Fair Trade: The Simple Economics of Why Game Developers Should Shut Up About Used Games, Part 2
7/16/2009 8:49 AM | 51 Comments | Page 1 of 2
Read Part 1 of this feature.
I laugh at your used games!
By any measure, most games don't turn a profit. What everyone hopes, like a desperate drunk at the craps table in Vegas, is that when they win, they will win big. This definitely gives you the feeling that all those underperforming games on store shelves are hurting all the more because of used-game sales. If it weren't for used games, maybe someone would buy
Crapshack 10,000. Or maybe they wouldn't. The reality is, most of the used-game trade is in the popular titles. Crappy games that no one wants, generally, no one wants used either.
Reggie doesn't like used games. He wants you to buy them new, then buy them again as downloads. Never mind; he just wants all of your money.
So, the battle for price is really fought over those
top-10, AAA titles for which gamers are always trying to figure out how to pay as little as possible, and game publishers are trying to figure out how to get gamers to pay more. And this might surprise you, but game makers have a lot of tools at their disposal to wring every dollar they can out of your pocket. Some of the most popular techniques include:
- Big launches. Nothing eats into used sales like huge initial sales. If you simply have to have the game the day it comes out, used isn't much of an option, is it? On the other hand, those huge opening-week game sales inevitably lead to lots of used copies on the shelves when the less-than-hardcore go shopping. Still, think GameStop makes a lot of money off used games? It still generates half its profit from new games and hardware. In other words, hype helps sell new games.
- Pack-in stuff. Maybe Club Nintendo starting up in the U.S. is a long-deserved perk for the U.S. Nintendo fan base. It's also a perfect move against a rising used market. That little code you use to earn Club Nintendo points doesn't generally make it to the used shop. Sure, you might save five to 10 bucks on that new Mario game. But you won't earn those in-demand Club points that you can trade in for even more in-demand Club swag.
- Downloadable content. Why keep Fallout 3 after you've played through it a couple of times? Those expansion packs make it worthwhile to hang onto the game. Rock Band and Guitar Hero have turned downloadable content into a fine art. And that's why finding a used Rock Band rig at GameStop can be so hard.
- Subscription content. Why is World of Warcraft still the biggest thing in games? Sure, it's a finely tuned online game with millions of fans. But it also rakes in money like the IRS, taxing gamers every month to keep having fun. This also explains, against all other reason, why so many massively-multiplayer online games continue to hit the street. As long you play, Blizzard makes you pay.
Why stop there? The billions of dollars people are spending on used games tell the game makers all they need to know: Those billions of dollars spent on used games could be spent on new games.
So, in evil laboratories scattered across craggy mountains lit by rolling thunderstorms, publishers have mad scientists at work figuring out how to end the used-game business. And right now, they have two diabolical plans: First, they just want to get everyone into the idea that they are licensing games, not selling them; and second, even more effectively, they are looking to a world where no game ships on a disc. Like the salad days of television, game publishers see a time where you turn on and tune in to your favorite videogaming channel, or just drop out. That is, you pay when you play, Mr. Videogame Subscriber.
Or as Perry, in fine rhetorical form, describes the situation so eloquently:
Why mess with a middleman? Switchgames.com lets you trade directly with other gamers.
"At the end of the day, the entire concept of 'owning' data will be meaningless. When you write an email, do you care if you have a physical copy? You
did care when they were paper letters, but now? That was pretty quick, going from physical letters to digital. What about Netflix -- once their entire movie library is all available via streaming, do you care you don't own every DVD? When you can see everything, when you like, how you like, where you like; and when the formats change, you don't even need a new media player, we will look back at today like the
dark ages. Just like we did when we kept buying new vinyl records."
Now here's the tricky part: Why used games are good
But here's the last piece in the used-game puzzle. And we can call it by its economic term: aggregate demand. The basic idea is that there is only so much videogame love in the universe. And these days, the value of that love is about $10 billion, since that's what people spent in the U.S. on games last year.
If you want to know how much people like videogames, it's about $10 billion.
This creates a dilemma for game publishers. Because if you want to make more money, then you can either a) take sales away from some other guy, what business people like to call "competition"; or b) try to increase aggregate demand by getting more people to spend more on games, and hope that your share goes up proportionally.
Gabe doesn't seem to mind used games. And why should he? He just keeps cranking out bestsellers. Oh, and that Steam thing will turn used games into ancient history.
How does this work in practice? You can try and make your game funner than other games (even though "funner" isn't a word). This can work to get people to buy your game instead of someone else's. Companies like Valve and BioWare and Blizzard are very good at this. Or, you can make you game funner than other entertainment options, so people spend less on fun things like going to rock concerts, eating out and shooting skeet, and instead stay home and spend money downloading songs for Rock Band. What you can't do, by and large, is give people more money to spend on entertainment. We all have a limited supply of cash to blow on having fun.
And that's where used games come in.
If I have $100 in my pocket and I decide to spend $60 on
Red Faction: Guerrilla, $20 on pizza and $20 on beer, I've spent what I have. No matter how fun or cool your game is, if I spent money on pizza and beer, that means to me, pizza and beer is a better fun investment of $40 than buying your game. On the other hand, if I can pick up
Red Faction for $40 and trade in my copy of
Fallout 3 for $20, that gives me an extra $40 in the entertainment budget for more pizza, more beer or another game off the used rack.
