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Retail

Retail's Pre-Owned Peacekeeper

Retail's Pre-Owned Peacekeeper

Thu 17 May 2012 7:00am GMT / 3:00am EDT / 12:00am PDT
Retail

Meet EKG, the used games retailer giving 10% of second hand sales to publishers

Pre-owned games are a problem. Consumers love them, publishers hate them and retailers are making a hefty profit on them. The obvious solution is more online passes, more digital publishing, but new site EKG thinks the answer is money, and more specifically handing it over to the publishers every time a pre-owned game gets sold.

"It's such a great industry, and right now, for the last couple of years, publishers are at war with retail, consumers are at war with publishers, it shouldn't be this way," explained Mike Kennedy, EKG CEO.

"We should worship the ground that these publishers and developers walk on. And not hate them so much."

The idea behind EKG is simple. They sell used games, the publishers get a 10 per cent of the sale price.

"Why can't we just change things so it works for everybody?" Kennedy asked.

"That's what we're trying to do, and there's a lot of people that think it can't be done, and they may be right. But it's worth a try, this should have been done years ago."

The site has been in the works since 2010, and was originally called Postal Gamer. One cease and desist letter from the maker of the game later it became EKG, and launched just weeks ago. Kennedy previously launched GameGavel.com, an eBay for games, and has good relationship with the industry. He said he's "always trying to channel that into something that we hope will make the industry better."

"We don't want to kill off bricks and mortar retail, but that's right now potentially going to disappear if something doesn't change"

"It's going to take us a lot of work to really turn the tides of this thing, because you've got GameStop in the US, $3 billion almost in used games, and so all things being equal if we were doing that there'd be $300 million or $400 million going back to the publishers free and clear, at no cost to them."

It's not about taking on specific retailers, said Kennedy. It's about changing the way retail works before the publishers find more damaging ways to do it.

"We don't want to kill off bricks and mortar retail, I love it, I love going into the stores and looking at the kiosk, but that's right now potentially going to disappear if something doesn't change."

And there's no catch for the publishers, with Kennedy offering quarterly sales reports so that they can see how a product is doing through its whole life cycle.

"We've been told by one major publisher that the data's almost more important than the revenue from the used games."

2

Mike Kennedy

You'd think the publishers would be sending Kennedy muffin baskets on a daily basis, but he admits it's been harder than he expected. While they're happy to talk behind closed doors (he mentions Sony and Nintendo specifically) and all they need to do is accept a cheque, they're nervous about coming out in support of EKG. Or at least being first.

"Nobody has really said no, nobody wants to eliminate this if it should turn into something, but at the same time they're hesitant to really get on board. We hoped they would by saying '100 per cent, we're behind you, let's partner up, let's turn the Titanic, let's right the wrongs and let's be behind you to do it.'"

Publishers are concerned about being singled out by GameStop. They're scared of the retailers reaction, and Kennedy admits they're probably right to be.

"We don't want to jeopardise publisher's relationships with the Walmart and the Best Buys of the world. GameStop we're not as worried about," he teased.

"And from what we've been told they've tried to do things with GameStop but it really doesn't... they control a lot, I'll just say that. And they're not as easy to make a change because... I don't know if they could emulate our model, with all the stores and all the overhead they've got."

Kennedy is still hoping that by E3 in a few weeks EKG will be able to announce that at least half a dozen publishers are supporting the scheme, although even then the wording is proving tricky.

"Right now that's all we're asking them to do, we just want them to say 'yes, we'll participate in it, we'll take your money.' We boil it down to that. We're not really calling it an endorsement at this time, just because of what that might appear to GameStop. But to have them say that they're participating in our business model, taking our money when we send them the cheques, why wouldn't they do that?"

Another sticking point when it comes to revolutionising the retail model is some of the measures publishers have implemented already, like online passes, and those that are rumoured for the future, like the suggestion that consoles will need an always-on online connections.

EKG will deal with the first problem simply. Publishers will not get their 10 per cent on the games that have an online pass system. As this includes the majority of the big sellers, Battlefield 3, Mass Effect, Uncharted: Drake's Deception, a cynic might suggest it's just a way for EKG to avoid big bills. But Kennedy said it's about influencing the publishers.

"We just want publishers to say 'yes, we'll participate in it, we'll take your money'"

"I would love to tell our buyers if you buy a game from EKG that you're guaranteed the full game, at the right price. You're still going to pay $5 or $10 less for it and you're still going to get the complete game."

"I'm not asking publishers to give that up at this point. Although it might be something that if this thing were to grow quickly it might be a demand that we would make," he suggests.

