Passed Around

More than a few eyebrows are likely to be raised at the enthusiasm with which US retail giant Best Buy appears to be plunging into the UK games retail market, with the company keen to place games at the heart of its offering as it opens its first stores over here. The timing couldn't be more peculiar; after easily a decade of speculation about when America's major chains would finally begin to exploit the opportunities on these shores, Best Buy is turning up to plant its flag after a torrid couple of years which many commentators see as proof of an irreversible decline in high street retail.

It's tough to disagree with that assessment. Specialist retailers in the UK have been squeezed from all sides in recent months. The core gaming audience, more tech-savvy than other market segments, have flocked in increasing number to online stores like Amazon and Play.com. The casual audience attracted by the Wii is more likely to shop at a mainstream retail outlet such as catalogue retailer Argos than to walk into a specialist store. Even the launch of what should have been a pillar of strength for specialist retail last Christmas, in the form of Modern Warfare 2, was a bitter pill, with supermarket chains muscling in and discounting heavily - resulting in queues of gamers forming outside Tesco and Sainsbury supermarkets, rather than outside specialist stores.

To cap it all off, sales of boxed games have levelled off and are even declining in some quarters. Publicly, publishers and retailers alike dismiss this as a symptom of recession; privately, many worry that the recession has masked a more fundamental shift in consumer behaviour, which would mean that the meteoric growth in boxed sales seen over the past two decades will not return when the economy recovers. Instead, gamers' money and, more importantly, their time, is being absorbed by new platforms with new business models - business models which don't feature retail anywhere on the value chain.

In the face of such odds, the UK's own specialist retail behemoth, GAME, has been forced to start closing down stores and has lost its long-serving CEO. In part, the store closures are logical - aggressive acquisitions and expansions have left GAME in the odd position of having multiple stores in many UK town centres. It's still a stark reminder of how things have changed - less than a decade ago, GAME was easily the most powerful company in the UK industry, capable of dictating its own terms to publishers and holding the success or failure of even high-budget titles in its hands.

What, then, possesses Best Buy to throw its lot into this market - a sector where even the market leader is being forced to downsize?

There are two key reasons. The first, of course, is the corporate drive for expansion, driven by the stock market; corporations cannot stay still, but must instead deliver growth on a quarter by quarter, year by year basis. If that means expanding into a market as unappealing as games retail in the UK, then so be it - however illogical that may seem on the surface.

The second reason is revealed fairly clearly by Best Buy's statements this week. It doesn't just want a slice of the UK games market - which, of course, the company would percieve simply as part of a wider home entertainment offering. It also wants a slice of the second hand games market.

If high street retail of games is facing tough times, then the sliver lining - from the point of view of the retailers, at least - is the second hand games business. The pre-owned market is booming, delivering huge turnover - every penny of which is profit. Pre-owned games have become more and more prominent in specialist stores, and even non-specialists are getting in on the act. That's unsurprising; many customers admit to treating pre-owned games as a glorified rental service, which means that the same game can pass through a retailer's shelves many times, making an order of magnitude more profit for the store as a second-hand title than it did when it was sold brand new.

Unsurprisingly, games publishers aren't terribly happy with the situation. Several have tried to cut down on the second-hand market through tactics such as EA's well-known "Project Ten Dollar"; others have simply been outspoken in their denunciation, some even arguing that the second-hand market is more damaging and insidious than piracy itself.

Consumers tend to react badly to attacks on the second-hand market, and quite rightly so. It's called different things in different countries, but the concept of "right of first sale" is enshrined in the law of many nations, and in the mentality of every consumer. If you buy something, it's yours, and you're entitled to sell it on if you choose to do so. Attacks on the preowned market are seen as attacks on a basic consumer right - and to some extent, of course, that's exactly what they are.

On the other hand, many savvy consumers are also equally unhappy with the actions of retail chains in this regard. Stores such as GAME and its ilk are arguably abusing the concept of "right of first sale"; rather than creating a free market for second hand goods, they create an artificial system in which they cream off a huge profit from each game re-sold, and often undermine brand new sales by placing second-hand copies (which have higher margins for the retailer) next to them for only two or three pounds less. It's an entirely legal practice, but a morally dubious one.

The distinction is important. Few in the publishing or development industries have a problem with, for example, the existence of Amazon's Marketplace, or Play.com's PlayTrade, or with eBay itself. Customers selling their games directly to other customers is a healthy expression of a free, self-regulating second hand market - and while each of those companies takes a small fee from each transaction, the actual prices are set by the buyers and sellers themselves. Not so with pre-owned systems at high street retailers, where the retailer simply sets a price that undercuts the brand new copy while keeping as large a margin as they possibly can - and, of course, giving the customer who sold them the pre-owned game as little money as they can get away with.

That's capitalism, of course, and the reality is that if customers wanted to break out of that cycle, they should start selling on eBay, or on Amazon Marketplace, or on another equivalent service. Publishers, meanwhile, will be sighing loudly as Best Buy becomes the latest retailer to trumpet such a second hand service from the rooftops - although whether they'll ever develop the backbone required to start actually punishing so-called business "partners" who treat them in this way is another question entirely, of course.

It may not even be the most relevant question, however. Reading Best Buy's pronouncements, in the wake of GAME's tough results and announced closures, gave me pause to wonder - just how many GAME stores would be left in the UK if publisher pressure actually forced them to shut down the second-hand business, or simply start running it less abusively? Would Best Buy even bother making games into a serious part of their offering, if they couldn't profiteer from second hand sales? Would HMV?

It's hard to say - but this, I suspect, is the sword which game publishers feel hanging over their heads whenever the topic of second hand sales is raised. They hate it, of course - but it's not the power of high street retail that forces them to tolerate it. On the contrary - it's the weakness of those retail chains, their commitment to games propped up mostly upon pre-owned profits, that stays the hand of the publishers. Is the games business better off as it is now, with major chains like GAME and HMV selling pre-owned games; or would it prefer for those chains to be vastly diminished, games relegated to a dusty corner of HMV and GAME itself relegated to a dusty corner of the shopping centre, but selling only brand new games? Right now, the former is the lesser of two evils - but the fact that any such choice is having to be made at all is another nail in the coffin of high street retail, because one day, the balance won't be quite so clear.