Two articles on how the "second-hand" market is damaging gaming.
- Thread starter Admiral Ackbar
- Start date
PittsburghAfterDark
CAGiversary!
Hey defender do you maintain the same margins on Greatest Hits, Platinum Hits and the proposed ESPN NFL price point of $19.99 as you do on $50 games?
suprsaiyanMAX
CAGiversary!
Trucks almost always retain a higher resale value than cars. But I think Defender is right, when you compare the hit in resale value a car takes compared to the hit media takes, cars aren't that bad in the second hand market. Homes is kind of a totally different thing because that depends on so many different elements. Technically you own the property, not just the house itself.
I've come up with a little hypothetical explanation on how one copy of a game can circulate, and generate plenty of revenue for the retail level, but does very little for the developer/publisher. I used a hypothetical cost of $35 for a $50 retail game, and took in calendar depretiation, and cash trade values (credit would have other implications that would skew numbers astronomically), but for some who might not realize how publishers/developers get hurt, here's the explanation:
Bob buys Madden 2005 new at EB in August 2004 for $50, the development/publisher side of that sees ~$35 of that, and EB ~$15.
So far the financial stats for the game:
EA: +35
EB: +15
Bob: -50
In October, Bob trades it in, and utilizes the cash value option at EB, where he sells the game for $20, that leaves the financial stats:
EA: +35
EB: -5, but +1 copy of the game
Bob: -30
Two days later, Jimmy comes in the store and sees Madden 2005 used on the shelf for $45, and buys it, making the financial stats:
EA: +35
EB: +40
Bob: -30
Jimmy: -45
Jimmy decided that he didn’t like Madden 05, and is going to trade it in at EB, getting the cash value, which at the time is still $20, and the adjusted stats are:
EA: +35
EB: +20, also +1 copy of the game
Bob: -30
Jimmy: -25
During the weekend, Johnny comes in, and picks up that same used copy of Madden 2005, and pays EBs price of $45 for it, leaving the financial stats at:
EA: +35
EB: +65
Bob: -30
Jimmy: -25
Johnny: -45
Johnny keeps the game all the way until after the Super Bowl, which leaves us in January/February, when he decides that he’s going to bring it into EB, and take the cash option, which gives him a whopping $12. And the stats go like this:
EA: +35
EB: +53, and a used copy of the game
Bob: -30
Jimmy: -25
Johnny: -33
Sometime in the middle of March, Joey comes into EB and sees that Madden 05 is at $30 for a used copy, and picks it up, and lets look at the stats:
EA: +35
EB: +83
Bob: -30
Jimmy: -25
Johnny: -33
Joey: -30
Joey keeps the game until July, where he brings it into EB and only gets $5 for it. And a check at the stats:
EA: +35
EB: +78, and a used copy of the game
Bob: -30
Jimmy: -25
Johnny: -33
Joey: -25
Bob comes back into the store, and is amused to find on the shelf in August is his copy of Madden 2005 selling for $20, and just for giggles, picks it up, looking at the stats we see:
EA: +35
EB: +98
Bob: -50
Jimmy: -25
Johnny: -33
Joey: -25
Now class, if you payed attention, you'd see that after the inital purchase, EA's cut never changed, no matter how many times that game changed hands, however by selling it used and buying back, EB multiplied their cut 6.53 times, with possible potential to expand that even more throughout the passing of time.
With all things being equal, at the ratio of cost to sales (at the absolute retail level), EA lost out on $58.10 of profit on that one copy of the game because of the used circulation. (Formula being a 7:3 ratio). Granted numbers would vary, but this example comes from an economic vaccuum, with no impeding factors.
EB is doing what in the present is the prudent business decision, but in the long run, because of the revenue being syphoned from the developers and publishers, it may not.
Bob buys Madden 2005 new at EB in August 2004 for $50, the development/publisher side of that sees ~$35 of that, and EB ~$15.