"If they're getting 10 per cent of all used game sales and if we get significant enough that there's a lot of used games that are changing hands through our market, is it worth it to them to forego the 10 per cent on the games that require it?"

The other issue, and one that could signal the end of EKG before it's even out of nappies, are the rumours of the next-generation coming with always online connections that will render second-hand games unplayable.

"Well if they're [the format holders] worried about pissing off GameStop I think they've already done it," he jokes.

"I don't think anyone has confirmed that yet and from what I have heard, sort of on the back-end, is it may not be true. And we hope it's not true, obviously."

True or not, those rumours are affecting EKG's ability to get any sort of support from the investment community. At one point they were projecting that, if the site took off, publishers could expect to see $200 million to $300 million in the first three years.

"Our original plan was to get all these publishers on board and go out and get this thing funded at a significant level, because face it, we're taking on a $10 billion company with a revolutionary idea that if it works, I think could quickly chip away at that empire."

That dream is over, at least for now. Kennedy won't even make a new projection at this point. The focus on digital, and now the rumours of next-gen, mean that's just not an option anymore.

"Who the hell is going to invest in a website that is going to be mailing games back and forth through the post office?"

Survival will come down to consumer support. EKG has some great ideas, like including a pre-paid envelope in the games they sell that allows gamers to trade in their games at EKG easily. This way EKG can sell the same game, four, five times over.

Certainly if it was down to enthusiasm, or even a love of games, Kennedy could make the thing a success single-handedly. As it stands it's clear that this E3 will be a watershed for the company, the moment when publishers decide whose side they're on. The guy who wants to give them money for nothing? Or the retail giant that buys their product. No one can pretend it's an easy call.

"We want to breathe new life into this dying retail business," Kennedy says. Asked if he expects anyone to try and copy the model, he laughs.

"I think you've got to be sort of nuts to do what we're doing"

8 Comments

Brian Smith
Artist

193 77 0.4
"I think you've got to be sort of nuts to do what we're doing"

That's the main sensible point in this article for me. How can a business built around this concept work unless it's fully encompassing of all publishers and all second hand retailers. Surely their costs will be higher, they won't be able to match other second hand outlets prices, or match buy in values if their business is working on the premise of 10% less profit for themselves.

For me this is besides the point though. Publishers do not deserve a cut beyond their original sale. It's greedy and anti-free market. I would agree the retailers are taking the p@#s with used game sales but the solution isn't this.

Posted:A year ago

#1

Mike Kennedy
Founder | CEO

20 2 0.1
@Brian

Our online costs are significantly lower than brick and mortar. We take a game in trade for $30-$35 credit and sell it for $50-$55. $20 difference. We rebate the game's publishers 10% of selling price $5-$5.50 and keep the balance. And we can afford to give gamers 30% more in trade-in credit than the corner store. The #'s work for us and we intend to make them work for gamers and publishers.

Edited 1 times. Last edit by Mike Kennedy on 17th May 2012 5:58pm

Posted:A year ago

#2
"For me this is besides the point though. Publishers do not deserve a cut beyond their original sale. It's greedy and anti-free market."

I don't understand this, which is one reason I don't like the phrase "free market". It's really a meaningless term. The market is a free market if it does what you want it to I guess :/.

I don't see how money going to the suits at the top of the publishing pyramid is any worse than money going to the suits at the top of Gamestop. Either way, it's suits profiting off my flat-wage work. Mike, out of curiosity - do you see any future where the actual individuals that worked on the game get a cut? I suppose this is beyond your concern as the 10% throw back is between the publisher and developer, just curious.

Posted:A year ago

#3

Mike Kennedy
Founder | CEO

20 2 0.1
@Jeffrey

Good question. We would like to think dev's would profit in some way from a trickle down effect. But, for the most part dev's are paid after they complete the game for the publisher. For now, it's the pub's that are taking most of the risk when it comes the creation and selling of their games and will reap the most benefit from our model. If it helps pub's see how well some of their IP's are continuing to sell in the second hand market to perhaps help them decide to continue making that IP, then dev's will be on the receiving end. The bottom line is if pub's continue profiting from their games post-retail, they will continue paying dev's to make more games.

There is a big debate on whether pub's deserve any revenue from second hand sales, it is pretty split. Our team's underlying reason for kicking back some rev to the pub's is so they will consider slowing down on their ability to nickel and dime consumers with Online Codes, DLC, etc., which will help them concentrate more on single player games/campaigns and hopefully extend the life of used games and physical gaming altogether so the young gamers of today will have the opportunity to continue playing and collecting the games they love and grew up with, just like most of us have been fortunate to enjoy.

