Chapter 1: Used Games

Let’s face it. Video Games are not tissues. We do not use them once and discard them. Video games are a fixed medium and like all fixed media, they are bound by a law known as the “First Sale Doctrine.” To understand this we must first understand what First Sale is.

First Sale

First Sale was introduced as a legal concept in 1908 by the Supreme Court of the United States (SCotUS). The case involved the early 20th century book publisher Bobbs-Merril Company. It decided that no retailer should be allowed to sell their books at a price other than the one it set, $1 at the time. It even printed a fancy disclaimer inside the books stating such and that anyone who sold the book at a different price was guilty of copyright infringement.

Unfortunately for it, R.H. Macy & Co. decided it was not going to play by the rules of the publisher and started selling copies of the book in question at $0.89 a copy. Bobbs-Merril sued R.H. Macy for this because it felt it gave Macy’s an unfair advantage over other more buddy buddy retailers.

The case eventually found its way to SCotUS who ruled that once the copyright owner sold or gave away a copy of a copyrighted work, it lose all control over the movements and sales of that copy. It still retained control over the production of new copies, but beyond that, its control was limited.

This is also one of the key reasons why we have a Manufacturer’s Suggested Retail Price (MSRP).

This right of First Sale became a legal protection for retailers and others who wanted to sell their copies of copyrighted works. It was eventually codified into law in 1976 along with a number of other changes to US copyright law.

Game Industry Reaction

Sadly, the games industry does not seem to enjoy the right of retailers and gamers to sell off their used games. Those in the industry rants and raves about the practice just about any chance they get. Just take a look at these comments from leaders in the industry:

Ian Livingstone, Eidos, “The pre-owned market is a serious problem, because there is no benefit to developers or publishers…”

David Jaffe, SCE Studios, “The issue really has to do with publishers and developers and retail. I don’t mean this in a mean way, like it’s none of the consumers business. But literally, it’s none of the consumer’s business.”

Andrew Oliver, Blitz Games, “Arguably the bigger problem on consoles now is the trading in of games…This is a much bigger problem than piracy on the main consoles.”

Rod Cousens, Code Masters, “You could argue for the retailer in that context, but also what it’s done is kill things like subsequent exploitation in platinum and classics… and it expands the potential for piracy by default. They would argue that prices would suggest otherwise – I would say not, because by the time you get down through the food chain, a thing gets more and more ripped off.”

Mike West, Lionhead, “Piracy these days on PC is probably less problematic than second-hand sales on the Xbox. But, as I say, second-hand sales cost us more in the long-run than piracy these days.”

These are only a handful of comments from the overall industry. Sadly, they reflect much of what the games industry feels when it comes down to the sale of used games.

What About the Gamer?

So how does this effect the gamers? Why should we care about a healthy used game market?

For us it means one more avenue of protection. Ask yourself, how often are you 100% satisfied with the purchase of a game? Ask yourself, how often do you regret the price you paid for a game?

Now, ask yourself this, when was the last time you were able to return a game because you did not like it, it was bugged all out or just plain didn’t work? The answer to that is probably never.

That is one of the problems with this industry. We can’t return crap products for a full refund. There is no rhyme or reason to it. The best reasoning the games industry can come up with is that it prevents people from buying a game, making a copy to keep and returning the original for a refund. This doesn’t fly with the consumer though. We deserve better treatment.

Used game sales provide several protections from this kind of behavior. For one, it drives down the cost of games that are not worth the current asking price of $60. Most used copies start out at a price of $50-55 for a recently released game. Then they fall as demand slows or inventory is increased with out a matching sell through rate.

This drives the cost down, making a game that is not worth $60 to the true market cost of the game. This is done at a far faster pace than the games industry wants. It would rather us continue to pay $60 until it decides that it wants to lower the price.

The used games industry also allows for the gamer to regain some of their investment in a game. If a game is not worth $60 but we are forced to pay it to get the game, we can later sell it off for $30 bringing the true cost down to a fair market price of $30.

What About the Retailers?

Most people in the games industry recognize that gamers are going to sell their games even if the industry managed to end used sales. There is no way they can stop us from selling our games on Craigslist, in person, at yard sales and on eBay. It just doesn’t like GameStop for some reason. It doesn’t like a retail store that to them has two conflicting business models.