So far the financial stats for the game:
EA: +35
EB: +15
Bob: -50
In October, Bob trades it in, and utilizes the cash value option at EB, where he sells the game for $20, that leaves the financial stats:
EA: +35
EB: -5, but +1 copy of the game
Bob: -30
Two days later, Jimmy comes in the store and sees Madden 2005 used on the shelf for $45, and buys it, making the financial stats:
EA: +35
EB: +40
Bob: -30
Jimmy: -45
Jimmy decided that he didn’t like Madden 05, and is going to trade it in at EB, getting the cash value, which at the time is still $20, and the adjusted stats are:
EA: +35
EB: +20, also +1 copy of the game
Bob: -30
Jimmy: -25
During the weekend, Johnny comes in, and picks up that same used copy of Madden 2005, and pays EBs price of $45 for it, leaving the financial stats at:
EA: +35
EB: +65
Bob: -30
Jimmy: -25
Johnny: -45
Johnny keeps the game all the way until after the Super Bowl, which leaves us in January/February, when he decides that he’s going to bring it into EB, and take the cash option, which gives him a whopping $12. And the stats go like this:
EA: +35
EB: +53, and a used copy of the game
Bob: -30
Jimmy: -25
Johnny: -33
Sometime in the middle of March, Joey comes into EB and sees that Madden 05 is at $30 for a used copy, and picks it up, and lets look at the stats:
EA: +35
EB: +83
Bob: -30
Jimmy: -25
Johnny: -33
Joey: -30
Joey keeps the game until July, where he brings it into EB and only gets $5 for it. And a check at the stats:
EA: +35
EB: +78, and a used copy of the game
Bob: -30
Jimmy: -25
Johnny: -33
Joey: -25
Bob comes back into the store, and is amused to find on the shelf in August is his copy of Madden 2005 selling for $20, and just for giggles, picks it up, looking at the stats we see:
EA: +35
EB: +98
Bob: -50
Jimmy: -25
Johnny: -33
Joey: -25
Now class, if you payed attention, you'd see that after the inital purchase, EA's cut never changed, no matter how many times that game changed hands, however by selling it used and buying back, EB multiplied their cut 6.53 times, with possible potential to expand that even more throughout the passing of time.
With all things being equal, at the ratio of cost to sales (at the absolute retail level), EA lost out on $58.10 of profit on that one copy of the game because of the used circulation. (Formula being a 7:3 ratio). Granted numbers would vary, but this example comes from an economic vaccuum, with no impeding factors.
EB is doing what in the present is the prudent business decision, but in the long run, because of the revenue being syphoned from the developers and publishers, it may not.
[quote name='defender']Cars and Homes do NOT dramtically drop in price because a year has passed.
Both of these maintain a high value even in a used market.[/quote]
I will have to dispute this. I bought a new car in 2002 for $15,000. Now the value for me to sell it myself is only $7,000. It has low mileage, and is in great condition. Dodges have horrible resale value, and depreciate rapidly, just like games that don't sell well. So there is some similarity there. Houses are different. People buy tham as investments, and depending where you live, they can be very lucrative investments. Games typically are not bought as investments, just as most cars aren't bought as investments.
Both of these maintain a high value even in a used market.[/quote]
I will have to dispute this. I bought a new car in 2002 for $15,000. Now the value for me to sell it myself is only $7,000. It has low mileage, and is in great condition. Dodges have horrible resale value, and depreciate rapidly, just like games that don't sell well. So there is some similarity there. Houses are different. People buy tham as investments, and depending where you live, they can be very lucrative investments. Games typically are not bought as investments, just as most cars aren't bought as investments.
suprsaiyanMAX
CAGiversary!
Thanks for the math lesson, but your scenario is pretty outrageous. Why in the hell would bob buy it a second time? I also don't think a game like Madden would change hands that quickly...maybe after football season is over. And EA really isn't out that profit of $58. They SOLD numerous copies to EB for $35 each. That means a transaction already took place. If you bought a game from me for $35 then turned and sold it for more at a garage sale or something I can't come you to and demand a cut of that profit. The math is interesting, but if EB didn't turn a profit in the used games they'd be long out of business. Good math lesson, but it's not quite a lesson in the world of business.
