Video Game Exec Claims Used Games Defraud The Industry

from the learn-some-economics dept

Mon, Nov 3rd 2008 10:11pm — Mike Masnick

Not sure why this has become such a big deal over the last couple of months, but here's our third story about a video game exec freaking out about used video game sales (you can read about the first two stories, if you'd like). In this case, it's the founder of Frontier Developments, David Braben, makers of the game Lost Winds:

"The shops are not giving us a way of distinguishing between pre-owned and new. So the shops are essentially defrauding the industry."

And how is that defrauding the industry? He doesn't seem to explain that part, other than that the industry doesn't like it. However, as we've explained in the past, an active second hand market boosts the initial market, by making buyers feel more comfortable buying the new game, knowing they likely can resell it and recoup some of the expense at a later date. Cutting off the second-hand market actually damages the original market for a product. Apparently, an awful lot of game developer execs have trouble understanding this concept.

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Filed Under: david braben, economics, secondhand, used, video games
Companies: frontier developments

48 Comments

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Xerloq, 3 Nov 2008 @ 10:35pm

How should this work for services like Steam
I'd love to be able to resell some of my Steam games. How should this work?
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Anonymous Coward, 3 Nov 2008 @ 10:45pm

Apparently they've been taking lessons from the "FU"AA...
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Daz, 4 Nov 2008 @ 12:48am

He should do something other than crying foul...
He has a point when you look at certain shops (EB Games for eg), where they stock 2nd hand games near the new games but with a $10 discount. Of course people buy the 2nd hand game more often, so the game company gets squat for that.
Thats a challenge for them to overcome, though. Whinging and whining about the whole 2nd hand market wont help at all, even if its directed towards government regulators, because of the reasons given by Mike.
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SteveD, 4 Nov 2008 @ 12:51am

I've a lot of friends who went through university playing games for a month then trading them in before they lost too much value to help fund the next purchase.

Its a good system, it seems daft to want to change it.
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massivemuncher, 4 Nov 2008 @ 1:12am

second hand games market
whinging friggin execs again. When will these overcompensated little boys in nappies get a life and actually run a company instead of whinning and trying to take out fair rights away again. The end result of this is nobody will buys games they will just bit torrent them and that is a fact. gamers more than anyone wont be bullied so you game execs better watch out. Your overly inflated salary is on the line.
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GollyGwiz, 4 Nov 2008 @ 1:39am

Re: He should do something other than crying foul...
So if you take this example, new car dealers should not have used cars on the lot to make sure they protect the car manufacturers?

Don't understand why the game companies are complaining, this is capitalism at its finest. If we followed their logic, we would have to pay the original home builder for buying a second hand home, the auto maker for a used car, or all the original sellers from everything on eBay. Doesn't make any sense to me.
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Anonymous Coward, 4 Nov 2008 @ 3:23am

Its not as cut and dry. You see, after the first initial week or so of sales, you get a massive influx of games back to the video retailer who sold it initially as a new product. After that first week, the majority of sales for game retailers are used copies. And once that used copy gets beaten, it comes back in as well. Each week after that first week the trade in value of the game slowly(or quickly, depending on the game) goes down. But the price of a used game normally stays somewhere in parity with a new game for a couple months. So say 50 bucks instead of 60. So game retailers keep making more and more money off each used sale. Sometimes, a single copy of a game will go through the initial store its sold from 4-5 times within a month or two after the first sale. Games aren't like books. Most people don't keep them, they play them, they beat them, and thats it. Sure, there are a few areas of games where that isn't the deal. But for the vast majority of games.. it is.
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Ray, 4 Nov 2008 @ 3:35am

