For retailers, the pre-owned market is a dream ticket, ensuring a constant flow of repeat revenue and delivering an attractive prospect for customers. While a handful of developers have been quite vocal on the subject of the second-hand space detracting from new sales, the recently announced closure of 85 GAME stores across the UK suggests that the effectiveness of re-selling stock may not be as black and white as it first appeared. Indeed, there are reasons to believe the pre-owned market is having a particularly negative impact on small-to-medium-sized studios, but as publishers increasingly turn their attention to digitally distributed content, the severity of the issue decreases apace.
Pending an absolute shift away from physical, therefore re-sellable media, the games industry still has a fight on its hands as far as profit retention is concerned. At the start of 2010, EA announced a new wave of incentives for new buyers in the form of exclusive ‘day-one’ content, as well as pre-owned deterrents such as ‘Project Ten Dollar’, which would see second-hand buyers having to pay to access online elements of EA’s triple-A titles. Many gamers cried foul, pointing the finger at EA for effectively punishing those who couldn’t afford to invest in full-price titles. From a business standpoint, incentives such as Project Ten Dollar are perfectly viable but ultimately fleeting. It’s hard to imagine that such incentives can offset losses suffered at the hands of second-hand sales entirely, suggesting more must be done to regain market control.
Project Ten Dollar may not be the all-encompassing solution the industry needs, but it may suggest an imminent shift in the way publishers do business that could bear fruit in a small matter of years. Wedbush Morgan’s Michael Pachter is one of many industry analysts currently keeping a keen eye on the progress of Project Ten Dollar as an indicator of where EA, and the broader industry, could go next. “I think the long term trend will be that all content is going digital. In time, you won’t be able to buy a packaged product and so I think that the plan is to either offer all content digitally, or to offer it via subscription. It seems that EA is just playing around to see if people buying used copies are willing to pay extra to go online and use those features. I think the industry will adapt to one of those two models, but I also think EA would rather charge everybody $10 to go online, but they won’t do it that way. What I think they’re trying to do is establish that there’s a value to $10 to access the online features of the game, and I think, in the end, they’d rather just say that gamers can buy a game, and pay $10 to go online.”
Pachter firmly believes that the impact of pre-owned sales isn’t as damaging as the industry makes it out to be, even suggesting that it fuels new sales. “Think about the used car industry. If you didn’t have the ability to trade in your car, how often would you buy a new car? The answer is ‘a lot less often’. Most people trade in or sell their car to get a new one and, typically, the person selling that car will get 25-50% of the cost of their new car. If you couldn’t do that, you’d have no value for the used car. You’d probably drive it until it fell apart.”
Over the course of the next 20 years, Pachter projects that all videogame content will be available digitally, but warns that such a shift will have to be introduced incrementally. “The shift has started now,” he elaborates, “but the impediment to moving to full digital distribution is that if a business makes online access necessary for people to buy its game, then that business will lose customers. Say, for example, 22 per cent of console owners aren’t connected online and you tell them, ‘Sorry, we’re not going to sell you packaged goods anymore,’ then that’s potentially a 22 per cent drop in sales. The reason I said we would be digital in 20 years is, I think, slowly we will see 100 per cent penetration of wireless internet, but it will take a while. By those 20 years, I think finally every household that the videogame publishers consider their adjustable market will have internet and their consoles will be connected to the internet. It was only a few months ago that you didn’t have wi-fi built into the Xbox 360. You can ask Microsoft; only 70 per cent of Xbox consoles are on Xbox Live. 30 per cent are not on Xbox Live – why is that? It’s because they probably aren’t connected to the internet.”
Regardless of reasoning, it’s clear that a percentage of the global gaming population is not interested or tech-savvy enough to want to take their console online. There is still a significant minority unwilling to embrace the online aspects of gaming, but increasing additions to online marketplaces, as well as growing ‘On Demand’ options for full-price content suggest that platform holders are each trying to make the online space a more attractive prospect for consumers, thereby eliminating the threat of pre-owned sales. It almost suggests that, from a point, the industry won’t need another console cycle at all, which would also render the pre-owned market a moot point. Factor in the positive impact of growing interest in online services such as Steam, Gaikai and OnLive, and it’s clear that the industry has already made significant strides into a fully digital age.
“I don’t think there’s necessarily going to be another console cycle,” Pachter explains. “I think that, if OnLive, or Gaikai or Steam evolve to the point where the publishers see the value of not having any games resold – and again, I’m not sure if it’s as damaging as publishers perceive it to be – they’ll support [cloud-based gaming]. It depends on what the next generation of consoles will do. If the next consoles are no better than a state of the art PC, then I’m not sure if we’re ever going to need to buy a console, because if you offered someone the option to buy a new PlayStation 4 for $500, or offer them the chance to sign up to OnLive for free for the same third-party content, and pay the same amount per game, why would I buy the console?”
The comment about choosing to purchase the PS4 vs. OnLive is based upon the assumption that OnLive can bring a level of fidelity equal to the said PS4. As of right now, the fidelity of OnLive is greatly reduced simply due to the limitations of bandwidth. Perhaps that will change in the future.
I’m a person who want to have game in my hand, i want to have a collection, like a collection of books, I want to have a new console, i don’t want to have an air, a like to touch something. Down with digital distribution, down with OnLive!