[quote name='kfkl']god thats alot of adding and subtracting, however, it doesn't mean anything. so eb is making the most money, thats how it works. its no different than a real estate agent selling the same piece of property over and over, or something akin to that.[/quote]
You're correct that EB makes the most money, but they do it at the expense of EA, who doesn't sell as many new units to profit from.
It is different, because the development and production of future game titles are directly dependant upon the performance of titles in the new retail market.
A house, first, doesn't have a consistantly depreciating value, and secondary, the sale of a several used homes doesn't have a direct impact on the manufacture of new homes, it may even determine that new housing complexes are needed. Also, housing is a very regionally based economy, where as video games, and other entertainment media, are national, and even international to a point. The same house on a same size plot of land may sell for $400K in NJ, but $125K somewhere in Wyoming, Madden 2005 will be $50 no matter where you buy it, Maine, Florida, California, or anywhere inbetween.
[quote name='SSMAX']
Thanks for the math lesson, but your scenario is pretty outrageous. Why in the hell would bob buy it a second time? I also don't think a game like Madden would change hands that quickly...maybe after football season is over. And EA really isn't out that profit of $58. They SOLD numerous copies to EB for $35 each. That means a transaction already took place. If you bought a game from me for $35 then turned and sold it for more at a garage sale or something I can't come you to and demand a cut of that profit. The math is interesting, but if EB didn't turn a profit in the used games they'd be long out of business. Good math lesson, but it's not quite a lesson in the world of business. [/quote]
That's why I said an economic vaccum, there's several instances, such as Economies of scale, and extraneous factors that could dramatically change the figures. I also went on the smallest possible number of units, which of course is 1. Multiply it out by however many copies this may happen to, and when you start getting into the thousands of copies, you begin getting into 7 and 8 figure dollar amounts.
If that profit that "would" be EAs actually was, that money could be used to finance an experimental or creative project along with having the capital needed to milk the cash cow for another year.
It's hard to say how often this cycle goes on, because EB doesn't make these numbers easily accessable (or even public), but one can speculate, (which is what I did, based upon numbers)
You're correct that EB makes the most money, but they do it at the expense of EA, who doesn't sell as many new units to profit from.
It is different, because the development and production of future game titles are directly dependant upon the performance of titles in the new retail market.
A house, first, doesn't have a consistantly depreciating value, and secondary, the sale of a several used homes doesn't have a direct impact on the manufacture of new homes, it may even determine that new housing complexes are needed. Also, housing is a very regionally based economy, where as video games, and other entertainment media, are national, and even international to a point. The same house on a same size plot of land may sell for $400K in NJ, but $125K somewhere in Wyoming, Madden 2005 will be $50 no matter where you buy it, Maine, Florida, California, or anywhere inbetween.
[quote name='SSMAX']
Thanks for the math lesson, but your scenario is pretty outrageous. Why in the hell would bob buy it a second time? I also don't think a game like Madden would change hands that quickly...maybe after football season is over. And EA really isn't out that profit of $58. They SOLD numerous copies to EB for $35 each. That means a transaction already took place. If you bought a game from me for $35 then turned and sold it for more at a garage sale or something I can't come you to and demand a cut of that profit. The math is interesting, but if EB didn't turn a profit in the used games they'd be long out of business. Good math lesson, but it's not quite a lesson in the world of business. [/quote]
That's why I said an economic vaccum, there's several instances, such as Economies of scale, and extraneous factors that could dramatically change the figures. I also went on the smallest possible number of units, which of course is 1. Multiply it out by however many copies this may happen to, and when you start getting into the thousands of copies, you begin getting into 7 and 8 figure dollar amounts.
If that profit that "would" be EAs actually was, that money could be used to finance an experimental or creative project along with having the capital needed to milk the cash cow for another year.
It's hard to say how often this cycle goes on, because EB doesn't make these numbers easily accessable (or even public), but one can speculate, (which is what I did, based upon numbers)
suprsaiyanMAX
CAGiversary!
