world by customers isn't going to do a damned thing. Because those are whining by "customers" that weren't giving anything to the publisher to begin with, and so they've no incentive whatsoever to cater to them.

The only question is whether MS and Sony will be willing to do that. People that buy and sell used games still buy their consoles, they might even buy new games sometimes, or pay for a Microsoft gold account. The decision as to used games is still to be made by both console makers, and I wouldn't even hazard a guess as to which way they'd go.

Mario Kummer
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"Because those are whining by "customers" that weren't giving anything to the publisher to begin with, and so they've no incentive whatsoever to cater to them."

That line is not completely true. You are right that they might not have to bother with people who buy used games, but they might have to bother with people who sell them. I have not bought any used games so far but I have sold hundreds of games and some hardware. And 100% of the money went back into games/hardware. Thats how it worked for me for a long time and what it enabled to be an early adopter and play a lot of new games.

But I don't have any numbers, if I am a minority it might not be important at all.

E Zachary Knight
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"No used games hasn't hurt the PC, they can get away with it"

PC Developers "get away with it" because prices have dropped to reflect the lack of resale ability. Ask yourself, "What is the current average price of a PC game?" If you answer anything higher than $20, you are lying to yourself.

If Sony and Microsoft kill or hamper the used markets for their games, they would be fools to keep the current $60 price tag. As the other used game article noted, they would have to drop the price to a maximum of $40 to be relatively successful at it.

Tyler Shogren
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"No used games hasn't hurt the PC"? This is wrong on a number of levels.

Locking PC games to your account a la Steam is a separate and serious issue.

Imagine locking DVDs to your player. It's ridiculous.

Chris Murray
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Personally, I have already stopped buying AAA titles because of the one time only codes to play online. This one use code kills the resale value and simply makes it too expensive to take a punt on new titles. Either that, or I sell it within a week to claw back some value.

The fallout of this may hurt multiplayer games the most, after all for those you just need as many players as you can get, especially when you are talking connections, lag and localisation. In the past these numbers have probably been kept afloat by trade and resale. As a COD player, I know this is certainly the case.

Depending on the price to register these games we may see a massive fall in participation levels. Too many AAA multiplayer games already suffer from low participation, perhaps because of the already high original price point. The effect may be a shorter lifecylce for multiplayer engagement?

daniel birchal
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People on this industry must understand that the right to re-sell, share or do whatever they want with the the product(game) IS seen as value by the customer! If you take that from the customer, they'll see less value in your product and a 60$ sell WILL be much harder. Meaning that less units will be sold. And will affect the attach rate too as people won't take riscs buying games they don't know since there's low or no re-sell value. So, expect even harder times for new IP!
The DRM brings no benefit and some big issue for the customer: when the server goes down they'll loose their console and the entire game library. People don't mind loosing their 10$ arcade games after the server goes down but a 60$ AAA it's another story!
"Full games" (not XBL arcade or PSN) are the reason that people buy consoles and knowing that will loose it in a few years makes the sell even harder.
Using myself as an example I have 107 Xbox 360 games, I would NEVER build a huge library like that if I knew I was going to loose all of then in few years!
This could also have a serious effect on the install base for this consoles, specially in the early years, and if the install base is small then so are the sales.
Every industry in the story of man kind survived the used market so why should be the gaming industry any different? It survived the last 40 years right? If things aren't THAT good, then moving AGAINST your customer isn't the smartest path as you can and, with such actions eventually will lose them!
A move like that sounds more like a suicide to me! You will kill your golden goose!

Brandon Maynes
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Never thought I would say this. . but. . . It will feel great to watch piracy ravage the new xbox into oblivion. Bye Bye Microsoft, you had a good run. GG.