Re: He should do something other than crying foul...
Now if the game execs want to offer REAL warranties against damaged disc (full replacement at no cost) money back for buggy games or features that don't work like the advertising, for games that really suck but they paid the geek press a truckload of money to give them a good write up and then keep offering this including all of the operating system updates ect for perpetuity then I suppose they would have a valid point for asking for a cut.
But because these winging bastards don't do this for the original brand new purchaser, They should go to their expensive country clubs in their expensive cars with their trophy partners and drown their pathetic sorrows!!!
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Anonymous Coward, 4 Nov 2008 @ 3:36am

Re:
The video game industry really is its own worst enemy. If you add all those sales up, a single copy can bring in 3-400 dollars in gross sales for a retailer who subsidizes with used sales, while the original maker of the video game only sees the initial 60 bucks. And this doesn't even bring into account the allure of store credit most used video game stores use, and what an absolute sham that is.... The churn on console games is simply too fast. The only format you don't get that on is PC sales, but video game makers are so scared of "pirates" in that market segment, they're doing their level best to kill it. When in reality.. pirates are a minor part of the overall whole in copies out there(as Stardock has proven). Its sad really.
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PaulT (profile), 4 Nov 2008 @ 4:13am

Yeah, it's all pretty dumb. When I buy a new game (or DVD, or CD, or book), I weigh its total value. I rarely buy new games at RRP (SRP for the US; I think) because they're often too damn expensive. I'll wait for the price to drop. By the time I'm ready to buy a game, it's often dropped 1/3 of the original price with used games being a bit cheaper. Sometimes I'll opt for the new game anyway just to get it new, sometimes I won't.

But, when I do buy a game at the new retail price, one of things I need to know it that if the game sucks (or I complete it and don't think I'll play it again), I can get money back from it. This helps me continue gaming at a rate I simply could not afford at full RRP. There's nothing to stop me from, say, buying premium content through XBox live, if I think the extras are good enough. But, place control on this and the industry will see less, not more, sales.
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pawn, 4 Nov 2008 @ 4:45am

They should try to kill it. Games resales will move online, and Gamestop is out of business.

Then when 99% games are purchased from the 30 games selection at target or walmart, these same execs will complain about that.

I just don't understand how every industry complains about every single thing they have to compete with. A job that pays extremely well isn't always easy.
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Hoeppner, 4 Nov 2008 @ 5:22am

They're making a bigger deal because companies that sell used games are making a bigger deal as well.
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Dean Fowler, 4 Nov 2008 @ 5:26am

Better games
Maybe they should quit their whining and start producing better games. If a game can be completed in a week, then IMO it's not a good game, especially when you consider the cost. They concentrate on making games look good and forget about how it plays. It's lazy! A good game is one you will come back to, time after time.
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Former Ebgames Employee, 4 Nov 2008 @ 5:35am

Not distinguished?!?
Yeah so there's a completely separate section for Pre-owned games on the shelves. He's just pissed because the stores are making minimal money on the new games, and raping on the trade-ins / resell market.

this guy (and all the other game execs) can shove it up their ass. Make less shitty games and people might keep their games...
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Chris, 4 Nov 2008 @ 5:39am

Good games don't get resold
Anybody here remember trying to find a copy of Disgaea, Final Fantasy Tactics, or Chrono Trigger once they went out of print?

If a game is truly great, people won't want to trade it in. You can find literally dozens of copies of the bad to medicore games, but you will be lucky to find one copy of the genre changing games. Whining won't change the market, but if they make consistantly good games the secondhand market is not a big problem.
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Truthbringer, 4 Nov 2008 @ 5:43am

of course they think its Fraud?
This is thier IP, they are entitled to be paid for it everytime they want to be. You are not allowed to "buy" or "own" software, you are simply granted a limited liscense for its use. This is how these people think, so to them a transaction (any transaction)involving thier "IP" that does not result in a payment to them, is fraudulent. This is how they have been taught to think, this is the DMCA, this is copywright. this is "ideas as property".
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Scott B, 4 Nov 2008 @ 5:48am