Actually, I still wonder if they'll keep that $50 tag on it should Sega and Take-two decide to go through with this $20 for ESPN Football idea. EA controls the MSRP, if they are having trouble competing with second hand sellers, why not just drop the price sooner? Hell, you got ESPN with $20 supposedly and Madden certainly doesn't need that price tag of $50 all the way to April like it currently has. Trust me EA Sports is not suffering one bit from the used game market, Madden still tops the US sales chart for months and I don't think they incluide used sales in that. In fact, using a game like Madden is a bad example because your larger retail stores like Best Buy and Target probably sell at least twice as many copies of Madden than your average game store does, and those large retail stores don't deal in the second hand market. And if this site has taught me anything, it's that a game is never always $50 everywhere you go, there are always sales or something that make it cheaper.
you played an EA game lately? You know, theres advertising in them. The more people who see it, the more you make people pay for it. It's actually in EAs favor for as many people to play the sports games as possible, then they can charge the advertisers more money for product placement. Used games should help them boost how much they can charge for this.
and since we're on sports games, the real money should be from selling yearly updates, basically patches with new stats and such. the xbox has a hard drive (i know ea wasn't big on live till now), but why not just charge people 20 a year for updates? You buy the game at 20, then pay 20 every year. All money then goes to EA. It's their fault their business model is
ing retarded.
sorry, forgot to throw in the random buzzword. its all about the subscription model now. doesn't everyone learn from microsoft?
and since we're on sports games, the real money should be from selling yearly updates, basically patches with new stats and such. the xbox has a hard drive (i know ea wasn't big on live till now), but why not just charge people 20 a year for updates? You buy the game at 20, then pay 20 every year. All money then goes to EA. It's their fault their business model is
ing retarded.sorry, forgot to throw in the random buzzword. its all about the subscription model now. doesn't everyone learn from microsoft?
[quote name='kfkl']you played an EA game lately? You know, theres advertising in them. The more people who see it, the more you make people pay for it. It's actually in EAs favor for as many people to play the sports games as possible, then they can charge the advertisers more money for product placement. Used games should help them boost how much they can charge for this.[/quote]
The numbers that the advertising are based on are off of new, retail sales. They can't gaurantee any advertiser that more people than purchased it will see their advertisement. Not to mention that advertising only minimally subsizes development and licensing costs and not all games have advertising in it. I don't see McDonald's ads (or any other) in most of the games I play that have some form of linear story.
Also, I only used Madden as an example, since it is a perennial example of this theory, where it is a commonly circulated game with a stable depreciation cycle. A game like Dance Dance Revolution wouldn't make an acceptable example because depretation and circulation are both very low, or a game like Haven, which had a very high depretiation cycle, dropping very quick, and has a low circulation.
The numbers that the advertising are based on are off of new, retail sales. They can't gaurantee any advertiser that more people than purchased it will see their advertisement. Not to mention that advertising only minimally subsizes development and licensing costs and not all games have advertising in it. I don't see McDonald's ads (or any other) in most of the games I play that have some form of linear story.
Also, I only used Madden as an example, since it is a perennial example of this theory, where it is a commonly circulated game with a stable depreciation cycle. A game like Dance Dance Revolution wouldn't make an acceptable example because depretation and circulation are both very low, or a game like Haven, which had a very high depretiation cycle, dropping very quick, and has a low circulation.
this argument is useless. people have the right to dispose of their property however they want. thats part of capitalism. if they want me to not resell games (wait, i never sell my games, my precious) make it worth my while not to do so. its my stuff, ill do with it what i please.
Man this has some long posts. Anyway, I totally agree about the current price being too high. Most of my original Nintendo games were all $30 for the first 2 or 3 years, then the $50 games started showing up.
If companies are also concerned about games selling well, maybe they should not release a ton of good games at once. Within a short period, Ubisoft released RS3, Prince of Persia, XIII, BG&E. Those were all great games depending on preferences, but I couldn't afford those with my usual sports game fixes and all the other holiday releases. I wish the companies would realize what Nintendo did when they released Goldeneye during the summer, and that is that good games will sell for a long time. Look at games like Halo or SSBM.
