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Is it all over for pre-owned video games?

Second-hand game sales remain significant, but the recent decline is by no means temporary

The pre-owned games market has been rapidly declining over the past three years.

To be clear, people are still buying second-hand games. Retro games, eBay, even your local car-boot sale; there's a community of active consumers picking up classic titles that have been previously owned. What we're talking about is the trade-in economy. Professional retail chains like GAME, CEX and GameStop, which will take your games and give you credit against the next one.

It's the practice that one former publishing boss described to me as the, "great evil in video games." Even former EA executive Peter Moore acknowledged that legacy sales of games were almost non-existent because of the trade-in market.

One of my first big stories when working for the British trade publication MCV was on Asda (the Walmart-owned UK supermarket) moving into pre-owned. The head of Asda's games department hadn't meant to tell me, because he had yet to discuss it with the company's partners, including games publishers. The reaction was so angry, I had a distraught Asda PR representative begging for me to clarify that the company wasn't going to sell second-hand games -- six months later, that's exactly what it did.

"One former publishing boss described pre-owned to me as the, 'great evil in video games'"

The hatred publishers have shown toward the pre-owned market centred on the fact that retailers were no-longer purchasing older (legacy) stock from distributors, and were instead buying it from consumers and selling it on. Developers and publishers weren't seeing a single penny from those sales. If you want a reason why publishers became wary of short, single-player experiences, this is one of the most important.

But not everyone hated it. Indeed, some smaller publishers acknowledged it as a necessary evil. With consumers unwilling to pay full price for boxed games, retailers had to sell products for below recommended retail price to compete (and still do). Pre-owned was a means for specialists to still bring in a healthy profit.

And then there was the argument from the retailers, which was that second-hand trading increased sales of new games. Consumers would effectively buy a game, play it until completion, and then trade it in against the next one. It was effectively a glorified rental system, and there was certainly a community of gamers who did this frequently (and still do).

1

GameStop says digital pricing is hurting pre-owned sales

Now, however, pre-owned is in sharp decline. In the UK, Kantar reports that pre-owned software was worth £123 million in 2015. That dropped by 3.3% in 2016, then a further 15% in 2017, and more than 30% in 2018. According to Kantar, sales of pre-owned games are now worth £67.9 million. The data firm told GamesIndustry.biz that the proportion of pre-owned video games is 20.6% of total physical games sold over the past 52 weeks, compared to 27.2% last year (UK market only).

In its last financial report, the UK retailer GAME reported that pre-owned (including hardware) dropped 20.9% over the prior year.

And it's not just in the UK. In the US, second-hand sales are also dropping, albeit at a slightly slower pace. In 2017, GameStop's pre-owned sales fell by 4.6%. And for it's latest financial year, pre-owned sales are down 13.2%. That decline has been accelerating, with pre-owned falling 21.3% during its fourth quarter. The firm states that this is driven by pre-owned software falling, as pre-owned hardware actually increased year-on-year.

What is causing the decline?

It's all structural. Fewer gamers are trading-in products, and therefore there are fewer second-hand games and consoles that are available to sell. This is partially linked to the decline in physical sales, and the shift towards digital -- a trend GameStop also cited in its latest financial report -- but also the rising popularity of games-as-a-service. Consumers are simply playing games for longer, with fewer reasons to trade them in.

"We are being really clear with the market and shareholders that this is a structural decline"

Martyn Gibbs, GAME

But there's another big reason, and one that GameStop's Shane Kim places front and centre.

"It does have to do with how customers can get some of those older titles, the very inexpensive titles that you can get through either subscription memberships or online in a pretty heavily discounted mode," Kim observed in the firm's latest financial call.

Indeed, aggressive digital sales means that consumers are increasingly buying legacy titles as downloads, as opposed to second-hand games in stores. This is forcing retailers to target other business areas for growth, reducing their activity in the used games space.

Can it be turned around?

Interestingly, the word from retail is no -- at least, not in the long-term, though the arrival of new consoles in 2020 might cause a temporary uplift.

"There are things that we can do, and we are doing, in terms of better promoting our trade-in offers," GAME CEO Martyn Gibbs told us. "But this is a structural decline, and management isn't going to put its head in the sand and pretend this isn't going to continue.

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GAME says that pre-owned's decline is going to continue

"Obviously, if new consoles come to market, we will see trade-in and pre-owned become a materially important part of the market again. There are things we can do, and we are doing, to soften that decline. But we are being really clear with the market and shareholders that this is a structural decline. If you have less people trading in games, you have less stock to sell, and those numbers will decrease."

Plus, with the rise in subscription services (like Xbox Game Pass) and the launch of new streaming platforms (like Google Stadia), pre-owned is likely to decline further in the months and years to come.

