Wal-Mart Goes Big On Used Games

Wal-Mart is apparently not just dabbling in used games, they're jumping in with both feet. That's at over 500 stores in the US. Analysts expect them to focus on the under-$20 segment, in keeping with Wal-Mart's position as the low-price leader. Which is good news for GameStop, as they watch Target, Best Buy and others rush into selling GameStop's bread-and-butter product, used games. Best Buy is pushing the used game sales, as you can see from the photo. As new game sales have slowed, retailers are pushing the lower cost used titles as a way to keep gamers spending.

This may be great for retailers looking to goose their sales, but all it does for publishers is make a bad sales picture worse. A widespread availability of used titles means less incentive to purchase the title new. It's not like you can see wear and tear on the pixels; a used game plays just as well as a new one. The only difference is in the packaging; customers who care about that are probably buying Collector's Editions anyway, because they are, you know, collectors.

So what's a publisher to do? Publishers complain about used games, but they're certainly not going to be putting pressure on retailers to stop selling them, when ALL of their big retail customers are doing it. The online play pass is one answer, which seems to be working for EA. Many are looking at subscription models, but the market segment built around subscription revenue is the MMO game, which are busily heading towards the freemium model.

It seems clear to me that used games are becoming more widespread, which is forcing publishers to look even more swiftly to other revenue models. It's going to help keep overall dollar sales down for games, and keep downward pressure on new titles, which is going to make the chance for profitability even lower for traditional titles. Marketers are going to have to run to keep up.

Could This Stop GameStop?

What publishers would like you to think.

A recent 9th Circuit Court of Appeals ruling could derail the used game business. The court has ruled, in the case of Vernor v. Autodesk, that software publishers have the authority to prevent the resale of their software to another user. The ruling directly contradicts previous court rulings that software could be resold under the "first sale" doctrine. (The "first sale" doctrine states that companies only have the right to dictate the terms of the first sale; once someone has bought the product it can be resold without constraint. This is what allows used bookstores to sell books, for instance.)

On its face, this could stop everyone from eBay to GameStop to you from selling a piece of software you bought from someone else. Of course, publishers hate the idea of used software, so they think this is a great idea. They've been trying to eliminate used game sales for years. You know those "license agreements" included with software you buy, that no one in the known universe has ever read? Those basically say you didn't just buy the software you just bought; instead you just have a limited right to use it for a while, and you certainly can't sell or transfer that right to anyone else, no way.

You can bet this ruling is likely to be appealed, so this may end up in front of the Supreme Court... if they choose to hear it. If not, or if the appeal is denied, then we may well see some publishers taking on GameStop and telling them to stop selling used games. Or, in other words, saying "you can't make a profit any more", which is they way GameStop will look at it. Ouch.

Of course, as packaged retail software becomes more of an endangered species, publishers will be moving to subscription revenue and non-transferable online usage rights (see EA's Sports Pass, where they charge you $10 to be able to play online... doesn't matter if you bought the game new or used). So the whole issue will be moot in a few years. Which is why GameStop had better accelerate their search for other revenue sources, and try harder to move online. And also why publishers had better move faster getting into digital distribution, or risk getting left behind in sales and revenue.

Of course, there's a simpler solution: Charge less for new games. If you were paying $20 for a new game instead of $60, you'd be a lot less inclined to look for a used game. Which is where the whole Classic game category came from; after a publisher feels it has exhausted the market for a game at $60, it drops the price to $20. Maybe they could sell even more if the price was lower to start... especially if it's a digital product without any hard costs to recover. Maybe Sony, instead of spending 5 years and close to $100 million to create 1000 cars and over 70 tracks for Gran Turismo 5 before releasing sometime in the hazy future, could just make, oh, 100 cars and 20 tracks and charge $40 for it, and release it in 2 years while spending only $40 million. Then sell other cars and tracks as they are completed, as digital downloads. Nah, what a dumb idea, trying to release a game quickly and minimize risk and capital outlay.

Yet another reason why software executives are having an uncomfortable time...

Used Games Triumphant

We've heard a lot of publishers complaining about the used games market, which has been mostly GameStop up to this point. In the past few months word has come out of used game efforts in 7-11 and Walmart, handled through a rack jobber. Now the situation is accelerating, with both Target and Best Buy announcing used game programs. Not great news for GameStop, especially in Best Buy and Target offer reasonably competitive amounts for the buyback.... because instead of just using the credit to buy games, you could be buying all sorts of other things. Flexibility is worth a lot to consumers.

The greater impact is to the console game publishers. Now it's looking like nearly 50% of the retail outlets for video games will be offering some sort of game buyback program. This means even more downward pressure on new game prices, and lower sales numbers since people will have more opportunities to buy lower-cost used titles. It all adds up to a very grim Christmas, with no recovery in sight for sales numbers.

Expect the publishers to respond with more efforts to get money from consumers, like charging for online access or going to subscription models. The development model is also going to be a target; with sales numbers dropping, 3-year development cycles look awfully long and expensive.

It's a great time to be pushing free-to-play games and low cost mobile games... if you have those. If you don't, it's way past time to be putting those together.

I believe that logo up above is on the backs of video game publishers...

GameStop Doesn't Like Used Games

GameStop says they really don't like being in the used games business, according to their CEO Niall Lawlor. "We discovered the used business was a way of preserving our margins," Lawlor said. "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." Lawlor added that GameStop "evangelizes" for the industry by its existence. "We have to be in it, otherwise if you take a look at our margins you'd realize we need to be in used."

Before you weep for them at being forced to peddle used games against their will, it should be noted that GameStop sales were up more than 5% their first fiscal quarter this year, as reported by Gamasutra here. So the used game business is doing quite well, thank you very much. Why should GameStop profess to dislike this part of their business (which has a 48% profit margin, by the way)?


They're trying to keep game publishers happy; well, maybe not happy, but at least keep them from getting too pissed off. Game publishers see sales of used games as a drain on their sales of new games, since the publishers get no revenue from used sales.


EA has already taken a step to try and get around this conundrum by implementing their online pass, where you have to pay $10 to be able to play their game online. So a used game buyer will still need to give EA $10 in order to play the game he just bought online against other players. There's been some griping about this, but it seems perfectly reasonable to me. Somebody has to pay for those servers, after all.

GameStop Under Fire

So 7-11 is now getting into selling used games. One more reason to think GameStop is going to have a tough time in the future. A company called Game Trading Technologies will be stocking cardboard displays in over 3,000 7-11 locations with games priced at $19.95 or less for a variety of platforms. Yet one more downside for games sold on physical media -- someone can resell it, and the publisher doesn't get any of that resale money. Wow, just think if it worked like that in the book market, nobody would buy new books! Oh, wait...

Of course, if the publishers were selling downloadable content for these titles, then maybe expanding the audience would be a good thing... they'd get a chance to sell the same DLC more than once for a single physical game. Thus turning game resales to their advantage, instead of griping how they don't make anything from those sales. Hmmm...