Re: He should do something other than crying foul...
A lot of people buy used cars too but that is just part of the business. They need to get over it. Maybe if the games didnt cost $60 people would buy new more often.
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chris (profile), 4 Nov 2008 @ 5:51am

PA called this years ago
penny arcade called this years ago:
http://www.penny-arcade.com/comic/2007/03/30/

in the future, "used" games will just be older, discounted titles like on gog:
http://www.gog.com

old games for sale online with no DRM.

this works great for PC games and will work for next generation consoles with hard drives and it's not like the used game business is full of sound business savvy:
http://www.penny-arcade.com/comic/2007/10/31/
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arealgamer, 4 Nov 2008 @ 5:52am

I think its funny
These game companies have been convinced by DRM pimps that the PC market is full of pirates and they cant make any money there (ignoring the fact that most have already been made a fortune in that market for years). Game companies need to "move to consoles" to protect thier investment, piracy is much more rare on consoles and you wont get robbed blind (Todd Hollenshead from Id often makes this rediculously wrong headed argument). LOL what they forgot is, there is an entire retail chain based around the secondary market on consoles (this is not true of PC games) from which sales they get NOTHING . . . LOL. LMAO they screwed themselves out of fear and now they can reap the rewards . . . I would never and will never buy a new game for any of my consoles (I have all 3). I do however buy new PC games . . . LOL, god the greed of these publishers and developers will ultimately be thier downfall! Instead of couting the 45 million they made, they fret endlessly over the 4.5 million they MIGHT have lost . . . its halerious really . . .
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T2master, 4 Nov 2008 @ 6:23am

You know, the best thing about this is that LostWinds is a DOWNLOADABLE game. As in, "can't be sold to a used game store". Heck, if used games were a problem, then downloadable games would be a pretty effective solution.
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Gabriel Tane (profile), 4 Nov 2008 @ 6:23am

What we have here...
is the free market at work. The game stores are doing nothing more than providing a service to thier customers. You bring a game in that you don't play any more and we'll give you money for it. Don't want to pay what you consider to be a rediculous price for a new game? Here's a pre-owned copy that's a bit cheaper. And if it doesn't work, bring it back in and we'll give you another pre-owned copy free.

Now, in my opinion, this whole thing is a rape... but a rape we all seem to be willing to endure. I get, what $5 for a game that I can look over on the shelf an see a copy of the exact same thing for over $20? Basically, we become the suppliers of cheap resources for these stores to undercut the manufacturer.

I saw the same thing when I was in college for text books. If we sold them back to the book store, we wouldn't get squat. We found a great solution for this tho. Someone with a bit of HTML skills and a bit of time on thier hands created a networking site where we could post books for sale and contact each other to arrange trades. Why can't we do the same thing for video games? I mean other than e-Bay. Make it a bit more localized so that you can trade with gamers you can trust (or at least live within driving distance so you can go kick thier a$$ if they rip you off), and maybe even make some more gaming buddies.

Hmm... I might just do this now. Damn. Thanks guys! Inspiration strikes again!
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Jim, 4 Nov 2008 @ 6:37am

Re: How should this work for services like Steam
Um... sell your account number on ebay?
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Sahlgren, 4 Nov 2008 @ 6:38am

Garth Brooks disease
Garth Brooks used to make the same complaint about used CD shops and him not getting a cut. This argument flies in the face of literally centuries of commerce. Doesn't he have something better to do than attack his customer base? With this argument, he defrauded the car industry if he ever bought a used car. If he's rich enough to never have had to...well, just another whiny rich boy who's never had to actually work.
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jonnyq, 4 Nov 2008 @ 6:41am

Re: What we have here...
Everything you just described is true. But it's not rape. It's the free market just like you described. If you want cash (or trade-in value) NOW for your game with little hassle, you're going to take a lower value. If you want more for your used goods, you're going to have to do more work to find a buyer and possibly package and ship it yourself. You pay for convenience. Their $15 markup isn't "rape" if you're volunteering for it.
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Stupid Exec, 4 Nov 2008 @ 6:43am

To sell Madden in your store as a new release your making maybe .10 cents per copy you sell. That is a huge profit !! No in order to maintain a video game store you have to depend on the used games.

