Sony patent speculation leads to GameStop share drop

Analysts call wary trading an "overreaction" and doubt limitations to 2nd hand market

GameStop's share prices closed at a loss of five per cent last night after speculation over a Sony patent filing regarding second hand games affected trading.

The retailer's stock has fluctuated considerably over the last six months, climbing over the Christmas period before dropping by $1.30 a share to around $24.40 over the course of yesterday's trading.

The news of, and rumours surrounding, yesterday's patent centred around a tech patent which would potentially see Sony closing out the second hand game market by using RF tags to tie discs to a single console.

Despite Sony refusing to comment on the patent filing, many assumed that the next PlayStation would be fitted with the tech, a move which would be a considerable blow to GameStop's used game business.

Various analysts have advised on the phenomenon, with most urging that a pinch of salt be taken with any suggestion that Sony could be looking to shut down second hand sales entirely, something which the company has previously said it has no interest in. In fact, given that a similar cycle of news and share price damage occurred before the launch of the PS3, many have labelled the GameStop stock as a smart buy before the new console cycle begins.

"While it is possible that Sony intends to block the playing of used games, we do not think it is a likely result," read a note from Wedbush analyst Michael Pachter.

"Perhaps most importantly, Sony is on record as saying that it has no desire to limit consumer choice. Our more rational view is that Sony intends to put the ID matching technology into its consoles to provide individual publishers with the ability to block the playing of used games. The news has negatively impacted GameStop shares, and we think the reaction is overblown."

Whilst the market in second hand games is considered by many to be damaging to the business of both platform holders and publishers, many retailers still consider it an important source of income, leading to both tensions and attempts at commercial bridge-building between the two parties.

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Latest comments (13)

Daniel Hughes Studying PhD Literary Modernism, Bangor University5 years ago
I doubt Sony will go for the whole-sale blocking of second-hand content, but as Pachter's suggestion shows, there are numerous ways they could implement this patent without completely wrecking the second-hand business. Personally, I think if any large publisher has the chance to block second-hand sales of their games on one system, they'll jump at it.

If Sony are implementing this, they should find a way to please everyone, which is no small ask. Perhaps allow retailers to sell cards/codes with second-hand purchases, which then disables the block for that specific title. Publishers make money from the code, retailers continue to get their slice of the pie, and gamers can still trade in their titles. The big question with that scheme, of course, is how feasible is it? How can you balance the costs so that publishers and retail get their cut without significantly upping the price the consumer pays?

EDIT: Of course, the codes can also be sold as DLC, as has been done in the past to unlock content that only comes with the 'new' version of the game.

Edited 1 times. Last edit by Daniel Hughes on 4th January 2013 12:28pm

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Andrzej Wroblewski Localization Generalist, Albion Localisations5 years ago
When I buy an album -- is anyone trying to force me into a notion that I only bought the right to listen to the music instead of buying the CD with it?
When I buy a book -- is anyone trying to convince me that I can't re-sell it or borrow it to a friend?
When I buy a painting -- would anyone dare to prevent me from auctioning it?

The way I see it, things are getting way to close to antitrust laws violation. Instead of backdooring some shady paraacts like ACTA, governments need to sit down and discuss the whole "licensing" topic. Mainly because it's in breach of one of the most principal foundations of the law: the right of ownership.
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Adam Campbell Game Production Manager, Azoomee5 years ago
Interestingly, if the EU has anything to do with it, this type of thing could become illegal at least for the region...
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Show all comments (13)
Hugo Trepanier Game Designer, Behaviour Interactive5 years ago
Sony could presumably block used games only if all other major console manufacturers choose to do so as well. Otherwise you can expect massive amounts of customers to switch for another console that allows it and this would result in major losses for Sony.
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Craig Bamford Writer/Consultant 5 years ago
Adam makes a really good point. Wouldn't it be borderline dangerous for Sony to wilfully block a legally recognized user right? Unless there's a specific EU version that has this functionality taken out, it seems like more harm than good, especially considering Sony's playing catch-up right now.
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Greg Wilcox Creator, Destroy All Fanboys! 5 years ago
So, last week i lent my brother Prometheus, The Dark Knight Rises and The Host on Blu-Ray. I can only imagine what would happen if Sony decided to tell me I couldn't do that any longer with their upcoming console. I can't see Sony (or Microsoft for that matter) locking out used movies because those are sold, traded and lent far more than games are. I'd also imagine the outcry from movie owners who don't care for any streaming media (because, hell we ALL do not have high speed connections) would make them think twice (or once, because it seems that no thought at all has been done when it comes to lower-tech users).

Even if they're "floating" this as a test, it's a lousy move. Unless they offer it as an option (and I'd LOVE to see who would opt-IN to this sort of deal)...
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Richard Gardner Artist, Crytek5 years ago
I can understand where people are coming from, not been able to sell something is just silly. But when you walk into HMV do you see walls of pre-owned CD's? Do you walk into Waterstones and see walls of pre-owned books? In contrast the dominant product in nearly all games retailers is pre-owned products. I find it very frustrating walking into games shops to find pre-owned copys placed in front of new games, I have even seen pre-owned games put in dedicated publisher stands which I believe are paided for.

