Used Games: The Next Big Revolution

Used Games: The Next Big Revolution

* Editor’s Note: Article syndicated in partnership with Gaming Business Review.

Much like clumsy gamers who keep restarting what they’re playing, the biggest retailers in the US are looking beyond known hurdles and recent stumbles to once again chase a slice of the used video game market. Target and Best Buy revealed details of vigorous new programs aimed at luring used game traders and building their stock of pre-owned products. The pair follows in the footsteps of Wal-Mart, which in May of this year began retesting automated game trade machines placed in a handful of its stores.

A decade of domination of used game sales by GameStop is, apparently, no deterrent to such retail giants. In the case of Wal-Mart and Best Buy, both are actually recommencing programs these selfsame vendors abandoned only earlier this year. The companies had separately launched test programs late last year to buy and sell used games through automated machines run by ePlay, but they were forced to scuttle the effort when the kiosk operator went out of business. However, there is apparently incentive to keep trying: Specifically, the large and lucrative market built by GameStop over the course of twelve years in the business. The company generated nearly $2.4 billion in revenues from used game products during its 2009 fiscal year. It was an 18 percent jump from the year before, a remarkable gain considering industry estimates showed sales of new game products had dipped over the same period.  Used games are also healthy profit generators with margins several-fold larger than what retailers get from selling new game hardware and software.  GameStop’s 2009 take from the category made up a little more than a quarter of annual revenue, yet it translated to more than a billion in earnings representing nearly half of the company’s profit for the year.

As determined as they might be to get into that market, not one of the big three challengers is pretending that experience in pushing new goods out the door immediately translates to the used products business. Analysts at brokerage firm Stern Agee recently noted that the space in which GameStop operates so comfortably has formidable barriers to entry. They span from business knowhow and infrastructure, such as facilities to refurbish pre-owned products and systems to manage and replenish inventory across thousands of stores, to understanding local laws that classify used game traders as pawn shops. The limited nature of Wal-Mart’s program, run by still another third-party operator called Game Trade and only being tested in five stores, sets the tone for the careful steps the retailers are taking. When Wal-Mart announced they were retrying their hand at in-store trades, a representative told game news site Industry Gamers the company had no plans to broaden the program until it could fully understand customer response.

The same goes for Target, which is expanding a program it started online with a partnered company called NextWorth. For now, the retailer is only buying back used games, along with mobile phones and Apple iPods, at select locations in Northern California, although it said it is looking to have it in 850 locations nationwide by year’s end. Best Buy’s effort is also incremental but it comes across as the most ambitious of the three. Best Buy’s in-store trade system goes live this week in 600 locations across the country. It’s also launching the effort with a generous promotion aimed at getting a solid footing in used game products by building up inventory of newer, more popular pre-owned fare. The retailer is offering $20 in additional store credit on top of game trade-in value for a list of titles comprising mostly bestselling games released in 2009 and 2010.

Whether all that competition is for growing pie is up for debate. For several years the industry has watched as greater numbers of game consumers have connected their consoles and in turn dedicated more of their expendable time and income to downloadable content and online features such as multiplayer. If that hasn’t presented enough challenges to packaged game sales, whether used or new, game publishers have caught on that digital content can be leveraged to devalue second-hand product. Within the past year, Electronic Arts and THQ have launched programs that lock out used game buyers from online features until they pay an additional fee, with a price tag of $10 or more that effectively negates the $5-10 discount GameStop puts on used copies of recently released games. Other major players such as Sony and Ubisoft have voiced their interest in launching similar efforts. But GameStop says the programs aren’t affecting used sales. Talking to Dallas Morning News, GameStop chief Dan DeMatteo said his company hasn’t seen a noticeable effect on recent titles that restricted online use for second-hand buyers, such as EA Sports’ Tiger Woods PGA Tour 11 and Madden NFL 11.  DeMatteo said, “We haven’t seen any decline in trade rates of those titles at all.” GameStop even provided the media outlet with data that, by its estimate, only 25 percent of used game buyers connect their consoles to the Internet. The surprisingly low figure is undoubtedly pressured by the portion of used product customers buying catalogue games and playing on legacy consoles without online features.

For the time being, the biggest winner in this free-for-all has to be game consumers. The game industry gears up its slate of holiday products over the next few months. It’s traditionally a rich field from which buyers have to pick and choose. This year, for those in the US, there will be thousands more storefronts promoting pre-owned product and enticing customers to save a bit of money by becoming used game traders.

About Gaming Business Review
Meelad Sadat is a 10-year game industry veteran. Prior to joining Gaming Business Review, Meelad headed corp comm, product PR and marketing strategy at both publisher and developer levels. He has more than a dozen shipped titles under his belt.

2 Comments

  1. Even more reason that Congress should enact a law that forces resellers to pay the developers and publishers royalties on these.

  2. Great article and reporting on the subject. Gametheoryonline is quickly becoming my source for REAL industry news coverage.

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