I know a lot of people (I worked at gamestop 2 years in one of the busiest stores) who would only buy new games and who would only buy used games. The market for new games are only there because people know when they have trade deals like trade in 2 ps3/360/wii games get another 10$. That will allow them to trade two games and buy a brand new game.

For instance, I just traded in Metal Gear Solid 4 and Euro Soccer 2008 and bought Fallout 3 for ps3 and didn't pay a penny :). That is something I like doing.
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omelette, 4 Nov 2008 @ 6:44am

Re: Re:
What I find funny is that they're killing the PC market because they're afraid of pirates. But that same piracy is what limits the resale market. I've never considered purchasing a used PC game because I'm not sure how many people are passing around the included software key. If PC software was locked down as tight as is possible with console games, the resale market would be wide open and the distributors would STILL be unhappy.
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Pete, 4 Nov 2008 @ 7:43am

Here are your options
First Sale Doctrine - FTW

Here are the publisher's options:
1. Create better games that people will want to keep, and there won't be a significant supply at the 2nd hand store. Give me a reason to want to insert that disc into my console again someday. This could be done by just having great replay value, or maybe by offering downloadable content (i.e. new campaigns, maps...etc). Find a more profitable balance between quality and quantity of games... (every action movie that comes out doesn't need its own game)

2. Don't fix your prices. The market determines something's true value. If the copies at big box store are all marked $60 and you're losing a bunch of potential sales to second hand stores selling them at $50. You may want to adjust your pricing while your game still has some value that you can capitalize on. Squeeze out the profit window that the second hand stores have. Otherwise big box store will eventually get sick of the stock they have on hand and throw it in the 19.99 bin to make room for the next product. If the new version is only marginally more than the used version of the same product I'll buy new every time. Also, many games that start at $60 probably should be at most $30 from day one. People have been burnt by bad games too many times at $60 a pop and have turned to the second hand option so as to feel less violated when they buy a lemon.

2.5: (Really more of a pricing suggestion than a separate option) Consider an initial release price drop (of at least $10) to encourage people to buy right away. This would really help sell some games that may not have been marketed as heavily. Obviously this wouldn't need to be offered for the premium titles that are going to have a monster opening no matter what the initial price.

Don't rely on laws to be passed to keep your current business model afloat. Learn to adapt and change, or become extinct.

If you do switch to 100% digital distribution in the future don't forget to adjust your prices accordingly.
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Anonymous Coward, 4 Nov 2008 @ 7:50am

Re: What we have here...
Call it Gabeslist
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hegemon13, 4 Nov 2008 @ 8:29am

Re:
Um, then that's a challenge they have to deal with. Make games with solid replay value. Make a game so good that people want it on launch day. Taking away the protected right of first sale is not an acceptable or legal solution. The retail stores making money does not prohibit the game companies from making money. They are making a profit, effectively, from their service as a sales agent. Either they are selling for their primary distributor or for trade-in customers. Either way, the profit is their commission for their ability to move a product, just like for any other product.
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Pete, 4 Nov 2008 @ 8:35am

Re: Re:
I wasn't referring to just the retail stores dropping their prices, it needs to start with the supplier. The retail stores can still charge whatever they feel like, but they will likely charge less if the product can be acquired for less.

The idea that every game needs a standard $60 msrp is what's hurting both the customer and the industry. Some customers' response was to look for a cheaper 2nd hand alternative. (Evidently a big enough percentage to get this guy's panties in a bunch.) Now how will the publishers respond.
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PassinThru, 4 Nov 2008 @ 8:50am

A way of distiguishing
It's not the shop's job to give you a way of distinguishing yourselves - it's yours. Give the first buyer some kind of premium - posters, one-time in-game items, $10 off their next game from your company - something only the first buyer gets. Many will pay the extra $5-10 to get something they can't get from the used game.

