With Best Buy announcing last year it was entering the used-game market, Internet forums burst with conversations about the End Times, not to mention the development-profit Armageddon being nigh. But hold the phone. Just how much do used game sales prop-up the sale of new games? No matter what figures the NPD Group may be able to pull from its magic hat, I don’t think we’ll ever know exactly, and I’m not going to guess for the purposes of this column. Still, it’s more a question of “how much” they contribute to new-game sales rather than “if.”
But does this mean developers, who earn royalties from new-game sales, are completely at a loss with used-game sales? Not in my opinion. I believe they see the money in a tangential, indirect way. When Joe Q. Gamer wants a new game, he’ll bring his old games into his local store to trade them in, partially financing his purchase of the new game. As a result, the new game’s developer sees a cut of the used-game transaction, albeit indirectly. Naturally the fewer new games a developer releases the lower its chances of seeing these indirect profits, but the potential is definitely there. What’s more, without such used-game financing, Joe Q. Gamer would surely buy fewer $50 games. So at the end of the day, are used games actually being used to support an artificially high price point for new games in the industry?
The answer to that depends on who you talk to, but it’s safe to say gamers will universally say “yes.” They want videogames to have a lower price point, because if they did, those gamers would probably buy more games. And that, to me, says developers should also want games to have a lower price point. At least, if they buy into the Costco model.
If games were priced lower, the lack of single-game revenue could likely be accounted for by higher volumes of new-game sales. On top of that, a lower price could make games much more of an impulse buy. Personally, I’m going to take a chance one something more often if it’s priced at $20 rather than $60. Remember when VHS movies cost $90? Younger gamers may not, but amazingly enough, when VHS movies first came out, and for a number of years afterward, they sold for nearly $100. Ultimately it didn’t hurt the movie industry to lower their prices for VHS tapes and, eventually, DVDs. The distributors made up for the price difference with greater volume.
Extending that model to the game industry, where would the volume come from? Aside from the impulse purchase crowd, I believe the lower price point would provide less temptation to trade-in a game, simply because you’d get in return wouldn’t be worth the time, energy or gas money to get to the mall. When the trade-in amount is less than what the game would sell for in a year, why bother?
On top of that, there’s a lot more reason to look for used games when game prices are high. Saving 20 percent off a $50 game is $10. Saving 20 percent off a $20 game saves you $4. The 10 spot means you’re eating at Applebee’s. Four bucks means you’re hitting the dollar menu at McDonalds. Ultimately a $20 game just isn’t going to drop in absolute price like a $50 game. Thus, there’s less incentive to look for a used copy if prices start out low. Gamers and developers would both win, everyone’s wallets would be happy, and certainly world peace wouldn’t be far behind.
Looking at the retail side of the equation, a lower price point for new games might also result in less of a market for used-game sales. The relative cost of labor to handle a trade-in at your local game store would skyrocket if new games topped out at $20. If you treat labor in this case as a fixed cost, a new game priced at $20 would hurt the used-game stores’ margins if volume didn’t increase, simply because the store couldn’t suddenly decrease employees’ pay. Imagine the reduced margin, then, on a used game. Yep, used-game sales would be less attractive, ultimately shrinking the market for them. Again, this would lead to more money for developers, as consumers would be left going to eBay to “trade-in” their used games.
In the end, videogame prices are higher than they should be. True, the price of a new game hasn’t increased accordingly with the rate of inflation, but then again, pricing should also reflect demand, and look at the size of the used-game market to see how gamers view the price of a new game. As argued above, I doubt used-game sales hurt the industry or developers much at all, it’s just a matter of reallocating the funds that go to them. Likewise, I don’t think the answer is higher prices, which will only inspire more consumers look for used games.
If developers and publishers want more money, they should decrease the price of videogames. A new game for $20 becomes much more of an impulse buy. A new game for $20 means a used version won’t save the consumer as much money and will be less desirable. A new game for $20 will make it harder for stores to make money buying and selling used games. In other words, a new game for $20 will make everyone happy.
— Jonas Allen and Chris Karalus