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Retail

GameStop: without second hand sales we wouldn't be here

Tue 13 Jul 2010 12:12pm GMT / 8:12am EDT / 5:12am PDT
RetailPublishing

Retailer claims it doesn't like being in the used sales business, as Louis Castle brands practice "thievery"

GameStop has admitted that without the used games business it wouldn't be able to compete in the retail sector at all.

Niall Lawlor of GameStop Sweden made the statement at today's Develop Conference in Brighton, when he challenged InstantAction CEO Louis Castle during his keynote on adapting to digital distribution.

Castle repeated comments he'd made to GamesIndustry.bizearlier in the year that retail's focus on used sales was "parasitic", adding that selling second hand games right next to brand new copies felt like "thievery".

"We discovered the used business was a way of preserving our margins," Lawlor told Castle. "We don't like being in the used business, it's very difficult to manage.

"If we hadn't got the used business we wouldn't be there.

"We like to think GameStop evangelises the business," he added. "We're still opening more stores, we're still pushing the industry. We have to be in it otherwise if you take a look at our margins you'd realise we need to be in used."

But Castle said that he was "specifically angry at Walmart and GameStop" and that selling used games accelerated the decline of the bricks and mortar business, although publishers were loathe to admit it as they still need retail partners.

"While you're preserving some margins, used is accelerating changes," he said. "I can see the train wreck, it's coming. Pretty soon everyone is losing money. Used is accelerating the decline of profitability for publishers. The oxygen is being sucked out of the room."

36 Comments

Denis Dyack President, Silicon Knights

16 0 0.0
Louis is correct and I am glad to see that someone is standing up and speaking up about how bad used games are. On a positive note, it looks like these "used game retailers" have accelerated the need for cloud computing which many of us see as huge win for industry.

Posted:4 years ago

#1

Ashley Tarver Indie

41 1 0.0
The guy wants to kiss and make up ... but are we surprised when digital is bounding along like a steam train?

Sound the horn, the ship is sinking.

Posted:4 years ago

#2

David Spender Lead Programmer

129 54 0.4
The industry accelerated the used games market when they raised the new game price point to $60.

'Cloud computing' or digital delivery can be a huge win as long as its done with the consumer in mind and not laden with tons of restrictions and drm. No one wants their game library to go up in smoke when an activation server goes offline or their wireless router stops working. Even worse if a game company shuts down and your games are gone forever - I can see the day coming.

Posted:4 years ago

#3

Barrie Tingle Live Producer, Maxis

381 180 0.5
@David Spender
Video games cost $59 back in the days of Super Mario Bros 3. Yeah they had the cart manufacturing costs to pay for back then but now days the costs are all in development with the push for better graphics, more features etc.

Has video gaming really become that expensive over the generations? If anything I'd say gamers get more for their money now than ever before in most aspects of gaming.

Edited 1 times. Last edit by Barrie Tingle on 13th July 2010 2:42pm

Posted:4 years ago

#4
I can't believe some people are still fighting the argument... Second hand has always been an integral part of the videogaming business, and helped fuel the sales of new soft as well as the old one.
Besides, they're very often not much cheaper than new games in the first weeks (or you can purchase cheaper versions online).

Thinking removing second hand market from retail is going to help anyone is foolish. Half of the specialised retail stores would die within 3 months if that happened. Ebay will always be there.

What I find shocking is that it's still cheaper to buy new products online than on digital distribution (look at PSP games, you can find them for a better price packaged and delivered on Play.com than on the PSP store).

If publishers want to fight one corner, they should try to think of a smarter pricing model for digital download, instead of blaming others like the plague.

@Barrie: the question isn't so much if games are cheaper or not, as you say they are, since their price hasn't followed inflation. However, like every other entertainment product out there they are fighting against more content and products, and the videogame industry is yet to realize that fully. People are ready to pay for "fuller" experiences like Wii Fit, there must be a reason why for a lot 60$ is a too high barrier to entry to spend on a pure game.

Posted:4 years ago

#5

Jarryd Key Analyst

13 0 0.0
I'm a little tired of hearing the "used sales are destroying the market" argument. Virtually every other industry (books, music, etc.) has survived the sale of used goods. It seems to me that the explosive profits of the last decade are beginning to slow, causing publishers to scramble for a scapegoat to explain plateauing profits.