As far as the selling of used games, EB and Gamestop feel a lot of pressure from publishers to keep their used prices high, so as not to totally wipeout the new game market. Sure, some people want a brand new game every time, but that market seems to be shrinking. I also took a little offense at the guy claiming the stores gave him a bad copy of a game. As a former employee of not Gamestop the other one, I used to spend a considerable amount of time just picking out the best copy of a used game for the customer. If we didn't have a good one, I just told the customer and recommended just buying it new. I know every store isn't like that, but once you get to know the employees, they aren't all bad guys. I mean, I had regulars that I would hold trade-ins behind the counter for and call them when we got them, so that they would stay sticker free. And if you just tell the guy at the counter that you don't want that extra sticker on the game to seal it, they won't put it on there. Those pretty much exists for bums who want to swap out games constantly.
Oh and as far as the $45 dollar used price. That's like shopping at kroger and not using that stupid Kroger plus card. No one except suckers pay the price on the shelf. There are always sales, as everyone here knows.
If companies are also concerned about games selling well, maybe they should not release a ton of good games at once. Within a short period, Ubisoft released RS3, Prince of Persia, XIII, BG&E. Those were all great games depending on preferences, but I couldn't afford those with my usual sports game fixes and all the other holiday releases. I wish the companies would realize what Nintendo did when they released Goldeneye during the summer, and that is that good games will sell for a long time. Look at games like Halo or SSBM.
As far as the selling of used games, EB and Gamestop feel a lot of pressure from publishers to keep their used prices high, so as not to totally wipeout the new game market. Sure, some people want a brand new game every time, but that market seems to be shrinking. I also took a little offense at the guy claiming the stores gave him a bad copy of a game. As a former employee of not Gamestop the other one, I used to spend a considerable amount of time just picking out the best copy of a used game for the customer. If we didn't have a good one, I just told the customer and recommended just buying it new. I know every store isn't like that, but once you get to know the employees, they aren't all bad guys. I mean, I had regulars that I would hold trade-ins behind the counter for and call them when we got them, so that they would stay sticker free. And if you just tell the guy at the counter that you don't want that extra sticker on the game to seal it, they won't put it on there. Those pretty much exists for bums who want to swap out games constantly.
Oh and as far as the $45 dollar used price. That's like shopping at kroger and not using that stupid Kroger plus card. No one except suckers pay the price on the shelf. There are always sales, as everyone here knows.
[quote name='Squirms'][quote name='defender']Cars and Homes do NOT dramtically drop in price because a year has passed.
Both of these maintain a high value even in a used market.[/quote]
I will have to dispute this. I bought a new car in 2002 for $15,000. Now the value for me to sell it myself is only $7,000. It has low mileage, and is in great condition. Dodges have horrible resale value, and depreciate rapidly, just like games that don't sell well. So there is some similarity there. Houses are different. People buy tham as investments, and depending where you live, they can be very lucrative investments. Games typically are not bought as investments, just as most cars aren't bought as investments.[/quote]
All I see here is an argument against buying a low-end Dodge. If you buy the equivalent of a $9.99 PSone game you shouldn't be surprised if it's secondhand value is only about $4 no matter how good it's condition. When you start with a low-end product you're going to face much stiffer competition from new units when trying to sell yours used. The perception is that if it wasn't of much value to start with it can only get worse on the second sale.
When you start off at the high-end a minor discount percentage-wise is more meaningful in the actual dollar figure. This is why a place like EB can do a good business only knocking 10% off a used copy of a new hot $50 game but the same discount on a $20 game isn't as interesting. Saving $2 versus saving $5. There is a certain threshold for each individual where the discount stops being trivial and begins to make the used product more attractive.
