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Bloated Budgets or Used-Game Stores: Finding the Real Culprit for Decreased Profitability

This post has been edited by the GamesBeat staff. Opinions by GamesBeat community writers do not necessarily reflect those of the staff.

Lately, on GamePolitics and The Escapist, I've been reading about how video-game publishers have jumped from blaming piracy as the sole cause for declining sales to a new target — namely, used-game sales. GameStop seems to be the name that pops up most frequently.

The reason why this is happening is twofold. First, they're a big corporation, and second, customers perceive GameStop as evil, anyway, so it's an easy diversionary tactic. GameStop is not a paragon of virtue, true, but it's also important to remember that it's not the real enemy. I'm not going to demonize them for having a successful, legal business model. If every GameStop-owned store went independent, it seems unlikely that it would solve the problem of declining sales. So what is the issue?

Used-game sales are an answer to that question that I'm not looking to refute, but to fully explore how they've become such a problem, you have to look at the how the industry is really functioning instead of simply following the publisher's line of argument.

 

When you buy a game from a retail store, whether it's brick-and-mortar or online, you are buying second hand already. The copy of the game is not factory direct — even if it's not "used" — and very rarely does a retailer send the publisher additional money for each sale. To put it simply, when you buy from a retailer, you are not buying from the publisher. The publisher sold the copies to the retailer and got their money long before you walked into the store or ordered it from Amazon. This business model has existed since video games became available for home purchase and, likewise, since mom-and-pop shops started reselling rental copies. So why has this become a problem if it the practice has been around for 30 years? Well, a possible reason may be digital-download services.

Services like Steam and Impulse take a different approach — one that I feel has spoiled publishers. In this case, the download service buys a distribution license from the publisher at a fee considerably less than the cost to retailers for thousands of boxed copies. To offset the lower price, the download service agrees to turn over a portion of sales, with the added benefit that buyers cannot resell games sold in this manner. Inherently, it seems a good system, and everyone benefits from it.

Nevertheless, no system is perfect, and the flaw in this model lies with publisher expectations. This has produced increased margin for the publishers, and they want to apply this mentality to retail copies as well. The problem is that they can't because it would be a breach first-sale doctrine, so they bypass it with additional, exclusive downloadable content. I should point out that I'm not saying that this was their explicit intent, but it is a possible explanation as to why it has become a big deal lately.

Now that we have a possible motivation for publishers wanting to kill off used-game sales, we can start to understand why their focus seems at best misplaced — and more often totally misguided. Used games do not magically appear on the shelves in a puff of smoke. People sell them to stores like GameStop because the amount of money they get out of getting rid of it is worth more to them than personal value of retaining it. Since developers design games with that initial sale in mind, the amount of time the game is of personal value is becoming shorter. Publishers don't care for how long you have the game for — or even if you beat it or play the multiplayer — only that you bought the game in the first place, so they don't bother trying to get you to keep the game.

It has reached the point where buyers return copies, either for lack of quality or for lack of content, when the game is still new. This is what cuts into profit margins, and this is the real problem. It's not the company that makes "third-hand" selling easier; it's the fact that new titles pop up on GameStop's used shelves within days — or even hours — of release. Unfortunately, rather than blame themselves for producing an exceptionally short or mediocre game, they fault used-game sellers like GameStop for what are actually very savvy business practices.

So what's the solution? I in no way endorse Electronic Arts' "Project Ten Dollar" (tacking on extra content that, if you bought the game used, you're excluded from). I think the Mass Effect 2 Zaeed content is a great example of this. Publishers need to stop coming up with greedy-looking cash-grab schemes. Subsequently, publishers also need to stop focusing on vilifying anyone who disagrees with their idea of how the industry should work.

 They need to look at their own budgets. Fifty million dollars is an insane allotment for a five- to six-hour game when they can easily make lengthier and more varied experiences for less. The industry has become bloated, and developers could surely afford to trim some of the fat. Logically, halving a budget must decrease the necessary number of units sold (at the same price) for an even break. (Admittedly, this is simple, armchair conjecture.) Alternatively, units could sell for less (than $60) at retail. This means either better margin or more units sold, which both lead to a much greater profit.

Developers also need to make games worth keeping. As an anecdotal example, try to find Xenogears for the PlayStation. It's nearly impossible even now, despite the fact that it's a 12-year-old game. This is because no one wants to give up their copy for anything less than a massive price. Publishers are haphazardly trying to artificially create this kind of devotion with additional DLC, but to be honest, if the original game feels cheap or unfinished in the first place, then people are going to feel cheated if you charge them more to fix those issues. The original content must be worth keeping as a solo product, or else no amount pay-to-play DLC is going to entice someone to hold on to it.

Publishers need to stop treating the end user as a sheep they can repeatedly fleece long after they've already gotten their fair share of the pie. By cutting back on their massive spending and focusing on quality games — instead of six-hour twitch-fests that rely on additional post-release purchases — they can make their investment back a lot easier without demonizing everyone that keeps them going.


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