However, the software industry is in the unique position of being able to cripple, or even completely disable a product remotely. The route EA has taken with the Online Pass is only the beginning. The next few years will indeed be very interesting.

Edited 1 times. Last edit by Jarryd Key on 13th July 2010 3:24pm

Posted:4 years ago

#6

Kingman Cheng Illustrator and Animator

954 182 0.2
This brings me back to the days of the old game exchange shops that have been closing down over the span of many years. Good times...

Posted:4 years ago

#7

John Bye Senior Game Designer, Future Games of London

480 451 0.9
Jarryd - "Virtually every other industry (books, music, etc.) has survived the sale of used goods"

I think the issue with our industry is that, while you get second hand book and record stores, they tend to be fairly marginal. You don't get major first hand retailers like HMV or Waterstones selling second hand books and CDs, giving them more shelf-space than first hand copies, and even trying to talk customers who have taken new copies to the till into buying second hand copies that are only marginally cheaper instead.

I'm all in favour of an active second hand market (I've sold or traded in games myself, it's a useful way of getting extra cash to buy new games), but I can understand publishers being upset about the way it's being run at the moment - big retailers who should be our partners are basically screwing us over to get a higher margin. They're also making it harder for customers to buy first hand games and particularly back catalogue titles by crowding their limited shelf space with multiple used copies of recent big sellers.

Posted:4 years ago

#8

Josef Brett Animator

296 0 0.0
I've said on this forum before that i stopped buying used games about 18 months - 2 years ago (which is true).

I agree with some of the above comments, I think that the cost of new games is prohibatively expensive for some people. I know games used to be very expensive in the good old days, but there were less must have games back then, so it didn't really matter!

I tend to wait now for a few months and pick up the games for about half the price that they originally retailed at. I know we live in a capitalist society and this is how things work, but it seems silly to charge such large sums for games new when they will be half price in 2 months time. As was posted in another forum earlier, why not make all games cheaper to start with which will effectively destroy the second hand market and may even help eliminate piracy...

I do still sell my used games though, so I guess I am still fuelling the second hand games market...

Posted:4 years ago

#9

Eric Preisz CEO, GarageGames

12 0 0.0
Digital distribution will offer new ways of making games more affordable and efficient.

We can take the idea of DLC and apply it to the entire game. For example, digital distribution will allow you to rent to own a game. Spend five dollars to play more than you would get in a demo. If you still aren't sure, spend another ten. Then you can apply that 15 to the entire purchase. Digital distribution can be a much better experience than brick and mortar, but getting there is requires a lot of infrastructure.

Posted:4 years ago

#10

John Bye Senior Game Designer, Future Games of London

480 451 0.9

Posted:4 years ago

#11

Alex Holt Artist

6 1 0.2
I'm strongly against the suggestion that second hand games are somehow thieving. It's true that major book and film retailers don't usually stock second hand books, but neither of those industries try and make the claim that the physical product still belongs to them after you purchase it. If I buy a game second hand it's because for my tastes it didn't merit being bought at full price. If I'm looking forward to a game, I buy it at release or as soon as I clear out my backlog, in no way does in cannabalise my first hand game purchasing, and I suspect the same is true for a lot of people.

Digital distribution certainly does seem the way to go, as by cutting out shipping and physical production costs you can make things more competative with second hand prices anyway. It's worth noting that I really think digital distribution needs to be published more - I still maintain that Microsoft should include Steam or something with as big a catalogue with Windows to get new customers interested. In addition to that, if you try to prevent games being bought second hand, it's going to cripple games as a heritage for the future. If you buy a game now, and can't sell it and don't have any way of giving away it'll end up being disposed of, and we could potentially end up with 'lost' games.

At least games are in the unique position that they are the only medium that can really extract money from people after the initial purchase, and if you really want to encourage people to be buying first hand, go with some variation of what Bioware used with Dragon Age and a free redeem code for The Stone Prisoner which would only work once within the packaging. Creative incentives for first hand purchases are what is needed, not being righteous about it.

