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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

August 12, 2011 | By Frank Cifaldi
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    16 comments
More: Console/PC, Exclusive, Business/Marketing



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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Comments


Alfe Clemencio
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What would be cool is if you have banners saying "Used Games that support the makers!" in physical stores. Then publishers can give more promotional or rage swag as prizes to the stores that participate in this.

Nick Kinsman
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In premise ... it's really cool. If they can make the service big enough to reach more than just the American market, all the better (although I hardly expect this up-front). If it helps with prices and the market overall, it's hard not to be on-board, although before I even reached the note in the article you knew it was coming - getting that first big commitment is probably their make-or-break for the whole system.



Otherwise, I seem to have read that (very happily) a sequel to Mirror's Edge is presently in development, so ... perhaps he could use a better example? =P

Kale Menges
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I was under the impression that the Mirror's Edge sequel was recently canned (about a month or two ago) after a prototype build failed to impress any of the big cheeses within EA.

Nick Kinsman
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I was under the impression that there was a prototype that had been canned, but it had been longer ago than that and they had a new one in the works. (this was circa some EA rep at E3, so I can't really validate personally)

E Zachary Knight
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I think this is one of those "Give a Mouse a Cookie" situations. You give publishers a slice of the pie and they will want more and more until your business model becomes impossible to maintain.



We already see this is film and music licensing services. Movie and television studios are fleecing Netflix and Hulu. Music Labels are squeezing Pandora and Spotify. They start off with low rate licensing deals but as the services become more popular, they feel entitled to a larger and larger slice of the pie until there is little left for the service provider to keep their doors open.



That is what I see happening here.



Although, I am a big advocate of publishing used game data. I think that would be far more valuable to a publisher than any potential cut of sales.

Jeffrey Crenshaw
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I don't see the problem. If publishers get too greedy then Postal could say "screw you" and turn to the gamestop model for those publishers while still bringing in new copies from the publishers that still want to play along. It seems like Postal has the power in this relationship; they are offering competition to a thorn in the publishers' side and have already negotiated in the publisher's favor.



Netflix, Hulu, and Pandora manage and air copies of copyrighted material and are at the mercy of copyright holders. Conversely, there is nothing legally that publishers can do if they don't want their used products in Postal's stores; those copies are sold to the store by the player that owns them, beyond the publisher's control.

Guy Costantini
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Why has no one thought of the obvious advertising medium? Advertise newer games on the envelopes! Give free online codes to redeem for goodies! The resurrection of ads in the mail! haha.

Mike Kennedy
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Thanks Guy,



Oh, yes, this has come up a few times during our publisher conversations. Great minds think alike.

Adam Miller
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This is a really cool and fair idea. However, the service to me seems to be missing the crux of the used games conflict.



Publishers already have a solution to used games sales, and it's called digital distribution (to a lesser extent digital add-ons). However, publishers can't forsake their retail partners, which means the creation of a secondary market. Isn't this service a middle ground that doesn't really solve the problem of forsaking the retail partners (it isn't just Gamestop who sells used games)? Why not go whole hog digital distribution?

David Serrano
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The people behind this service clearly have no idea how Game Stop's system works or why people use it. From the consumer's point of view, what is this service offering beside more work? Why would I go to the trouble of driving to the post office to mail in a used game, then wait for days until the new game arrives? Then repeat the process every time I want another game? I can just drive directly to Game Stop, choose a new game, get additional credits for trading in multiple games with my rewards card as well as a discount on the new purchase, drive home and start playing the new game... in 45 minutes or less.



If publishers and developers want to earn profits from used game sales, they need to get into the used game business. They can't keep attempting to place the burden of their problems on the consumers. Consumers will have no zero motivation for taking on the additional burden of mailing in used games unless they are offered far more value in exchange. All of the large publishers now have on-line stores, there's no valid reason why all of them couldn't offer consumers substantial credits when they trade in copies of that publisher's or developer's older titles. Credits which could then be applied towards on-line purchases. This would start pulling used copies out of circulation while providing customers with more value for the effort. It would also begin to cut off Game Stop's supply of used games and customers.



But I guess if your a game industry executive, it makes more sense to sit around crying about Game Stop's profits and hoping somebody else will solve your problems for you. That's why they make the big bucks!

Alex Leighton
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I'm guessing you don't have mail service to your house? Still though, I agree with you. My local Gamestop (EB Games) is literally one minute out of my way on my daily commute, and it is far more convienient to stop in there to pick up my games than it would be to fiddle with envelopes or even use digital download services. I can pay cash, properly look at the packaging, talk to the manager (who has become a good friend of mine), retail is still the best way for me.



I really don't see publishers doing anything that endorses used game sales though, they want everybody to pay full price all the time, because in their minds, that's how they make the most money.

Eric Geer
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On the opposite side of the spectrum---I have a post office close by--but no gamestop/eb--it's like an hour or more trip to do it while having to deal with the travel costs and lost time costs--i would almost rather just have the games in the mail---have everything figured out online--so i don't have to wait for the gamestop employees to scan/check everything..then to request that I pre-order games--then tell me to do a survey that nobody ever wins and most of all bother me while i'm looking around---but with this service I get to, in the end, give back to the publishers--I'd rather give to the publishers than Gamestop---but ill have to read up some more--I generally buy new from Amazon because of the deals they offer for future purchases---so maybe I will use this for used games---so I can win on both sides pre and post.

Mike Kennedy
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Hi David,



Check out PostalGamer.com where we have divulged a bit more information on how our service will operate.

William Barnes
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I see suggestions here of having the publishers jump in and offer credits for old titles when purchasing new digitally distributed titles. As stated this WILL move older titles off the market, driving up titles that haven't been traded in yet.



Will we seen any reprieve on the cost of new games? No, nothing beyond some paltry credit. No used title to trade in? No credit towards a new game... full price. Digital Distributions will get you nothing with them, as they get you nothing elsewhere.



The only winners I see here are the publishers, while the consumer loses even more in the end.

Brian Tsukerman
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It'd be great, but I remain curious on how it will manage to succeed, since it requires finding the equilibrium between the price the producer sets for the game and the price people are willing to pay when it is used.



Take Mirror's Edge for example. On Steam, it's $19.99. Amazon.com has it at $16.95. eBay has it at prices ranging from $9.99 for PC to $19.89 for Xbox.



On Goozex (a used game trading site), it's worth between 100 and 300 points depending on the system. With every 100 points being worth ~$5, it's the cheapest option I've listed, even with the need to buy "trade tokens," which is only required if you want to receive a game.



Honestly, telling me that the trade-in prices are "somewhere north of Gamestop" doesn't really tell me anything other than "they aren't going to rip me off as hard as the huge video game retail chain." Considering Mike Kennedy's projected gross of ~$15 per game, it seems feasible if you're talking about games released within the last year. Past that, I'm not sure how many games continue to be worth at least $15, especially when you adjust for how well it is received.



However, should GameGavel manage to succeed in both appeasing the publishers and offering low prices on used games, they will have my full attention.

Mike Kennedy
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Thanks Brian,



Our plan is to concentrate on newer games. Once games devalue to the point where no one should consider trading it in, gamers can list their own games on GameGavel.com and make more money that way. We want to cover all the bases for gamers, gamer-to-gamer and retail-to-gamer. We will be paying gamers 30% + more than the corner retailer.


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