"Vast majority of pre-owned sales support new releases" - HMV

Publisher views are mixed on issue, says Simon Fox - but digital distribution is a "serious threat"

HMV UK & Ireland CEO and MD, Simon Fox, has told he believes the "vast majority" of software traded in stores through the pre-owned system contribute to the sales of new games.

Talking in the final part of an exclusive interview, Fox explained that consumers believe they should be able to re-sell items the purchase, as they can with anything else.

"I understand where the publishers are coming from - on the other hand it's hard to find a market where I think the original owner/publisher/manufacturer benefits from the future trade of products - whether it's the second-hand book market, the second-hand furniture market or the ticket resale markt," he said.

"The fact is, in every case, the manufacturer of whatever it might be makes their profit from the original sale, transfers the IP or ownership to the buyer - and if the buyer then chooses to sell that item, it's up to them. You don't hear book publishers asking for a share of the second-hand book market. I've never heard that.

He likened the process to the Amazon Marketplace or eBay, where people trade among themselves.

"I think it's slightly odd that publishers should somehow think that they have a claim to profit that a customer might make on a second sale.

"As a retailer all we're doing is providing an intermediary service, just as eBay is, or Amazon is. We genuinely think that actually what it does is enable people to buy new product - and it allows them to trade-in previously-played product to get a credit and put that back into the games market. The way we've certainly geared our offer is that it's far more advantageous for the customer not to take cash, but to take a credit that's then used in buying another game.

"The vast majority of our pre-owned sales are to support new releases," he added.

He admitted that publisher's reactions had been mixed on the matter, but denied that relationships had been damaged as a result.

"No, I don't believe it has," he said. "I've met both types - publishers that genuinely think what we're doing is wrong, or if it's not wrong that they should be benefiting from what we're doing. And others feel much more relaxed.

"As a retailer we feel it is something that our customers want - we weren't first into this market, we were a late-comer. It's not a big part of our mix, but it is an important part of our mix - and what we do is, in some degree, part of way of competing with supermarkets on pricing.

"By providing a trade-in offer on a new release you can make that new release affordable, perhaps even cheaper than the supermarket price - but it's part of a deal. They bring something back, and in exchange they can have the latest product at a very competitive price."

The full third part of the interview with Simon Fox is available now. Parts one and two are also live.

Latest comments (21)

Sandy Lobban Founder, Noise Me Up7 years ago
In my own absolute personal opinion,

You can make the argument in many ways, but I dont think its good for any business when the retailers that they supply, end up undercutting the very products that they make money from the first time around.

Id like to see the same argument about books made with ebooks. Im pretty sure it wouldnt stand up and you would get exactly the same response from book publishers if you were reselling their ebooks on USB sticks in stores for a lesser price. As a consumer why would you ever buy a new one if this was the case? We could just keep on circulating and reselling the first few copies until everyone in the world has read it, right? Im pretty sure if we all done that, then there would be no motivation for authors to produce work in that industry either.

The game experience as with any software/digital content simply does not deteriorate, regardless of you calling it second hand. Its just about taking a responsible role in the supply and demand chain between artists and consumers, if you want that chain to continue to exist.
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John Donnelly Quality Assurance 7 years ago
Car dealers do it all the time Sandy
They fund part of the cost of the new car with the trade-in value of the old one.

Some people will never own a new car, others wont buy used.
Its the same with games in my opinion.
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John Bye Lead Designer, Future Games of London7 years ago
"it's hard to find a market where I think the original owner/publisher/manufacturer benefits from the future trade of products - whether it's the second-hand book market, the second-hand furniture market or the ticket resale market"

That's a really spurious comparison -

- Second hand books and furniture are likely to be worn from use, making them visibly inferior to a brand new copy, unlike videogames which (unless badly scratched) are essentially identical to a new copy.

- Waterstones don't sell used books alongside new ones at a small discount and encourage people to buy over-priced used copies rather than new ones because they get a much bigger margin on them. This pretty much only happens for videogames, which I think is why the games industry is so upset about it.

- As for ticket resale, in some places that's actually illegal, and event organisers generally try to discourage or even prevent it (eg by requiring photo ID matching the name on the ticket), so that's a really bad example for him to use!

