For video game retailers, selling used games is a highly profitable enterprise. And video game publishers don't like it.
Today's GameDaily Biz reprints an excellent piece by Paul Hyman of the Hollywood Reporter which outlines the divergent interests of game publishers and used-game retailers such as GameStop.
Hyman notes that Peter Jackson's King Kong: The Official Game Of The Movie retails for $49.99 new, but can be picked up for just $27.99 used. Same game, perhaps minus the manual or original box, but guaranteed to work.
"GameStop and Electronics Boutique [which merged with GameStop last April] essentially own about 80% of the second-hand game market," analyst Michael Pachter of Wedbush-Morgan told Hyman. Publishers are worried that consumers will turn to used games, thereby cutting into revenue streams.
"I think publishers are making noise because they'd like to get a piece of that almost $1-billion that GameStop is making," Pachter added. "Or they'd like to somehow regulate the price of used games... but I don't think that's going to happen."
Hal Halpin, president of the Interactive Entertainment Merchants Association (IEMA), a trade group representing 75% of video game retailers, believes the secondary market may actually be beneficial to the publishers.
"I appreciate their perspective," said Halpin, "but have a hard time seeing the sales erosion that the publishers' claim. I've had these kinds of discussions before with publishers and I suggested to them they should look at rental and used as avenues to expand their potential base. Imagine if rental had never come along; it would have been phenomenally detrimental to the growth of the business. Any publisher today will tell you that Blockbuster and Movie Gallery are both Top 10 customers for them. We work in a hits-driven business and games that don't sell well in the first 60 days have a financial impact on the entire sector. The used and rental markets expand that window and permit secondary opportunities."
Michael Pachter suggested that the used game market helps drive new game purchases, because only new game purchasers have something to trade in.
"And when they trade in their games and get a GameStop credit, what do they do with those credits?" Pachter asked. "They buy games, of course. Sometimes they buy new games. If, instead, they buy used games, so what? In creating more demand for used games, it keeps the price of used games up, which means there is less cannibalization of new-game sales. It's all a very delicate balance. And I think the market will tend to keep things in equilibrium."
In any event, this is not a battle that either Pachter or Halpin thinks the publishers can win.
"Honestly, publishers can gripe about the used and rental markets 'til the cows home, but the reality is that the First Sale Doctrine permits the legal re-sale of this product," notes Halpin, "so it's a moot debate. If we, as an industry, are truly worried about the commoditization of our products and the erosion of wholesale and retail price points, there are far better uses of our time to that end. We need do nothing more than come together and discuss the matters face-to-face and agree upon resolutions that are both practical and legal."
GP: In addition to the used-game trade at GameStop and EB, Best Buy is testing the waters as well. And the dialogue between the publishers and the retailers doesn't even begin to address the huge secondary game market on Ebay. And, GP finds it curious that no publisher was willing to comment to Hyman for the record. And what is the position of the ESA (representing game publishers) on this issue?