Then just let the market work.
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NullOp, 4 Nov 2008 @ 9:19am

Pinhead!
Greed, gReEd, GrEeD and GREED!!!!!!!!!
The ONLY reason fraud is being called is that the game company is not getting "their cut." When you sell your car for a new one do you give the mfg of your old car a cut. Well, Hell No! Media companies of all sorts believe they are ENTITLED to a piece of every transaction concerning thier product. Its just GREED, plain and simple...
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michael, 4 Nov 2008 @ 9:40am

Re: How should this work for services like Steam
If you are interested in re-selling you should only buy physical media.
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HAL9001, 4 Nov 2008 @ 10:20am

Re: Garth Brooks disease
There is a legal concept called the "Right of First Sale" (see http://en.wikipedia.org/wiki/Right_of_first_sale) which may come into play here. Basically I can dispose-of/sell the item so long as I do not keep a copy (ie: I must sell the original media and must destroy any archived copies. Per the WikiPedia article there are disputes in different Federal Courts as to if Software qualifies.
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Chad Allard, 4 Nov 2008 @ 10:38am

"The shops are not giving us a way of distinguishing between pre-owned and new. So the shops are essentially defrauding the industry."

Is he kidding? The usual giant "Previously Enjoyed" or "Used Copy" or "Pre-owned" stickers and signs in those stores aren't good enough? The fact that the clerk at the counter often reminds you of their return policy on USED games when at the checkout isn't enough?

It's not the fact that gamers are confused as to whether or not they're getting the used or new copy of the game.. it's the price tag that's usually stuck alongside the "pre-owned" sticker that's so appealing to us.

Give me a break
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New Game Buyer, 4 Nov 2008 @ 11:10am

I buy new games. It's not just because i'd rather spend $5 more to get a new game than a used one, but because you can get a new game on or before the launch date. I will occasionally buy a used game, if it's a great game that i missed and it's several months old already.

I also sell some of the games that i finish on ebay and put the money towards *drumroll* buying new games. I usually get around $40-45, far more than the typical $20-25 that gamestop offers for used games.

Although i buy new games, i can only assume that if so many people are buying used games for $5 less than a new game ($55 instead of $60? really?) the price of new games is too high. Obviousl, the price is not too high for me, or in some cases, millons of others, but if the turnover rate on a used game is 4x for one copy, then the price seems to be too high for many people.
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Nilt, 4 Nov 2008 @ 12:08pm

Possibility of fruad not zero
Full disclosure: this is sheer speculation but it's a possibility, knowing what I know about other industries such as beverages and vehicle sales.

It's possible the retailers get a kickback of some kind from the publishers. If that's the case, and the retailer doesn't properly differentiate used game sales from new game sales, then publishers could, in fact, be seeing fraud happen. Now, that's probably not what this is about buit it is a possibility worth thinking about.
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John (profile), 4 Nov 2008 @ 4:44pm

A bunch of whiners
These executives are a bunch of whiners.

How long has the video game industry been around? How long have people bought and sold used games? I remember picking up used games for a Sega Genesis back in 1993! And executives are only complaining about this NOW?

Then again, this whining sounds goes against a lot of the advice found on Tech Dirt, which is to make a better product instead of whining about the market forces at work.
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Anonymous Coward, 4 Nov 2008 @ 4:46pm

See Goozex - www.goozex.com
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The Freedom Thinker, 4 Nov 2008 @ 7:44pm

Whining Corporate America
Quality and demand. They just need to make quality games that are in high demand. Pretty simple solution. But maybe he should just get the government to bail them out so they can make whatever kind of games they want.
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crystalattice (profile), 4 Nov 2008 @ 9:28pm

Re: Re: He should do something other than crying foul...
The problem is, with digital goods, there is no differece between the "new and improved" and the second hand one. They are exactly the same. Whereas physical goods, there is usually a difference, such as some wear & tear or the new version has newer features.

