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Startup Hopes To Disrupt Used Game Market By Giving Publishers A Cut
Startup Hopes To Disrupt Used Game Market By Giving Publishers A Cut Exclusive
August 12, 2011 | By Frank Cifaldi




A new startup is hoping to disrupt the used game market and take on GameStop in a unique way: by giving publishers a cut of used game sales.

The idea goes something like this: the company distributes self-addressed, postage paid envelopes along the lines of Netflix or Gamefly wherever they can. When someone is done playing a game, they toss it in the mail, get credit, and spend it on another game that arrives in the mail 2-3 days later, along with another envelope. The prices they get for trade-ins are somewhere north of what GameStop offers, and the prices they pay for another game are less, because the company keeps its overheads low by not operating storefronts.

A percentage of each sale then gets sent to the game's original publisher and, in exchange, that publisher helps to promote the service, possibly even including the envelopes in their new games. As the theory goes, publishers embrace used game sales instead of trying to work around them, consumers spend less money and play more games, and GameStop's near monopoly on used game sales in the United States crumbles away.

That is, if Mike Kennedy can convince any publishers to snub one of their biggest retail customers in favor of its bold new competition.

Chasing the Chuck Wagon

The venture, called PostalGamer, is the brainchild of CEO Mike Kennedy and his business partner, Steve Sawyer. Kennedy works in the material handling industry by day, but his first love is games. In his spare time about four years ago he launched GameGavel (formerly Chase the Chuck Wagon, named after an Atari 2600 game about dog food), an auction site dedicated to video games, simply because he didn't like buying from eBay.

"Everyone thought I was nuts taking on somebody like that. And I probably am a little bit crazy, but I'd used eBay forever, and just got sick and tired of the high fees and everything else," he tells us.

GameGavel isn't exactly big business ("It's approaching about $300,000 in sales," Kennedy beams), but it brought in enough to hire on a part-time employee, Sawyer, who encouraged him to look into what he saw as a vicious circle in the used games business: consumers think games are too expensive, so they buy them used. Publishers continue charging $60 for a game, because they're not seeing any returns on the secondary sales.

"It's like the publishers have been forced into a situation where they're almost penalizing gamers for using the secondary market," Sawyer says.

Taking A Cue From Netflix

Keeping the business purely online and cutting overhead is the only way to make this possible. Luckily, Kennedy's day job gives him some familiarity with distribution systems, not to mention a lot of contacts in the industry.

According to Kennedy, he's already developing a system with Bastian Solutions, a company that specializes in fulfillment centers. Its clientele includes Netflix, game distributor Jack of All Games and, yes, even GameStop.

Kennedy and Sawyer aren't going at it alone, either. They've assembled a board of directors that includes Subdued Software's Phil Adam, the former president of both Spectrum HoloByte and Interplay, as well as the former chairman of the Software Publishers Association.

"He really believes in this concept as well, and has really opened up a lot of publisher doors to us, because he knows everybody He knows all the execs and owners of about every publisher that there is," says Kennedy.

Getting Publishers On Board

Kennedy says publishers will get a quarterly check (somewhere in the neighborhood of $6 to $8 a game out of the $15 gross he expects) no matter what, if they'll accept it, but his hope is to get them interested enough to work with his company as a partner. In exchange for various kinds of promotion, Kennedy hopes to give them an even bigger piece of the pie. The trouble is, no one wants to bite.

"The feedback has been very very positive, but...nobody wants to be first," he says.

Sawyer tells the story of one particular publisher of the dozen or so they'd spoken to (he's not naming names, though he says it's a big one) that admitted that the idea was attractive, but said they were unwilling to take the initiative to be the first to publicly commit to what would obviously be a slap in the face to GameStop, its number three buyer.

"It just takes them a certain amount of time to process something like this, especially something that originally they never ever considered they'd ever get a piece of. So it's just a completely new concept to them," Kennedy says.

One way they're sweetening the deal is offering data on a publisher's secondary sales. PostalGamer is developing a tracking system that can give publishers real data on how often its games are being resold, where it's being resold, and how long someone held on to it before chucking it in the mail, all of which they say could ultimately aid in business decisions.

"You look at a game like Mirror's Edge. I think that the likelihood of that game getting a sequel is probably slim to none at this point. But I know for a fact from a lot of people who work at GameStop...that the game sells really well on the secondhand market," Sawyer says. "So you're looking at a situation where it's theoretically possible that all the income that they generate from the secondhand benefits could maybe justify keeping a franchise alive."

Keeping Discs Around

Talk to Kennedy and Sawyer long enough, and you'll get a glimpse at the duo's ulterior motive for starting this venture: keeping physical media around, when the industry is fast on its way to a completely digital delivery system.

"The culture is changing, and a lot of what was fun and cool about game ownership is all going away," says Kennedy, who in addition to running GameGavel is also the co-host of the Retro Gaming Roundup podcast, where he often discusses collecting vintage games. "Imagine not being able to walk into a store and peruse games. We're not against retail. I would hate the day that I can't walk through Target and see game kiosks."

"I'm really starting to get worried. I really thought [the completely digital game world] was going to be in five to seven years, but the way everybody's talking, it's going to be in the next couple. And if we could just say to publishers look, there's hope for physical games. Let's slow down, give yourselves some time, do it right. Let's extend the life of physical games as long as we can. It gives you guys longer to go the digital direction for the right reasons."

PostalGamer has no publisher support at press time. Its official website had a soft launch this week, and Kennedy says its trade-in program will begin later this year, with or without anyone on board.


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