Edited 1 times. Last edit by John Bye on 5th October 2010 11:51am

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Denis Dyack President, Silicon Knights7 years ago
The used car dealership analogy does hold up as the same as key fundamental differences exist:

1) Many of the dealerships are owned by manufactures, not so with the games industry
2) Cars deteriorate with use, games do not

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Wesley Williams Quality Assurance 7 years ago
I'd be interested to find out why HMV don't sell pre-owned CDs, DVDs or Blu-Ray movies. The point about bookstores made above is also pertinent. This is the only entertainment medium where retailers sell pre-owned stock alongside new stock. They only do this for one reason, to line their own pockets.

However, any steps that publishers/developers take to combat the moves at retail are only temporary fixes. The real solution is digital distribution, but only if the companies selling the games don't price consumers out of the market.
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Pete Leonard , Amiqus7 years ago
These are all valid points but there is one aspect that needs to be considered. And this is a point of view as held by your average casual gaming consumer who will not be familiar with the true difficulties that developers like yourselves face in terms of trying to develop decent revenue streams from your product despite the fact that the games these days cost tens of millions when it comes to mainstream blockbuster releases.
Games at brand new price cost significantly more than films, music and books. Music can be listened to again and again and so good value for money can be argues there, films may be watched multiple times but generally they only come in at 10-12 here in the UK on DVD, and books are similar in the vein to film (and at around 7 for a major book release on paperback).
I understand that many games actually do offer massive value proposition - but that proposition is only appreciated by the more hardcore gamers like myself, many people play something like Assassin's Creed for a few hours, never reach the end and then they don't pick it up again, or at least don't see the value in the product costing 40. I'm not saying it's not worth it, but I am saying most consumers don't play to that length therefore don't see the value for themselves.

However many consumers do have a couple of games they play again and again (like FIFA or CoD). I agree with ideas like digital distribution and perhaps even some radical new monetisation of the industry to balance it out fairer (for example those that continual watch 24 continual pick up each new series).

But I don't think attackingt he 2nd hand sales in this manner will solve the problem, because the ultimate payer for this is your end consumer.

I think 2nd hand sales are still going to be around for a number of years until everyone naturally adopts online purchasing (like we see with itunes and music sales now). so the best thing is to do as Bioware have done with ME2 - release a great game, and continue to release GREAT content that your customers simply won't want to pass up......regardless of whether they bought the game new or used. and continue doing that for as long as it is popular. In many ways they could really hold off ME3 and add a whole tone of new DLC that as long as it is offering a few decent hours of play for a fiver a time, would not only be very profitable, but would really develop the franchise just as we see with successful TV franchises.

Just my tuppence-worth!
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Richard Alpagot7 years ago
Get rid of the second hand market and watch piracy rise... Lets face it, games are not cheap (i'm not saying they are not good value though!). I think the important factor is WHY people use the second hand market? I'm sure most people would prefer something new over something used. It tends to be down to cost.

@Pete Leonard I totally agree with you on the DLC front. I've had friends go out and re-purchase a game to continue with the new DLC. They re-buy second hand but then pay for the DLC.

I'd like to see some stats on how well 'limited edition' or 'special edition' units in retail sell. These are usually at extra cost with extra features. These are not as easy to sell on second hand if the original purchaser has used the in game content codes etc for the extras. Retailers tend not to like that.

Edited 1 times. Last edit by Richard Alpagot on 5th October 2010 3:19pm

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Really good points made by all, I reversed my opinion multiple times as I scrolled down the page :P The only thing I know for sure is:

(a) Anyone has a right to sell what they own. Attacking the rights of consumers by sneakily shifting "own" to "licence" in the EUAs or making it illegal for consumers to sell on their property is a nasty idea, bordering on class warfare.
(b) Gaming has a stupid high cost of entry for most consumers. Most gamers are aged 25-40, and some people assume that's because we're a 'mature' industry. I think it has a lot more to do with who has the cash.
(c) Retailers charge an insulting amount for pre-owned and do it precisely because they never degrade - there's no such thing as 'used' games, only used boxes and manuals. Walk into any GAME, the reality is that our new titles are there simply to feed into and create the second hand market, which they own completely.