It thinks that if GameStop continues to sell used games, it will lower the number of reorders from the publisher because of the influx of used games.

The industry complains that because GameStop is selling used games within days of a game’s release that it somehow lowers the overall value of the game.

To this I say, if your game is being traded in days after release, perhaps it is not a problem with used sales, but a problem with your game. If your game does not have the re-playability to keep it in the hands of a gamer for more than a few days, that is not GameStop’s fault.

GameStop provides a service the market demands. It would not be making nearly as much money at this if there was little to no demand for used sales. So the solution, for the games industry at least, is to find a way to curb the demand for used sales.

Curbing the Demand

The Games industry is well on the path to try to lower the demand for used games. It started with this last generation of consoles. The generation of the PS3, Xbox 360 and the Wii has made it far easier to provide a number of tools to increase the re-playability of games. Some of these are online multiplayer, downloadable content (DLC) and, sadly, locking content to a specific user or console.

The first two options are great for us gamers. It allows for us to play games online, thus extending the life of the game. It allows us to get new content that extends the life of the game. It provides value for the money we spent on the game and the subsequent DLC purchases.

Its a win-win for gamers and the industry.

Sadly, even this great party is being eaten away by publishers and developers. They have decided that some things are best left only to purchasers of new games. Primarily, we are talking about multiplayer.

For several years, online multiplayer has been given free with all copies of the game. This allowed everyone who own a copy to play together online. Publishers however saw this and decided this would be their weapon against the used games industry. They took online multiplayer away from used game buyers.

This all started with EA and was quickly adopted by other publishers such as THQ, Ubisoft and Activision. What they did was include a one-time redeemable code for the online multiplayer portion of the game. The object was to make it so the first owner of the game would be the only one to get free multiplayer. After that, any subsequent used buyers would be stuck with only the single player portion unless they shell out another $10.

Publishers love this. Gamers hate it. This is an artificial measure to drive the cost of games back up rather than down. So now a $60 dollar game that a gamer would have been able to trade in for $30, they are now only able to get $20 to compensate for the $10 multiplayer pass.

Not only does this drive up the cost of games, it also has no basis in reality. The publisher justification for this is that multiplayer servers cost money and that used game buyers are moochers who are not worthy to share the same space as buyers of new games. Math works against the publisher though.

Using their own price, publishers value multiplayer at $10. This is the price they say it takes to support one player on their multiplayer servers. We will use that as the base of our calculations. We will also consider the fact that the average multiplayer game has a 2 year life span before the inevitable shut down of the multiplayer servers.

Let’s say that 10 million people buy a game new. That is a pretty nice chunk of the gamer population and not near what some games have sold in the past. So we multiply that by $10 and we get $100 million set aside for specifically multiplayer server costs.

We also know that not all players play online multiplayer, but for this exercise, we will assume they all do.

Over the course of a game’s life many people will stop playing and new people will start up. We will work from a month to month basis. We will assume that in this transition between new players dropping and used players joining that the constant rate of decline is 500 thousand people each month with a huge drop off after a year due to a new popular game being introduced.

So starting in the first month we have 10 million players at a monthly cost of $0.416 for a grand total of $4.16 million.

For the sake of brevity we will say the total number of players stays the same for the second month so this month costs another $4.16 million.

The third month is ourt first month of player decline coming to 9.5 million and costs $3.952 million.

This trend continues for the first 12 months and then at 13 months all but a million players are gone. The 13th month has a total cost of $416 thousand.

The trend of 500 thousand player decline continues for the rest of the year. Then the servers are shut off forever.

This brings us to a grand total server cost over a two year lifespan of a game to $41,870,400. Not even half the original investment of $100 million. So why do they need that extra $10 from used game buyers? They don’t. They are just using it to pad out their profit margins.

The Future of Used Games

Used games aren’t going away. The retailers who sell them will not be going away either. However, the landscape of video game retail is changing due to other changes in the video games industry. We are moving toward a world where the majority of games are sold online and downloaded via the internet.

In the future, games retailers will move to selling older vintage games. They will work toward refurbishing and preserving games in order to keep a market full of them. They will learn to rely less and less on the games industry to fill their shelves.

It will be sad to see these changes, but hopefully they will be for the best.

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