Unfettered Blather

The United States of America and many parts of the world are undergoing a major financial crisis. Times like these in the past have served as a boon to those whose primary source of revenue is some form of entertainment. After all, when reality looks so bleak everybody likes a little escapism. That’s the theory anyway. Yet if an economic crisis goes for an extended period of time then people begin to cut back on non-essentials. So why is the focus among game developers and publishers suddenly shifting, near universally, to killing the secondary games market at this point in history?

Just to be clear, I define the secondary games market as used games, games rentals, or even loaning games to friends at no cost. This market has always existed in some form and it is in no way the same thing as piracy. The benefits to the consumer is huge as it allows them to play games at a reduced cost. What the various game companies do not appreciate is the benefits the secondary market brings to them. All they see is lost revenue, which is silly. When did it become a common assumption that every game purchased used, rented, or loaned became a lost sale? Is there really such a lack of business acumen in the videogame industry that they cannot see the benefit of the secondary market? This seems obvious to me but let’s spell out the benefits and drawbacks of the secondary market. You, Dear Reader, can judge for yourselves if the secondary games market is a boon or bane for those that actually make the products.

The drawback of the secondary games market should be obvious. If I purchase a brand new copy of Gears of War then Epic gets a cut of the sale. Once that copy leaves my hands, no matter where it goes, they get nothing. If my buddy Joe plays Gears of War, a game he might have been excited about, and hates it then Epic potentially lost a sale. Not only that, but if I sell the game or continue loaning it out then the perception is that every person I loan the game to or every person that buys and resells it is another lost sale for Epic. I’m not picking on Epic here, they’re just an example, but this seems to be the perception for most companies. What other drawbacks are there? I actually can’t think of any. Everything I’ve read to this point seems to be concerned with moving more copies, and the belief is that the secondary games market means fewer copies of a game gets sold. Is this true?

Perception is the problem. The benefits of the secondary games market, much like it’s name might suggest, are not direct. Most companies, not just those who make videogames, only measure direct benefits. However, my argument is that if you take away these incentives sales will not increase and may very well decrease.

The first benefit is that rental markets are easy money. I know games are not analogous to automobiles, but I think there is a similarity here. Fleet sales are a big deal to most car manufacturers. You know that a company will purchase your product en masse for the purpose of other people paying them a fee to use the product for a pre-determined period of time. Services like Blockbuster, Gamefly, and others who rent games are not getting the games for free, and many people who rent are playing games they otherwise would not if the only option they had was to pay full MSRP. There is the potential for try-before-you buy for consumers as well, which may lead to a sale of a new game. While many rental outlets offer used copies on the cheap, some consumers will insist on buying new. The publishers get money for the rental copies and money for subsequent sales while cash flow restricted consumers get a chance to try a game without paying full price. Everyone wins!

Another benefit, and this really does help publishers, is perceived value. If I buy a brand new game I can likely sell it for 40% to 55% of its MSRP to a specialty retailer. Even as that number goes down, if the game is popular it will retain a good trade-in value. Again, the example of automobiles comes to mind. You may never plan on trading in a game, you may decide to keep it forever, but for that initial purchase it plays a part in many consumer’s minds. In other words, even if a game is never traded in there is the perception that the game carries inherent value. With game prices routinely at $60 for X-Box 360 and Playstation 3 games, do publishers think people will shell out for every new release if a game loses all value once purchased? Many gamers use the trade-in value of a new game towards the purchase of a new one. Even here the publishers benefit. While the publishers do not receive money from a game that has been traded-in, they can get money in the form of a new game sale, which I thought was the whole point. If consumers can no longer subsidize their hobby by trading in games, what effect does that have on new game sales?

An indirect benefit for publishers is a larger number of players and free advertising, which also will lead to new sales. Like the rental market, used games are a way for consumers with less funds to play games they may not be able or unwilling to try at full price. If a consumer likes a game they may want to get the sequel as soon as it comes out, or try other games by the publisher. Consumers have been exposed to so many low quality titles over the past few years that there is a real reluctance to purchase games new not just because of cost but because the games are not considered worth the price. If I buy Gears of War used and love it, then there is a good chance I will buy Gears of War 2 brand new. Furthermore, a larger player base means a greater potential for viral marketing. This also can lead to sales of current games or increase interest in a sequel.

The last benefit I want to talk about is downloadable content. This is a relatively new concept for consoles, but an important one. Let’s look at Rock Band, which I consider the King of Downloadable Content Success. I purchased Rock Band used. I have purchased roughly $30 worth of songs since that purchase. Also, related to the above, I purchased the full $189.99 Special Edition Rock Band 2 because of that used copy of Rock Band. Many games out on the 360 and PS3 offer add-ons at a relatively low cost. This provides additional income to the publisher while allowing consumers extra content at a relatively low cost.

In many of the above cases the publishers benefit, if not directly, and the consumers do as well. In other words it is a win-win situation. The focus on killing the secondary market means restricting options for consumers and making sure the publishers are the clear winner of any such arrangement. There are not many long term business plans that end successfully by trying to gain an advantage at the expense of the customer. If publishers and developers are intent on killing the secondary market they may find themselves, to use a trite expression, in a position of cutting off their nose to spite their face.

The current market is routinely pumping out games that can be completed in under 10 hours. At $60 a copy, that means consumers may be asked to pay $6 an hour, or more, for their entertainment. Not a good bargain, especially if a game has limited replay value. If gamers did not have access to used copies or could not sell their copy when they were finished then how well would they sell? On top of that, let’s remove the rental sales as well. The secondary market is not some ugly parasite that siphons off sales from publishers. The secondary market gives consumers more options and encourages them to spend more of their money on games. The more they feel comfortable spending money on games the more of those funds potentially become available to the producers of videogames. With all the concerns about budgets, jobs, and the economy, does it really make sense to try and get consumers to shut their wallets and become even pickier about what they’ll buy? I suspect the benefits of the secondary market to publishers is greater than they realize and if they do manage to shut it down they’ll hit a crash of epic proportions.

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