Posted:4 years ago

#12

James Prendergast Research Chemist

735 432 0.6
@ Eric Preisz: It's a nice ideal... though i'd love to see it in action because the way things currently are is that the consumer pays full price for an indefinite rental (with authentication DRM schemes) and full price plus monthly subcription for Onlive..... and just subscription for 'rental' services like metaboli (though they rarely have new releases).

The entire ecosystem is moving to rental only. There's not much worth for a smart consumer to not wait for the price to come down in that market.... the only way a partially paid rent-to-buy system would work is if game prices never depreciated.... which i'm sure many people would love.

Posted:4 years ago

#13

David Evans Head of Content, eircom

6 0 0.0
DLC is self-evidently "the future", but currently its not necessarily the best future for the consumer. Say what you like about retail, (and as a former GAME Director I absolutely concur with Niall Lawlor's comments), as an sales environment it offered genuine consumer choice and constant downward pressure on price; I don't see that kind consumer choice available in the DLC market. There's some competition in PC, but in consoles? Not a chance. Until customers can download their console titles from a variety of online providers who are genuinely allowed to set their own margins, then the customer will lose.

Posted:4 years ago

#14

Christopher Bowen Owner, Gaming Bus

118 0 0.0
@Denis Dyack: Please explain to me how "cloud computing" is good for the consumer. Try me. Explain to me how this isn't a turf war between publishers and retail, with the only real losses coming to the people buying games. By all means, explain why we should jump on OnLive as if it wasn't a massive rip-off.

___

The problem, to me, isn't used games. The problem is that Gamestop specifically shoved used games down our throats. I don't think any reasonable publisher is going to try to make it impossible for people to, say, sell a game to their friend, or lend it out (and anyone that does would get hammered in PR). Everything started when Gamestop aggressively pushed used over new by limiting new stock and firing field-level people that didn't hit their aggressive numbers. This wouldn't have been a problem had Gamestop not turned used into their *entire business model*.

Mr. Lawlor is correct: Gamestop would not be here if it wasn't for used sales. And honestly? I wouldn't miss them.

Posted:4 years ago

#15

Haven Tso Web-based Game Reviewer

255 8 0.0
Developers and publishers just don't get it. All they care about is their profit margin (which is fair enough) but the issue here is also the quality and pricing of games. As I said in another post, you will need to look at what are permanently featured on the used shelves and you will know. Great and cult games don't feature that much on those shelves as people will actually buy them. Take Final Fantasy XIII as an example, it has flooded the used shelves because despite it is Final Fantasy, a lot of people (whom I know and are huge fans of the franchise) didn't like it. So they finished (or stopped it) and sold it back to the shops. You don't really see previous Final Fantasy games featured so significantly on the used shelves. I talked to some of the EB guys in my area and they said classic Final Fantasy games even if they showed up on used shelves were snapped up quickly, unlike XIII that just sits there.

Posted:4 years ago

#16

Private Industry

1,176 182 0.2
Cloud gaming is still a good way away. Had a read about onLive in the digital foundry article on eurogamer and the video quality and framerate of the games are at times just horrible especially with the picture quality going considerable down within a few seconds. Besides cloud gaming is for PC games and the used games problem is for console games since no company takes anymore PC games since ages.

Edited 1 times. Last edit by Private on 14th July 2010 12:45am

Posted:4 years ago

#17

Jason Evangelho Journalist

1 0 0.0
Now a spokesperson from Gamestop is trying to put out the fire. Article updates at MCV, CVG, and elsewhere state: "...an 'official spokesperson' has contacted MCV to deflect the reports. 'These comments from an unnamed and unknown person claiming to be a GameStop employee are inaccurate.'"

I certainly consider GI a reputable source...Matt, can you comment on this?

Edited 1 times. Last edit by Jason Evangelho on 14th July 2010 12:56am

Posted:4 years ago

#18

Boris Thoenissen Managing Director, Lizard Enterprises Ltd.

4 0 0.0
Cloud gaming is ok if you can use it all over the world without any restrictions. I experienced myself that my GamerScore and some of my paid content at XBLIVE (German account) couldn't be transfer to my new XBLIVE (Hong Kong account). Honestly I try everything and even the guys at the Microsoft support told me its not possible.