The only explanation I can think of is the pre-owned market is different in Games because games are so expensive, a pre-owned CD or Book is only going to save you a few pound and for the retailer its probably more hassle than its worth with very small margins. But games retailers can often make 10-30 on each pre-owned game sold. With only a few pound of the retail price.

I think the problem with pre-owned games is not so much the concept of pre-owned products, who is anyone to tell you what you can and can't do with something you have rightfully purchased? But looking at what retailers have done to the market, it puts a lot of pressure on Manufacturers, Publishers and Developers to do what they can to survive.

Yes you have your Call of Duty's that print money, but the majority of the industry struggles to simply break even.
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Klaus Preisinger Freelance Writing 5 years ago

HMV might not sell used books and CD, but there is no shortage of stores which do only that. Steam does not have used sales and preowned copies. But when I look at Steam today, I do not see games with prolonged tails to their sales, I see 75% discounts. Beyond getting players into the franchise in time for Crysis 3, there is no money to be made by selling Crysis at 3.5. A used copy would have the same effect.

Sony is eliminating more than pre-owned copies with their technology, they are also eliminating the act of lending a copy to a friend. This is pure poison for the perceived platform value. We are in the age of social gaming and multiplayer, however this technology seems to imply that people have stopped interacting from person to person and now only interact via the provided gaming network service. That is clinically insane.
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Apologies if I am repeating what may have been commented on - but I think the Sony patent was a 'flag pole' move (raise an idea up the flag pole and see how many people salute it!)

I am in no doubt that Apple, Nintendo, MS and Sony (and the rest) will deploy by 2014 'limited usage' parameters to all their future content and media players. This will be married with more extensive Cloud storage features (linked to online accounts), and the attempt to 'lock' users into one kind of service provider. This all may be overshadowed by developments in social media, where more and more sites try and close down the 'free' element of their service to a pay-for-premium service (remember Istagram?)

Its up to the consumer to prove what is acceptable and what is unacceptable - regarding content control, the hidden Trojan-horse inside the Wii-U will be the next big news story, before E3 however!
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John Bye Lead Designer, Future Games of London5 years ago
@Klaus - the point is that although there are second hand book and CD stores, they're generally small independent stores that sell nothing but used product. As Richard said, you don't see HMV / Waterstones selling second hand CDs, DVDs and books alongside new ones, but they quite happily sell second hand games alongside new ones, often devoting more shelf space to used than new games.

Personally I have no problem with people selling old games to CEX or on eBay or whatever. But when our biggest specialist retailers like Game and HMV and Gamestop sell second hand games alongside new ones, often for only a few pounds less, taking up lots of shelf space that could otherwise be devoted to stocking a wider range of titles, and staff are encouraged to try to talk people into buying a used copy instead of a new one when they reach the till, it's not surprising that a lot of people in the games industry aren't happy about it.

As for the original story, I'd be surprised if Sony were planning to cut off used sales entirely, as a) it's likely to be against EU rules, b) they're still heavily dependant on specialist retailers that rely on used sales to stay afloat, and c) if Microsoft don't follow suit I'd expect it to pretty much kill the PS4's market share.
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Andrew Goodchild Studying development, Train2Game5 years ago
Tying a boxed game to one console would have other problems outside second hand or lending.
Most people I know who have had a 360 or PS3 since the early days have had to at least have the console repaired, in many cases replaced. I am lucky to be on my original 2006 360, albeit with the motherboard and DVD drive replaced by MS due to RROD, but I know people who have got through 3 or 4.
Now my son is nearly 8, he already wants his own Xbox, I suspect in a couple of years he will have, and games will need to move between the 2 machines, as is the case with friends who have multiple Xboxs or PS3s in the house.
If my machine breaks, and none of the games work on a replaced console, that's a lawsuit waiting to happen. In the US, where class action suits exist, it is a foregone conclusion, unless there is careful provision. Microsoft clearly thought long and hard on how to allow multiple users access to digital content on one machine, but the purchasing account to still have access on second machines, and they were then pushed to allow transference of licences between machines.
If a family has a shared machine, then someone moves out (college, divorce etc) and gets a new machine to meet their content, it's a similar issue.
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Nick Parker Consultant 5 years ago
I think the long term prospects of pre-owned games are not positive. Whether we like it or not, games will be delivered from the cloud and there are questions over whether there will be any service supporting a second-hand market unless it is a dedicated trading market stall with a recognised structure allowing a percentage of revenues to find its way back to the original publishers/developers. Just by examining the GameStop PC games strategy of buying Impulse for download and Spawn Labs for streaming; if these services take off for, then surely second hand sales as a share of total GameStop revenues will decline.
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Klaus Preisinger Freelance Writing 5 years ago
If you can't stop Gamestop, then beat them at their own game. Use services such as Steam to buy back digital copies of games from consumers and offer them credits in exchange. If Gamestop can still sell your game at a discount, then so can you. If Gamestop has proven anything, it is the fact of the overall bottom line in all this being a big black one. Create an institution to front the buyback costs and distribute the revenue, same way the music industry does with the pennies they earn from each radio play and discount the game you just bought back bundled with DLC, hoping seller's remorse will drive customer's back.

Take a hit to sink the hooker, that is all Gamestop does. Gamestop's ability is to act on a unified cross-publisher level. If publishers learn to act on the same level, Gamestop will not know what hit them.
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