Edited 8 times. Last edit by Mike Kennedy on 17th May 2012 6:37pm

Posted:A year ago

#4
"We would like to think dev's would profit in some way from a trickle down effect."

Hey, thanks for your response!

To be honest, I don't think the "trickle down" effect will occur with any more utility for labor than it does in the current capitalist market. And game developers seem to be more liberal than society's average, so I'm not sure Reaganomics is consoling to that demographic. Businesses, including publishers, are for profit and profit alone. Laying off staff when they are no longer needed and sliming their way out of bonus payments leads to more profits for the publishers. The fact that developer well-being takes a back seat to profits, even though the two goals may be aligned temporarily, is a long term losing strategy for developers (see West & Zampella vs Activision for proof that this is true even for the big dogs). From my experience: I make a game, I get laid off, the publisher gets a certain amount of money instead of the retailer but it doesn't affect me either way. In fact, now that I am laid off and looking to work with someone else, there is a good chance that said publisher will soon be my competitor and you are helping my competitor gain money to out-advertise me. Oh the wonders of hyper-competitive capitalism :).

I am working with some friends to go indie in case anyone is tempted to bring up the "if you don't like publishers don't use them" point, but to go indie and get a return on your own time investment you have to compete with publishers and developers that use publishers to out-market you, so it's slow going as the system is built against you. Anyway, none of this is being held against you, I am curious to see how your model takes off and wish you luck -- but it might also be a point of interest for you. Developers are working to remove publishers from the picture altogether as they are coalitions of greed and oppression that only "take all the risk" because they can afford to with the money they have "earned" off previous developers' work. They have embedded themselves as necessary middle men that control the vector of the industry (via strong arm advertising, lawsuits, layoffs, etc). Whether your company is doing a greater good by shifting wealth from the CEO of GameStop to the CEO of Activision is tough for me to decide, but in the hope that you are an honest person and not just yet another middle man trying to get rich off of our work, I present to you this climate of disenchanted labor and hope that it affects your considerations for the future of your company in a way that is beneficial to all. Well, good luck!

Posted:A year ago

#5
jeffrey hits the nail on the head in many areas.

why should the publishers get anymore money off of my work? yes they took the risk, but they also agreed to royalties (in an age long forgotten)...when blockbuster started renting games there was the same cries of foul that are going on with the resell market.

IMO if the publisher wants to make more money on resales, the publisher can take the risk of starting a Gamestop company to handle returns and resells.

The publicly traded publishers don't have the gamer, the developer, or the reseller in mind...only the stockholders...all praise the almighty dollar

Posted:A year ago

#6

Brian Smith
Artist

193 77 0.4
@ Jeffrey - I refer to anti-free market in the sense that it's an individuals right to sell what they've bought and it's the right of anyone else to buy it without the original seller having anything to do with it.

@ Mike - The numbers would seem great from the perspective of pure comparison but as you would appreciate an online operation in this has significant hurdles for the consumer in the sense that they need to post away their titles and the entire cycle is quite long winded in comparison to the retailer option.

This has been offset by some retailers online by issuing credit and allowing the customer to buy other titles directly but it's still much more involved than taking the game to a shop and them giving you money.

I hope EKG do have success with it for themselves but I see no reason to give money to the publisher. If I were EKG I'd take that 10% and further reduce the resell cost and increase the buyin cost and benefit the customer who is utimately the most crucial part of the transaction.

In principle the publisher has been compensated for the sale of the game and that should be that. If the developer were to receive anything that'd be a little less grating but anyone who thinks Mr nice publisher will be sharing this with their dev pets has their head well and truly up in the clouds.

All this is not to say I think the current Retail slant on used games is good. They underpay to buy and overprice to sell and that's unfortunately an issue with lack of competition. EKG appear to offer more to the consumer which is ultimately good but the end intention to help Mr publisher is of no concern of mine as a customer.

Posted:A year ago

#7

Mike Kennedy
Founder | CEO

20 2 0.1
Thanks to you all for adding additional perspective on this model. Publishers really aren't lining up to support our model, so perhaps what Brian suggests would be another angle. The only thing is this, without the publisher support and in return our sending them cash for used games, EKG is really just like all other of the hundreds of online game retailers. That is what set us apart. Without the industry support and backing and press to go along with this new model, I wonder at the validity to continue taking on a company the size of GS. It's one thing to take them on with Publishers in our back pockets, something quite different without them.

Edited 2 times. Last edit by Mike Kennedy on 21st May 2012 6:11pm

Posted:A year ago

#8

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