Spend money and effort - no compensation and no transfer.

I think there as still a lot of legal and technical issues to solve before cloud gaming is ready for the mass-market.

Edited 2 times. Last edit by Boris Thoenissen on 14th July 2010 5:12am

Posted:4 years ago

#19

Denis Dyack President, Silicon Knights

16 0 0.0
@Christopher Bowen - hi there :)

I have done several talks on this subject and it is fairly deep. I would be happy to explain this to you if you talk via phone but this message board is not the right forum. Just fire a message to me via the site and we can exchange contact info if you are truly interested.

For those who think this used games are a consumer rights issue you do not understand the problem. This is all about IP protection and commercial exploitation rights. Companies like EB making money off IP that they do not own while the actually rights holders make nothing. This is not about consumers but about corporations.

Posted:4 years ago

#20

Matt Martin Editor, GamesIndustry.biz

173 113 0.7
Just to clarify, I double-checked Niall was genuine employee of GameStop. Other sites haven't printed his name because those writers weren't actually in the room or at Develop. I'd say around 200 industry professionals were in that room and witnessed the little exchange.

Posted:4 years ago

#21

Shane Sweeney Academic

390 398 1.0
Denis Dyack, except that second hand companies are just filling market demand. To be a little tongue in cheek, how dare they try and make money.

Large second hand sales are symptoms the pricing structure for first hand is incorrect and not making consumers happy enough. If video games were at more impulse price structure, more consumers would buy games (greater audience) more consumers could take the risk on a wider range of franchises (more companies rewarded), current consumers would buy a greater number of titles annually (great volumne).

A film like Avatar may cost 300 million dollars, but is sold for $30AU on DVD. Grand Theft Auto 4 costing $90 million is sold for $120AU.

The only way your going to keep consumers paying a price they already feel uncomfortable paying is by locking them into a system like Cloud computing or taxing online play, which I think is fixing the problem from the wrong hand, and to exaggerate just a little bit it feels a little amoral.

I wont deny the difference between 100 to Infinity hours of content in Grand Theft Auto 4 and the 3 to10 hours of content in Avatar, but maybe that is where the issue lies.

Maybe the market is demanding a middle category between Indy/Casual and AAA titles that eventually will become the bulk of the industry? AAA games with content lying between 3 - 6 hours priced at impulse prices.

Valves Portal can be bought stand alone for $30AU and has roughly 4 hours of content, obviously not every game can be portal, but I think this shorter cheaper game but still not considered "budget" is where price/content/profit point every one could be happy with. I bet if Mirrors Edge which was a game that did feel quite tired several hours in was reduced to 4 hours of game play and sold for $30AU we wouldnt be talking about it as a failed IP nor would I suspect there would be very little second hand sales for it either.

Posted:4 years ago

#22

Josef Brett Animator

296 0 0.0
@ Denis Dyack, re: your comments towards Christopher Bowen. I understand this forum may not be the place for the in depth discussion, but how about asking Gamesindustry.biz if you can have a feature article published on the site in response to the Gamestop comment?

If you've done plenty of talks about it it hopefully shouldn't take up too much of your time (I can understand you're a busy man).

It would be very interesting for us to hear and would further this great debate?

Posted:4 years ago

#23

Ashley Tarver Indie

41 1 0.0
Retailer greed created 2nd hand sales. To say a company wouldn't have existed without 2nd hand sales is absolute bullshit. Natural progression without 2nd hand sales would have been carried forward by companies like Virgin, HMV and supermarkets selling brand new items.

My view: Digital will hopefully find a way to take the cash from 2nd hand vultures and pile it back into R&D and move us forward. The only people I see defending 2nd hand sales are indie retailers, students and people who can't get their heads around what the future could hold if we get rid of the money grabbing gypsies creaming every penny out of repeat sales of IP and denying potential extra sales with reduced prices. Not forgetting one major benefit of also eradicating piracy (another debate maybe).

What are the POSITIVES of going pure digital? Can we get a feature written up by any journos in the industry and get the viewpoints of the publishers. Once they have eradicated 2nd hand sales, where next? What would they like to see as the future? Could they see prices reduced? Would sales increase if the price reduces? Would the shareholders see the benefits of extra divis or would the money be ploughed into bigger and better games, more R&D?