There is the additional expectation that the higher price product has a value greater than just the difference in purchase price. Most experienced consumers presented with what appears to be too low of a price will immediately ask, "What's wrong with it?" You can incur this penalty even if you have the exact same product the other guy sells for twice as much. It isn't always a rational behavior. Look at how discounted games in the original packaging are regarded as being of greater value than Greatest Hits packaging even though it's the exact same game except for a logo on the package. (This can be seen quite often on eBay where used copies of a game in original package are treated as being more valuable than the same game in GH packaging.) There is a weird aesthetic belief that having the original packaging will prevent you from being perceived as a CAG. As if that were a bad thing!
When it comes to cars this perception is backed up by reality. Most low-end models don't hold up well and are often sold at a loss by the manufacturer to satisfy state pollution laws while high-end models with poorer emissions to mileage ratios are the source of nearly all profits. The low-end units are a cost of doing business so little effort is made to make them good long-term investments.
The same could apply to a game where a project is deemed worth publishing but only as a low-end title. If a small team working quickly produces a worthwhile game for an older platform this is still worth releasing if the selling price is low. What you don't see are projects originally budgeted as $50 releases knocked down to budget status after testers give it a mediocre rating. Such projects are usually killed and made into tax writeoffs rather than given a low retail price. Some publishers try to go ahead and publish a bad game at full price but word of mouth quickly does its job. If a game is understood to be just bad and you've already got the sunk costs of a full priced game on your books it's better to give up before incurring the costs of manufacturing and distibution. Successful budget releases are such from the very beginning of their development.
Both of these maintain a high value even in a used market.[/quote]
I will have to dispute this. I bought a new car in 2002 for $15,000. Now the value for me to sell it myself is only $7,000. It has low mileage, and is in great condition. Dodges have horrible resale value, and depreciate rapidly, just like games that don't sell well. So there is some similarity there. Houses are different. People buy tham as investments, and depending where you live, they can be very lucrative investments. Games typically are not bought as investments, just as most cars aren't bought as investments.[/quote]
All I see here is an argument against buying a low-end Dodge. If you buy the equivalent of a $9.99 PSone game you shouldn't be surprised if it's secondhand value is only about $4 no matter how good it's condition. When you start with a low-end product you're going to face much stiffer competition from new units when trying to sell yours used. The perception is that if it wasn't of much value to start with it can only get worse on the second sale.
When you start off at the high-end a minor discount percentage-wise is more meaningful in the actual dollar figure. This is why a place like EB can do a good business only knocking 10% off a used copy of a new hot $50 game but the same discount on a $20 game isn't as interesting. Saving $2 versus saving $5. There is a certain threshold for each individual where the discount stops being trivial and begins to make the used product more attractive.
There is the additional expectation that the higher price product has a value greater than just the difference in purchase price. Most experienced consumers presented with what appears to be too low of a price will immediately ask, "What's wrong with it?" You can incur this penalty even if you have the exact same product the other guy sells for twice as much. It isn't always a rational behavior. Look at how discounted games in the original packaging are regarded as being of greater value than Greatest Hits packaging even though it's the exact same game except for a logo on the package. (This can be seen quite often on eBay where used copies of a game in original package are treated as being more valuable than the same game in GH packaging.) There is a weird aesthetic belief that having the original packaging will prevent you from being perceived as a CAG. As if that were a bad thing!
When it comes to cars this perception is backed up by reality. Most low-end models don't hold up well and are often sold at a loss by the manufacturer to satisfy state pollution laws while high-end models with poorer emissions to mileage ratios are the source of nearly all profits. The low-end units are a cost of doing business so little effort is made to make them good long-term investments.
The same could apply to a game where a project is deemed worth publishing but only as a low-end title. If a small team working quickly produces a worthwhile game for an older platform this is still worth releasing if the selling price is low. What you don't see are projects originally budgeted as $50 releases knocked down to budget status after testers give it a mediocre rating. Such projects are usually killed and made into tax writeoffs rather than given a low retail price. Some publishers try to go ahead and publish a bad game at full price but word of mouth quickly does its job. If a game is understood to be just bad and you've already got the sunk costs of a full priced game on your books it's better to give up before incurring the costs of manufacturing and distibution. Successful budget releases are such from the very beginning of their development.
bread's done