On balance, the fairest thing I can think of is not really very fair at all: make it illegal to resell used games for more than 60ish% of the original RRP. Or give us a cut.

But then you have Tescos and Asda distorting the market at the bottom through purchasing power, which hits the retailers hard, so that means..... ick...arg.... oh fuck it, I'm scrolling back to the top again.

Edited 1 times. Last edit by Barry Meade on 5th October 2010 3:19pm

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Jarryd Key Analyst 7 years ago
Instead of discouraging used sales, why not encourage new sales? As a consumer, I view support after the sale and exclusive content for first purchasers as added value.

It's rare for me to buy a used game. Out of roughly 100 or so games I've purchased this generation, less than ten of them are used. However, I will go down that path for a couple reasons. First, some games simply aren't worth their price tag. No amount of bullying will make me pay $60 for a game that I feel is only worth $40. Second, some games go out of print and buying used is my only option. What am I to do if the 2nd hand market is quashed by publishers?
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Phil Elliott Project Lead, Collective; Head of Community (London), Square Enix7 years ago
A couple of things that also sprang to mind for me, when looking at comparisons to other media. Firstly, that boxed product, particularly for music, has been decimated by piracy and digital distribution - made possible in part due to the invention of the mp3 format. No real comparison exists for games.

And secondly, on the subject of games never getting visibly old - well, that's not true on a couple of levels. Firstly, try playing anything from five years ago and telling me the quality hasn't faded (or, in other words, that new games look and play better over time), and secondly, what about those titles with key multi-player content built-in... what happens after several years when the servers are shut down?

I'm not an advocate for either side - I know many developers that could seriously have benefited from some kind of pre-owned revenue split, but it's not quite as black and white as it might seem.

And, frankly, I know a lot of gamers who wouldn't play anywhere near as many new games if they weren't able to trade in old ones.

It's a tough debate.
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Mark Kelly Games/Level Designers 7 years ago
I'm not sure the "games are too expensive, so used games make them effectively cheaper" argument holds that much water.

While HMV doesn't have the buying power of, say, Tesco, it probably has much better buying power than Game, yet their prices are very similar- where is the incentive for HMV to attempt to undercut their rivals by lowering new prices, when they can keep them high and in turn keep their used margins up?
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James Ingrams Writer 7 years ago
Ahhh! Now we know why we see AAA PC games releases down 60%+ in 5 years - no secondhand sales!
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Lewis Brown Snr Sourcer/Recruiter, Electronic Arts7 years ago
I can certainly see both side being both in the games industry, someone who funds new sales by trading in finished games and having spent 5 years as a retail manager.

Ultimately its a free market economy and like any industry things get reused, sold on think it would be foolish to think this would be easily regulated.

In the end I dont see a solution in the short term and suspect this will run and run......
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Lots of good points made above on both sides of the argument. But Barry Meade made an interesting point about there not being used games, only boxes and manuals. I remember when games used to come in cardboard boxes. Second hand games looked like second hand games. Now games are packaged in plastic, with clear plastic protecting the printed materials. These don't deteriorate. Second hand games look exactly as pristine as new games.

Solution. Package games in cardboard again.

Okay, that's a bit flippant, and there are flaws in this "solution". But to return to the car analogy, cars are not built to last. Games in custom plastic packaging are.

If any of the big publishers takes this on board, I'll let you know where to send the cheques...
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Drew Dewsall Editor, Game4Anything7 years ago
Calling for Digital Distribution is one thing but consumers would need to see a reduction in prices as the physical media expenses would be eradicated.

Unfortunately the DL games that are already available on XBL and PSN do not bear this out. We see games without any physical media still costing more than the same title in shops.

Case in point Football Manager handheld was 24.99 online yet a friend was able to purchase it on Amazon for 4.99 where would you shop?

What the games industry needs to realise is that almost 50 is a huge outlay for most people. I would support Digital Distribution if there were significant financial savings for the end user.

On a slightly different tone, surely Digital Distribution also means the end of taking a game around to your mates for the evening!
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Problems with games are the relatively high price, compared to the short shelf life (when compared to other products). With cars, you own it for years - then on-sell it.

Most of my 'hard-core' gaming friends trade their games in. Buy it for full/reduced price, finish it ASAP (within a week, if not less), then sell it ASAP.