2nd hand sales feeds the people who are willing to buy games but just want a bargain as opposed to paying full price, how would the publishers keep these consumers on board?

I don't think I've read one full write up of what the pubs/devs want, all I see is minor stories where everyone kicks off on the debating either supporting the industry (devs/pubs) or supporting 2nd hand sales (as stated above). We need a proper viewpoint, can we get people properly talking? Instead of the born-worriers posting about the end of the world if digital arrives.

Posted:4 years ago

#24
I have watched this debate evolve for a year or so and there are many valid points made above. A couple of the posts above hinted at the nub of the problem (as i see it) and I'm going to pose the question without offering the obvious answers.

Why are so many customers trading in games within days of purchase; thus packing out the shelves with second hand copies of brand new games?

Edited 1 times. Last edit by Robert Jeffrey on 14th July 2010 10:41am

Posted:4 years ago

#25

Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.

2,270 2,439 1.1
I'll bite, Robert.

In no particular order of importance.

1. Value. Objects of high intrinsic value are not so often turned over.
2. Replayability. Some games simply aren't fun the second time through.
3. Habit feeding. By this I mean that the action of trading in a game soon after completion grants the gamer decently high credits to obtain the next game. Restart cycle.
4. Promotion via retailers. Many retailers push hard for you to trade in your games.
5. Because it's what their friends are doing.

Posted:4 years ago

#26

Alex Holt Artist

6 1 0.2
In my view the answer would be that people don't think that the game they've bought justifies it's price. Having completed it, they wish to get reimbersal for as much as possible. I personally don't ever trade games in (I often decide to go back to them years later) but a lot of people do, and given the price of console games I really don't blame them.

Level Script: I have to disagree - the simple issue with that is that as a comparatively new medium, if you just in there and suddenly declare that for some reason that games are different just because they are, all that's going to do is annoy people and reduce net sales as a whole. There are valid reasons that second-hand sales might be a drain on the industry, but to pretend that it is somehow evil when they are fuelled by starting prices being high to the point where people think that a game isn't worth it's entire value, either on the part of the person trading it in to recoup their loss or the part of the person buying it second hand for reduced price. If you want to replace second hand sales, give them viable alternatives so that they move away from them naturally of their own accord. If you try to just directly prevent second hand games, what you are going to and up doing is knocking the legs out from underneath bricks and mortar shops, causing them to close down and distribution to end up limited to people savy enough to buy things online, reducing your overall market and thus profits. You also run the risk of people thinking that if they can't trade it in afterwards to get some money back, they won't even bother buying it first hand. Also, relying on non-specialist shops is a dangerous game to play - in my experience supermarkets never seem to have a very broad selection to the point where you risk massive sale reductions in any game which places outside the top 10.

There is also the issue that realistically, second hand sales of a game are going to be negligible in how much they detract from overall profit in PC games particularly compared to piracy anyway.



Edited 1 times. Last edit by Alex Holt on 14th July 2010 11:27am

Posted:4 years ago

#27
@Alex.



@Alex and Jimmy.

Value! The game is not worth the price. The game has no replay value. Different ways to phrase the same issue. The game's not good enough. No wonder publishers/devs are blaming second hand games. It's hard enough making good games without then having to make even better games that people want to keep to replay.

Maybe if the price point was lower there would be less trade-ins. I don't know if that would be the case. And maybe there are people who wouldn't keep the game if it was the greatest game ever and they'd only seen a fraction of the content first play through.

I think the onus is on us, as developers, to make games that people want to keep. We can't ignore what's happening at retail, but equally we can't blame them for trying to make money - it's what we are also doing. Nor can we blame the customers who trade in games the day/week following purchase. We should take that as a damning commentary on the quality of the game they bought and learn from our mistakes.

Posted:4 years ago

#28

James Prendergast Research Chemist

735 432 0.6
@ Level Script. I simply do not believe that any extra cash made from a decline in the used market would make it's way into R&D or more risky projects in any large amount. There's no historical precedent for this - at least as far as i'm aware. The money will instead line the pockets of the publishers and their stock holders as it's always done.

