Wednesday, May 29, 2013

Used Games: Reading and Discussion

There are two terrific articles about the used game market that came out recently.

First, from Chris Kohler: Study: Killing Used Games Could Be Profitable, or Suicide. Chris discusses an academic study of the Japanese used game market by Masakazu Ishihara of the New York University Stern School of Business and Andrew Ching of the University of Toronto‚Äôs Rotman School of Management.

Unique to this study, they located much, much more precise data than has been available previously, given that Media Create tracks used game sales and purchases in Japan. So there's a precision to this study and a precision to the data that was previously lacking.

To be fair, I can't assess whether this academic study uses sound methodology. It's incredibly dense and uses mathematics at a level that is on another planet as far as my experience is concerned. It does appear to be careful and thorough, however, and its conclusion is reasonable: if the used game market is eliminated, there is a spectrum of possible outcomes, based on how publisher's adjust the price of new goods in response. The range noted in the study is +18% to -10%.

What's the optimal price adjustment? Down about 33%, according to the study. So $60 games, if the used market were eliminated, should sell for about $40 to maximize publisher's profits.

Chris's entire article is excellent, and there's a link to the academic study as well.

Second, the always terrific Matt Matthews has an article about the implications for Gamestop: Party's almost over for GameStop's used games business. In it, he discusses the consequences of declining profit margins for used games, given how heavily Gamestop relies on those margins. It's meticulous, like all of Matt's work, and he has a handle on the business of games like no one else.

Now there's one additional concept that I believe needs to be discussed here. What no one seems to be talking about is the concept of a used game and how it's going to be obsolete.

The past: you bought a physical copy of something that someone else had used and sold. There might be a price tag on the case. The manual might be scuffed up, or there might not be a manual at all. It might have a few scratches.

It wasn't new, even though you could still play the game. No new car smell.

The future: forget the past. It doesn't exist anymore. Disc are just props for retail stores to sell. The disc is just an install disc, and you can't play the game until a license is activated (which does not reside on the disc) Anything you want to buy can be downloaded.

Used? A download can't be "used". All we're talking about is a deactivation of a license for one person, and an activation of that license for another user.

It's not a sale of used goods. It's a license transfer.

For people who have an objection to buying used games, there can be no objection now. Those people are just buying a license transfer.

How does Microsoft controlling this process affect the price of "used" games? Well, it makes them go up, I expect. And people won't be happy about that.


What if used game prices go up as a percentage of new game prices, but absolute new game prices actually go down because publishers aren't getting cut out of the resale loop anymore? If publishers are selling new games at $40 instead of $60, then I don't see a fuss.

Above that, look out.

So this is going to be a very messy experiment, with lots of moving parts. And I don't expect it to be managed very well.

At some level, though, I guess that doesn't matter. Once we couldn't put the disc in and play, we lost control. Everything else is just details.

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