Over the last year we’ve seen developers scrambling to find “value add” features to new game purchases. Their goal is to convince the customer to buy new instead of used because developers don’t see a penny from a used game sale. While GameStop sees 48% profit margins from the used game market developers struggle to stay floating in the industry.
This is not the fault of GameStop and their 48% profit margins because they’re only getting 7% to 20% profit margins (say analysts) on new game sales. As someone that’s run a game store online, if you’re getting 15%+ on a new game you’ve got some great hookups in the distribution channel or are buying in huge quantities.
Buying games in huge quantities to build profit margins can be a huge mistake in this industry. Gamers are fickle little creatures and they’re going to buy their top tier games for a few weeks and then sales will drop significantly. No retail chain wants to purchase a thousand copies of GTA IV (only as an example) and sell seven hundred over the first few week to be stuck holding onto a few hundred copies when the dust settles. Now you’ll have to put them on sale to get them out of the store because the hardcore gamer have already done their shopping and you’re not going to get any price protection if you’re not a major player in the industry.
Why take 7% profit margins when you can get 48% on a used game? The gamers don’t seem to mind because they’ll trade in a used copy of a sports title like Madden to save $5.00 on the latest franchise release. Gamers will buy Fable 2, beat it in a week and rush to the store to get the “most for their dollar” before the game gets stale and buy-back prices drop like a stone. Why not rent Fable 2 and save yourself $50.00? Of course, renting pisses off developers as well because they see no additional revenue.
While the economy struggles and consumers fight for their jobs, the entertainment side of life continues to grow. People would rather “cocoon” in their homes playing video games and watching movies on their brand new HD television because it takes them away from the low points of the economy if only for a few hours. History has shown us trends in entertainment during the down points of economies, it’s natural to want to get away for a bit.
But, consumers want to play these games on the cheap because their job may not be there tomorrow. Saving $5.00 knowing the store just took the title in for half the price doesn’t bother you; $5.00 in your pocket is better than in their pocket right? The fact that they just pocketed upward of 40% on the game doesn’t matter to you — it’s all about your bottom line!
While we’re bargain hunting during the recession developers are going to try and up sell you to a new copy of the game. If that means giving you special game items and features with a “one time code” upon purchase, it will be up to you to decide if it’s valuable. All the while GameStop will lock out the game industry from selling used games because 42% of their overall gross profit is from used game sales.
You, the consumer, benefits from a slightly cheaper game, bargain bin fire sales and additional game features if you do choose to buy new. The economic down turn is a great time to be a gamer, as long as you remain employed.
It’s amazing to think we’re in our third year of “next generation” console bliss. Three years have passed since the first Xbox 360 shipped, for good or bad, and it’s time to start thinking about the future.
Hey guys. I’m back from commenting retirement forced to do so once again by your grim opinions on my favorite console 🙂
@Vita
The Vita isn’t going anywhere. While I already said that I partially agree with Jordan that there is no constant flow of exclusive games, I still can’t say that this means that there is nothing to play on the Vita. Especially now with the cheaper version and the PS4 Remote Play, people will think again about buying one. Heck, if Jonah is considering getting one… maybe… By the way – http://en.wikipedia.org/wiki/Category:PlayStation_Vita-only_games sure, there is crapware there but there’s at least a dozen perfectly good, big games.
I also think Borderlands 2 isn’t really a system seller but it’s a well-known title that will make people look at the Vita and I believe that once you play it for a while, you realize how good of a system it really is for on-the-go gaming.
@PSNow
Obviously, people will,in general, not pay a subscription to play PS1 games, but PS3… I bet there are many people who would rather sell their PS3 and get PSNow for PS4 than keep the two consoles. It’s obvious to me that Sony shouldn’t be aiming at the latest releases to be available via PSNow. It’s going to be tough but if they play it right, they might be able to pull it off. I wonder if the games people own digitally will be available via PSNow for free… Also the ones obtained from PS+.
@QOTW
I didn’t really introduce anyone to video gaming. However, I convinced two friends to get a PS+ subscription for their PS3. I guess this counts. I also introduces some friend to board gaming and we meet regularly to play but this is easier since it’s intrinsically a more social activity.
Hey guys,
Don’t have too much to add this time but I’ll answer the QOtW.
I think I can say my wife and I introduced our daughter into Gaming. She loves to play Minecraft, Sims, Fable, and some other web based games.
Great show guys and keep up the good work. I also like it when you have 3 man team going with Paul or Dan.