Personally, consumers and retailers aren't required to stop second hand sales. The companies need to come up with something that makes it better to buy new, e.g. super-ultra-limited-edition box sets or something like that. Even if you can buy the game itself used, it's highly unlikely that you will get all of the cool "toys" that a new game comes with.
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Anonymous Coward, 6 Nov 2008 @ 1:30pm

Re: Re: Re: He should do something other than crying foul...
The problem is, with digital goods, there is no differece between the "new and improved" and the second hand one. They are exactly the same.
Read the article. They're talking about games on physical media and, yes, there is wear and tear on the media, box, and so on. So no, they are not exactly the same.

By this exec's reasoning it should be illegal to sell used books too.
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Anonymous Coward, 6 Nov 2008 @ 1:44pm

Re:
Games aren't like books. Most people don't keep them, they play them, they beat them, and thats it.
Actually, I think you've got that backwards. I rarely read a book twice (except for reference books) or watch a movie twice. But I will play a game many times over.
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Anonymous Coward, 6 Nov 2008 @ 1:49pm

Re: Here are your options
Don't rely on laws to be passed to keep your current business model afloat. Why not? If I can make more money with less work by buying legislation to protect me from the free market then why shouldn't I? Wouldn't I be stupid not to?
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Anonymous Coward, 6 Nov 2008 @ 1:54pm

Re: Possibility of fruad not zero
"Now, that's probably not what this is about buit it is a possibility worth thinking about."

No, unless you've got some evidence that say that is going on then it's not worth considering. I could make up all sorts of "what if" scenarios but I'm not going to bother everyone by posting them.
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Doug, 20 Feb 2009 @ 9:12am

Re: Re: He should do something other than crying foul...
Video games are media and a used game should offer exactly the same product as a new one, this is quite different than the difference between a new car and a used one. The popularity of the second-hand market of used games is going to wind-up causing new games to become more expensive to get back the money lost due to lost sales and increased tech support. This will push the direct download concept even harder to the point where I could see a game that retails for $60 being sold via download for $50 to manage costs.
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Doug, 20 Feb 2009 @ 11:02am

These execs are doing their jobs
I am a big believer that if you want a "free market" economy to work you have to do your part. First as a consumer when you overpay for something you are hurting yourself. I have stop going to Gamestop to sell my games due to thier significant markups and have joined Goozex (which has it's own limitations). The problem is that people are willing to pay $50 or $60 for a new game because they think it is worth it. For some titles full retail is right on for many others it is not, but when you buy a crappy game for $60 it then becomes worth $60. If you think games are overpriced don't buy them and if the demand goes down either games will become cheaper or less will be available.
In regards to developers losing money on used games they are have a right to be "annoyed", it is a shame that they will try use influence (a bribe) to get a law passed, but so will resellers. There is some merit to developer's thought process, but in the end what will happen is that games will move more and more to downloads with a premium is charged for physical discs bought from a retailer. This will work until people find a way to pirate or transfer DLed games and then the next fight is on it's way and I think it has already begun with the Wii Ware games.
What these execs miss is often "trade-ins" at a store like Gamestop encourages new game purchases. For example I enjoy RPGs and once I "beat" them I am done, I take this RPG to trade in (well I used to) and with the credit I get I am more willing to buy a new game. Yes sometimes I go for a used title but if I wasn't trading in the game I wouldn't even be in the store. I wish there was a way to find out how much of the reseller's retail new game sales are funded by "trade-ins". Then you would have an idea of the positive impact.
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someguy, 16 Aug 2010 @ 6:39am

Re: I think its funny
More like the 45 million they made, then 40 million they spent making it, then the 4.5 million they lost... so now they only have 500,000 dollars to fund the next game. You clearly have a lot of insight.
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