Is it hurting new game sales?

This is obviously difficult to judge, but it seems unlikely. Instead, pre-owned's decline is indicative of the fact that gamers are playing titles for longer, increasingly buying digitally, and purchasing fewer products generally. New game sales are being hurt by the same phenomenon, but that's not explicitly to do with pre-owned.

Pre-owned is also still a high margin business, and there's certainly a market for it. In the UK, there are still 1.8 million pre-owned customers (Kantar data), and in the US it's worth in excess of $1.86 billion for one retailer alone (GameStop financials).

Nevertheless, you can expect it to decline further and for the focus to switch onto hardware in the short-term. PlayStation trade-ins against the next PlayStation console will certainly still be a big part of retail's efforts to upgrade customers. But with pre-owned unlikely to improve outside of new hardware launches, stores are now switching their attention to more reliable growth areas. GameStop expects growth to come from its collectables business, while GAME is focused on its Belong pay-to-play gaming areas and PC accessories and hardware.

Ultimately, shelf space and promotions for pre-owned games will continue to drop. And the once "great evil in video games" will become little more than a nagging annoyance.

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Latest comments (11)

Adam Campbell Game Manager, Azoomee2 months ago
I strongly believe pre-owned games selling for near or more than new versions of the same game is a big problem. This happens at lot at CEX for example and most people refuse to buy them as a result.

Edited 1 times. Last edit by Adam Campbell on 3rd April 2019 2:23pm

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Bob Johnson Studying graphics design, Northern Arizona University2 months ago
I'd add a few more factors.

IN the US, Gamestop had some crazy promotions in 2016-2017 time frame and/or too many customers started to catch on. So much so trading in games could be a part-time job. Those ended towards the end of 2017. Other retailers in the US that had got into the used games business during the last ~5 years largely exited at the end of this same time period.. All these guys mostly lost their shirts in the trade-in business with aggressive promos.

Next, and you mentioned it, but not by name,Xbox Live and PS+. Your subscription includes an old game or two every month and some pretty well received well selling older titles pop up on the service for free download on a semi-regular basis.

Next, Ebay and Amazon. I'd like to hear how much of the used game business has shifted to these online marketplaces. I imagine that data would be somewhat hard to come by if you aren't Amazon or Ebay. But what I see is used games are cheaper to purchase on these services than at your Gamestop etc and sellers get compensation back comparable to what a Gamestop (or other store) gives you except you get cash instead of trade-in credit. The friction to selling your game online is at an all time low. An app like the EBay app makes it super easy to list your item, take a pic, and print out a shipping label. KEep a small stack of padded 6"x9" envelopes and some shipping tape in your closet and you can quickly sell your used games. And then just drop off the package in your mailbox when you go out the door. Compare that to the hassle of going to a store and often waiting in line and having a clerk process your trade. Online buying offers similar convenience. Type in the game you want, up comes lots of people selling it, quickly look for best price and condition and seller reputation and press a button and it is at your house in a few days.

Next factor is the rise of Fortnite. I couldn't write a comment without including this scapegoat. But it's a fair pt that many many people are involved with this game and that a person only has 2 eyeballs and so much time. Also fair pt is the price sensitive customer likes free even better than spending a bit less money by purchasing used games over new.

Edited 3 times. Last edit by Bob Johnson on 3rd April 2019 2:51pm

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Richard Browne Head of External Projects, Digital Extremes2 months ago
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Christopher Dring Publisher, GamesIndustry.biz2 months ago
@Richard Browne: Turns out there was no need to block it. Users will simply abandon it out of choice!
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Klaus Preisinger Freelance Writing 2 months ago
I cannot think of another industry complaining this hard about their product being sold used; not books, not movies, not records, not clothes, not cars, not even smartphones. Neither of which industry has been found guilty of not complaining a lot, by the way. Naturally, the games industry is the one not promoting any of their products beyond release day, or the week of release at best. All this while deep discounting everything regularly on Steam, while having agreed with console publisher's licence agreements for decades to only do discounts as part of special 'platinum' et al. editions of the game.

So maybe, just maybe, the problem is not with used sales, but in how games are sold and how much revenue is expected to happen down the road.

Don't quote me on it though, that would be a used comment.
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Richard Browne Head of External Projects, Digital Extremes2 months ago
@Christopher Dring: And fortunately digital releases have largely brought back a lot of the style of games that Gamestop et al killed. It hurt a lot of great developers coming around that circle though.
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Antoine Baker Artist/Designer/QA Tester 2 months ago
I agree with @Klaus Preisinger.

