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GameOn - Skyrim PC Episode #88

Monday, April 9, 2012

GOING BUST IS YOUR LOCAL GAME RETAILER!

Blocking Used Game Sales Will kill Your Local Retailer!

  

Your local games boutique May Be Already Out Of Business!?

It'll take a while to play out, but it's happening. It's just a matter of time before sad-faced staff members are given their slips, shelving is auctioned off, windows are whitewashed. Eventually, your beloved emporium of fun will be turned into a place to buy gruesomely-packaged cleaning products.

Whether you visit a cozy hobby store or a chain-outlet that's dedicated to gaming or some monolithic electronics warehouse, it makes no difference. All are headed for oblivion.

Even last week, Best Buy closed a bunch of stores and booted a gaggle of luckless staff out of its smoothly sliding electronic doors.

Sooner or later you and everyone else you know will cease to buy games in boxes, and will consume them, entirely, via downloads. Probably you have already begun to buy games as purely digital entities.
When retailers finally disappear, it will come at a price.
These games are elegantly and silently shipped to you down wires. They are delivered through blinking devices while you seek a slightly more comfortable position on your couch. There is no call for rumbling trucks, stacked pallets, shopping malls. You don't have to worry about parking or reserving a copy or dealing with that infinitely bored young woman as she offers up the unconvincing benefits of a rewards card.

But despite their many short-comings, retailers serve an essential role for we gamers and for the wider games industry. When they finally go, it will come at a price for everyone.

What's most disconcerting is that the games retail outlets aren't just going to be victims of history, not merely the collateral damage of progress. They are to be systematically wiped out by their closest friends and their most bitter rivals, the games publishers.

Entirely plausible rumors are circulating that both Microsoft and Sony will release next-gen consoles that tie the user to the new games they buy. This will, effectively, drastically reduce the value of used games. Leaving aside the moral issues of such a move (I have previously described the elimination of used games as a crime against consumers), such a change badly damages retailers who make a significant proportion of their income trading in second-hand games.

Some are suggesting that this is a stitch-up; that Sony and Microsoft have cooked up this dirty scheme. Such talk is nonsense. They don't need to do anything nefarious. Their busy little friends in publishing have been urging just such a move for years. Because there is nothing the games publishers loathe so completely as the used games business.

Look at it from the publishers' point of view. Three years development. Hundreds of people. Millions of dollars investment. Blood, sweat, tears and all the incredible stress of creative innovation. And the major beneficiary of all this is the guy who rents a few square feet in your local mall and hustles gamers. Fact: GameStop makes more money than Electronic Arts.

Retailers operate according to ferocious and unforgiving metrics. There comes a tipping point at which it is no longer profitable to rent space in the mall, stack boxes, hire cash-register serfs and sell games. And without the easy revenue from used games, that tipping point moves rapidly in the wrong direction. When this thing goes down, it'll happen fast and it'll happen hard.

Here's the trouble with retailers. They don't actually make anything. Their stores are uniformly bland, unlovable spaces entirely crafted around their needs and not yours.

Retail is too much about money and not enough about experience..
One example – at the larger electronic stores a man is hired to 'greet' you as you enter the shop, and occasionally checks your bags for stolen goods on the way out. As if this assumption of felony isn't insulting enough, you've been forced to line up and wait to purchase your goods because the corporate masters are too tightfisted to hire enough staff to man the tills. Meanwhile, Greeting Goon is inspecting his fingernails.

Shopping for games should be a wonderful experience. But it's not. Retail is too much about money and not enough about experience. The retailer's interest in you feels like it's rooted in the dreary mechanics of shelf-space ratios or upsell margins. (I know there are nice, cool, helpful people who work at retail, and some chains are better than others, but I'm referring to the general experience here.)

Buying digitally is a greater pleasure. If you have a terabyte hard drive, a super-fast connection and a pleasing Steam-like hub, downloading is better than visiting the store.

We are all getting used to the idea of owning things that don't physically exist. CDs are absurd. DVDs are clumsy. Game boxes are unnecessary. Leaving aside the enthusiast who enjoys limited editions and the ownership of things, packaging is dead.

The publishers know this and so, by blocking the next-gen consoles from used games, they are merely giving events a little nudge in their desired direction. Because when used games disappear, they get to take more money out of the system. They get to control the games-buying economy.

The hardware companies go along with this because, guess what, they are games publishers too.


Greg Short, CEO of analyst-outfit Eedar says, "Retail takes 20 percent from new game sales and then there is extra money from price protection and marketing funds. So by the time you are done buying a $60 title about $35 to $40 is going back to the publisher."

The retailer takes its cut for services rendered. Fair enough. But for years it has also insisted on controlling the price at which games are sold, and passing on the cost of any reduction to the publisher. So if a retailer decides it wants to shift something quick by dunking the price, the publisher pays.

The publisher must stump up just to ensure its games are stocked at high levels. Orders are often based on how much dough the publisher will spend on items like in-store posters. Naturally, the retailer makes a tidy profit from these marketing 'programs.'