I'm also (especially in the context of console games) not convinced of the whole "IP" argument VS classical art creation. As mentioned above by Alex Holt, what's so different about games that makes them special? You don't pay the artist's descendents for any sale of their artwork.... even if it was within current copyright terms. I've never seen a convincing argument why software should be treated in this special way.

Posted:4 years ago

#29

Josef Brett Animator

296 0 0.0
@James - correct me if I'm wrong but I think what Level Script was getting at is that the extra revenue publishers/developers would get if there was no second hand market would eventually and some how, find it's way into less commercial games.

I doubt it would be a direct link between the two, but if publishers had that much more cash (which they would), then they would be less risk adverse than they are now (all 'creative' industries are struggling at the moment, so they short-sightledly keep churning out the mainstream product that they think will sell, because the profit margins are smaller than they could/have been in the past). More comfortable finances would make for more risks taken. Eventually.

Posted:4 years ago

#30

Denis Dyack President, Silicon Knights

16 0 0.0
Would be happy to have a discussion our thoughts on cloud computing with GI.biz if there is interest as well. :)

Posted:4 years ago

#31

James Prendergast Research Chemist

735 432 0.6
@ Josef:
I get the principle... i just don't remember seeing anything like that over the good and bad times of the last 25 years that i've been gaming. People have been struggling to get non-mainstream ideas to become a reality since forever and the industry is worth more (though there's more to lose as well) now than it ever was.

Maybe i'm reading too much into things but it always seems to me that smaller businesses take the bigger risks and the larger a business becomes the more risk averse it also becomes (especially when in debt to financiers or stock holders who demand a certain return on their investments). For the industry to move away from the current mindset would also require a change in who holds the power/money/control... a fundamental shift in the whole structure.

We've got that going along nicely in the lower echelons at the moment but the large publishers appear to be all reading from the same hymn sheet.

Edited 1 times. Last edit by James Prendergast on 14th July 2010 3:29pm

Posted:4 years ago

#32

Josef Brett Animator

296 0 0.0
@ Denis - 30 odd comments and counting, so hopefully someone on GI is following this.

@ James
Unfortunately, I think you're right with your comments.

I think some publishers (Activision) will not change thier business model in the near future, but I do believe that some of the other big publishers would be willing to experiment more if they had greater financial stability. I don't think this would happen quickly, but with a long enough period of increased income, then it could happen.

At the end of the day it still comes back to consumers buying the product and we're as much to blame in this as anyone else. The problem is that not enough people buy the interesting stuff regularly enough.

The Wii is a good example of this. Publishers have taken risks on the Wii and they haven't sold in good numbers, so that risk taking will probably slow down and stop (which is a great shame). Would this change if there was greater financial stability? i'd like to think it would, but I'm probably just being naieve.

On the pricing issue, it will take a great leap of faith for a publisher to slash the price of new games and to get the more interesting IP into shops. If done simultaneously and well, it could get people buying in much greater numbers and not buying second hand. But, as you and many people have correctly pointed out, it seems unlikely to happen in this current climate at least.

Posted:4 years ago

#33

Steve Sawyer Editor In Chief, GameGavel.com

6 0 0.0
In a little over a week I'm going to make Gamestop sweat bullets.

Mark my words.

Posted:3 years ago

#34

Rick Cody PBnGames-Board Member

144 14 0.1
If second hand retail is as essential as it's said to be in the article than debating the issue makes little sense. Imagine a gaming world without Amazon and GameStop? The bottom line is that I buy new and eventually sell back most games. If I didn't have that option I would stick strictly to digital content because I hate having boxes around my house. I'd actually prefer all content to be delivered via digital distribution and the cloud...

Posted:3 years ago

#35

Rick Cody PBnGames-Board Member

144 14 0.1
If second hand retail is as essential as it's said to be in the article than debating the issue makes little sense. Imagine a gaming world without Amazon and GameStop? The bottom line is that I buy new and eventually sell back most games. If I didn't have that option I would stick strictly to digital content because I hate having boxes around my house. I'd actually prefer all content to be delivered via digital distribution and the cloud...

Posted:3 years ago

#36

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