Second hand or used items don't really hurt an industry. I've never really heard of an industry toppling because of used sales. The problem is the culture of the games industry itself. The publishers (and to a certain extent, some devs) have an unsustainable, unrealistic view of the fan-bases and growth of their respective companies. The thing about a used game is that it has to be purchased brand new first. The publisher or dev doesn't even take a hit when the game is sold used. They've already made their profit (assuming if the game is good).

Gamers have certain expectations when they make a purchase of a videogame. If it doesn't meet the general expectations of those gamer's you better believe that game is going right back to the store. We have to realize that reviews, YouTube, Twitch also play a HUGE role in player perception of a game as their word carries more weight to the average consumer. Fallout 76 was a prime example of hype not meeting expectation. There are tons of used copies being sold. No one wants to spend $60 on something the general public perceives as "crap".

Most people trade in used games to buy a brand new game anyways and only bought used games if they felt it wasn't worth the premium price the dev/publisher was asking for or could not find it brand new due to it selling out. With the exile of backwards compatibility for most devices, and yearly installments of titles there isn't much of an incentive to keep a game that doesn't offer some sort of replay value.

What incentive does a gamer have to keep Madden '19 for more than a year if they can get Madden '20 8 months later for $30 off and have new rosters, modes and servers that will stay up? What incentive does the gamer have to keep Call of Duty for over a year if the new one is going to have new modes weapons and story? The industry needs to ask these questions rather than pointing fingers at a process that helps people get newer titles into their homes.

https://www.gamestop.com/weeklyad

There are literally a couple of sections in the weekly ad that try to get you to trade in your old games to get new in-stock games, new peripherals or pre-order upcoming releases... :/
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benn Employee, buff up2 months ago
Some great comments on here. I would also add that it is interesting this article comes out on the day Microsoft closed their ebook store meaning anyone with a digital purchase of a book can no longer access it. The rise of affordable digital games is great for gamers right now but what happens when sony/xbox/ninty remove the title or service and my entire 'purchase' is gone. Case in point being Sony Vita - I'm certain that I cannot access all my titles anymore but the only record of my library is on their service so I cannot independently verify what games are missing.
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Richard Browne Head of External Projects, Digital Extremes2 months ago
@Klaus Preisinger: Just to note all your parallel examples are nonsense. In the way stores act in those industries and in the way they report revenue. Go and find me a Barnes and Noble where you walk in and get assaulted by sales staff pushing a used book on you, indeed literally hide new books two weeks after the release date requiring you to ASK for a new copy. Then show me Barnes and Noble’s yearly report where profit was largely down to this. Ignorance is not bliss ; even if this conversation is now in a death spiral like Gamestop.
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Klaus Preisinger Freelance Writing 2 months ago
@Richard

I admit to being guilty of skimming on an important factor, threshold. Barnes & Noble customers may not be in the business of saving 10% by buying used. Not that Barnes and Noble does not have bargain bins, they very much do. So if somebody could prove to them it was worth the effort to get into used books, make no mistake, the effort would be made. At the other end of my examples, cars, there is no shortage of dealership inviting you to an unveiling and take the other one off your hand. There is no shortage of small business cards on your car after returning from the supermarket reading "we will buy your car, call this number". A certain amount of disposable income might make you immune to searching for the latest Game of Thrones book at local thrift stores, but move the financial threshold along enough and everybody is into used goods. We usually do not tear down houses and rebuild them from scratch after buying them, unless we suffer from mad lootbox money disease; but that is a condition, not the norm.

The price point of video games is such that part of the customer base simply has a tangible benefit when trading them, not just when hording them like somebody with too much money and even more empty shelf-space. Gamestop may even been a bit too unashamedly blatant in its approach. A car dealership maintains the balance between what their car company expects and what the used car business means for the bottom line of the dealership, i.e. total dependency on it. Gamestop was waving profits in the face of struggling studios. But is the customer to blame? Are used sales to blame? No, plain and simple, your middleman sucks. What better example than your own company on how to change the relationship between developer, customer, perceived value, revenue and no Gamestop anywhere in between to screw you over.
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Bob Johnson Studying graphics design, Northern Arizona University2 months ago
AS much as I want to buy new digital $60 games for some extra convenience, I just don't.

Either the resale value of the physical product is too good to pass up or the price of the game falls so rapidly that it doesn't make sense to pay $60 for something you can't trade in knowing in a month or two the game is likely to be $30.

Also I see good discounts on preorders or newly released games with the physical editions that I don't see with digital.

Thus difficult for me to buy digital. And the trade-in values or resale values of games make it so I buy more games than I otherwise would. In a way I'm pretty much renting the game in many respects. And in a way Gamestop is a game rental place.

Maybe the solution for the industry is game rentals either via digital download or cloud stream if customers accept it. Mabye customers shouldn't be locked into $60 or nothing model. Maybe it should be $10 or $20 for 2-4 weeks?
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