I see the real problem being the availability of 2nd-hand versions of games, within a week or two of the retail launch date. If it was illegal to sell 2nd-hand titles within say ... 3 months of the retail launch, that would fix the majority of the issue.
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Shane Sweeney Academic 7 years ago
Consumers by definition dont find enough value in games, thats why we have a booming second hand and piracy industry.

The level of second hand sales is the metric for consumer price point acceptance.
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Darren Thomas Production Journalist, Birmingham Post and Mail7 years ago
Good points, but once a consumer has finished with a game, what are they expected to do with them, keep it gathering dust? The only reason why there's a second-hand market is they have some resale value, if games became devalued like cds in the nineties and books in the eighties we'd see them cropping in charity shops.

If the games industry wants to be treated like other software publishers, perhaps the endless re-boots should be sold as upgrades like the rest of the industry, where a customer hands over last years release and gets a meaningful discount on the current release, the publisher will of course take the games to recycle as they see fit.
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Stephen Woollard Online Infrastructure Specialist, Electronic Arts7 years ago
I've said it before and I'll say it again - I believe the vast majority of publishers have no problem with people selling their games on ebay and the like. That is not the issue.

The issue is retailers ordering less new stock because they know they can endlessly resell used games for almost the same price as new and get much more profit from them. Matey from HMV may claim that used games drive new game sales, and he may have a point to an extent, but what it boils down to is second hand sales benefit the retailers more than either consumer or publisher.

The endlessly trotted out analogy about cars and books holds no water either - books do not require an incredibly expensive backend infrastructure to operate online, and while cars do require some infrastructure, the car user pays for that in the form of fuel, tax, parking costs etc. Additionally as already mentioned both of these items degrade with age, whereas games do not.

@Shane - "Consumers by definition dont find enough value in games, thats why we have a booming second hand and piracy industry." People pirate stuff because it means they get it for free, no other reason. Free is not an acceptable price point for anyone in the general scheme of things. The price of "pre-owned" games is set by the retailers not the consumer. The consumer will pay as little as they can, which is usually a little less than RRP but then if they save 5 they think they've got a bargain, and for some if they can't pirate it they won't play it. This is also why Tescos et al are starting to use games as loss leaders to drive people into their electrical departments (let's see how long it is before the "specialist" retailers start whining about that).

To say that people don't find enough value in games is a bit of a generalisation and one that is frequently trotted out to try and justify piracy but consider this - there are still thousands playing Battlefield 2 at peak times; are you suggesting those people haven't gotten more than the price they paid back out of the game, considering we and GameSpy are still shouldering a hefty financial and technical burden for providing stats, login services etc?
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Roydon Wagner7 years ago
That claim that bookstores never complain about preowned is forgetting one thing. Bookstores do not place preowned books side by side with new books and point out how its exactly the same product only cheaper.

This is what big videogame retailers do. Furthermore they remind customers of it at the counter if the customer somehow missed that he has picked up a new copy when there is a preowned copy for slightly less and they are basically the same anyway.

Also I agree with everyone else's points about how videogames don't really deteriorate like many other products.

However publishers won't get any sympathy from me about their lost profits to preowned. From my perspective they have the ability to fix this. Customers both buy and sell preowned because they don't think the high cost of games is worth it. They want to pay less and they want some money back because they finished the game and it wasn't worth full price for a couple of months play. Knowing this all a publisher has to do to both knock out preowned retailers and get the customer on their side is to sell their digitally distributed products at a cheaper cost. But they won't, continually we are seeing digital copies of games like on steam at the same if not higher cost than their real world counterparts.
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Andrea Gargano7 years ago
From a publisher standpoint, sales to retailers are the biggest problems.

Think this way: I am a retailer, I know that without used copy I have to buy 10 copies of a hit game. With used I have to buy 5 copies of one hit, than other 5 copies of another game (or the next hit), i can trade "used" game, make more money on them and have more choice in my store ad make, generally, more money.

Who are the publishers that gonna lose or win from this situation?
I think big games from big publishers will lose copies, other games (maybe not even considered before) from other publisher will gain copies.

Of course there is a mixed feeling on this matter, depends with who you speak to.
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