And then, the final insult. A huge swathe of the retailer's floor-space, including the premium next-to-the-register area, is given over to used games. And every cent spent on this stuff goes to the retailer, not to the publisher.
Why Used Games are Important

Of course, the publishers won't be doing gamers any favors by closing down the trade in used-games. As GameStop CEO Paul Raines pointed out at recent earnings call, "Remember that used video games have a residual value. Remember that GameStop generates $1.2 billion of trade credits around the world with our used games model." He denies that the console companies would make a move to close all this down.

But there are those who believe that a significant proportion of those credits are being spent on other used games, once again benefiting retailers more than publishers.

Greg Short says, "I would wager that people who trade in used games are buying used games. They are not necessarily buying new games." Whether or not this is true, used games help people who are on lower income. They also help everyone sample games they might not have bought new. Used games are marketing.
On balance, it's a dumb idea.
Analyst Michael Pachter believes that hurting the games retailers will ultimately harm the games producers. He told GamesIndustry, "It isn't really in Sony's or Microsoft's best interests to block used games. If Sony unilaterally did this, I could see GameStop refusing to carry their console, and sales of the PS4 would thereby suffer. On balance, it's a dumb idea."

But the publishers have already begun their assault by blocking used gamers from accessing multi-player servers unless the players pay an extra fee. The publishers believe history and technology and time is on their side.

There have even been rumors that a next-gen Xbox system might be released without a disc drive. Although this story has been widely dismissed, my sources insist that Microsoft considered dumping the drive as an early option, and now news is emerging of a possible drive-less Xbox 360, dubbed Xbox Lite, in the mode of AppleTV.

So, while used games aren't going away any time soon, they are certainly under attack at just a time when retailers are facing the digital distribution wave.
Why Retailers are Still Necessary

Although bricks & mortar retailers are going to die eventually, they remain a big part of the gaming experience. Perversely, they are still massively important for the games publishers.

Last year GameStop sold $10 billion worth of games, peripherals and consoles. It has a massive share of sales of new games. If it went bust tomorrow, the catastrophe for games publishers would be unimaginable.

In Britain, its main retailer GAME just collapsed. Although the circumstances of its fall were unique, and the company is involved in a rescue bid, it was a retail chain comparable to GameStop in terms of its ubiquity in that country. But although game makers in England say they expect consumers to simply shop in different locations (there is some evidence for this, such as recently increased sales at rival HMV), the word is that budgets are being cut back to compensate for the disappearance of a major customer from the publishers' order books. The idea that hundreds of stores just disappearing somehow won't affect games sales is a fantasy.

Retailers are major marketers of games. From the posters in the shop window, to the nice assistant who tells mom which game to buy for Junior's birthday, they serve an essential role in gaming's fragile ecosystem. In comparison to digital, it costs way more for publishers to distribute via the real world, but, equally, that's where most of their customers live.

Greg Short says, "There are challenges with digital. Marketing is horrible. Discovery is horrible. The benefits of retail are the posters and the people telling you what to buy. If the first parties are planning to migrate to digital then they better have a way to allow each consumer to discover the games they want to play. Without that, the loss of retail will have a negative impact."
With a little effort, games stores can be made into something that sticks around a good while longer.
Retailers like GameStop have made moves into the digital world, readying themselves for the changing emphasis away from bricks & mortar. This is a smart self-preservation move and a recognition that consumers are comfortable with retail brands in the digital domain (such as Steam).

But it also helps publishers. GameStop's boss again: "We've become the leader in digital content sales for consoles," Raines said, pointing out that GameStop sold digital content with 40% of store-sold copies of Mass Effect 3. So publishers will also lose digital sales if the retailers go away. GameStop is predicting that its digital sales business will hit $1.5 billion in 2014.

Retailers also serve a human purpose. While those of us who live in metropolitan areas enjoy fast-download speeds, the average in the U.S is still not fast enough to download a very large game, like Skyrim, comfortably.

 If games companies want to continue selling five-to-ten million copies of their top games, they need retailers to supply their consumers for purchasing.

Not everyone has completely bought into the digital dream. David Cole, head of DFC Intelligence says, "Even in the digital age people still want to see stuff and hold stuff. That's why collector's editions have appeal. The music business completely collapsed. But games are more of a visual medium, a physical display where you can get people excited by showing them a product. Look at how the Apple Store does it."

So there is still place for retailers. Perhaps these companies can help themselves by vastly improving the quality of the shopping experience.

GameStop is ok with this in the vast knowledge of games and systems needed to play them, but retailers like BestBuy are vastly horrid when getting the latest and greatest games due to their lack of knowledge or the people to sell them. P.S. And We Also Don’t Need Those Damn Extras Best Buy So Stop Pushing Them!!

Games shops should be exciting, visual, attractive places. Not dreary cupboards stacked with old games and plastered with tacky posters. Aside retro-boutiques of the future, game stores are definitely going to die, but with a little effort, they can be made into something that sticks around a good while longer. But even this might not save your local game shop, if used games become a thing of the past.



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