Category Archives: Kyle Ormand

Will Killing Game Resale Kill Consoles? Kyle Ormand Says “No”

…thing is, I feel like he kinda wants to say “yes”.

Okay, go read this piece in Ars-Technica from Kyle Ormand. It’s about how blocking the use of used games—a rumored feature on the next set of consoles—won’t be disastrous for console game. I disagree, obviously, but was interested in what he’d have to say. What I found was a fairly balanced piece, but I honestly couldn’t figure out why Ormand was concluding that these things wouldn’t be an issue, when what he’s actually saying adds up to “disaster”.

I’ll go to the first section and show you what I mean.

One thing many publishers and used-game opponents seem to minimize when arguing against game reselling is that the mere existence of an aftermarket for games helps support the demand for new games. After all, you’re much more likely to shell out $60 on a game the day it’s released if you know you can get $20 to $30 back if and when you plow through it in a week. Eliminate the sellback option, and that same new game becomes that much harder to sell to a significant part of the audience, lowering demand and sales (or, alternatively, forcing publishers to lower the asking price for new games).

On the other hand, in a world where used games simply don’t work on your console, some segment of the market would be forced to pay full price for titles that they would otherwise buy in the form of a cheaper used copy. This would in turn increase the amount of money going to publishers and developers, compared to a world where used games are siphoning off some of those direct profits.

It’s hard to know exactly how big these countervailing effects would be, but we can try to estimate. Using Gamestop’s annual used game sales revenues of $2 billion as a basis, Wedbush Morgan analyst Michael Pachter suggests that the retailer is paying out roughly $1 billion a year in store credit for used games. Most of that money is plowed right back into new game sales, which Pachter says could be “driving overall games sales up around five percent or more.” That sounds like a big chunk of the new game market’s nose to cut off just to spite the used market’s face.

“It’s impossible to know the balance, but the cannibalization of new game sales from used games is most definitely largely offset by the purchase of new games with used game credits,” Pachter told me.

This doesn’t read as “things will be fine”. It doesn’t even read as “things will be good”. Ormand correctly points out that the main (I’d argue only) reason why the current $60 price for new games is sustainable is because people aren’t actually paying that price. What they’re paying is that sixty dollars minus however much they get for selling it on to someone else. They’re paying a net price of $50 or $40 or whatever to get the opportunity to play the game new without the hassle of rental or buying used.

So let’s go back to basic economics. There are far more people who are going to be willing or able to pay $40 for a game that aren’t going to be willing or able to pay $60. There’s going to be a lot of people who aren’t willing or able to pay $40 for multiple games, too. If the price goes up to $60, they might buy one game, but they won’t buy others. That’s great if you’re the guy selling that one game, but it ain’t much comfort for the guy selling the others. That’s why Ormand and Pachter both correctly point out that used-game buyers helps prop up the new-game market. Maybe not for the CoDs of the world, but everybody ELSE benefits.

Ormand mentions there will be profits from people who will be forced to buy games new. I don’t buy it, and it feels like he doesn’t either. Any additional revenues from forcing people to buy the games new have to be balanced against the “no resale” effect. Most people’s threshold for game-buying isn’t going to be based on idle desire, but firm limits on their entertainment dollar. They can only spend so much!

Think about it. As important as games may be to you, as vital an element of culture as they may be, they STILL have to be balanced against your other needs and desires. You still need to pay for shelter, for food, for warmth, for electricity, transportation, clothing, and all the rest…and you’re still going to want to pay for access to other cultural products and services as well. Games compete with movies, television, music, theatre, and all the rest. All that babble about “movie prices mean games are a better value proposition!” aside—now nonsense with ubiquitous five-dollar VOD movie rentals—people aren’t going to completely blow these other things off for games.

No, there are LIMITS to what you’re able to spend on games, especially with the middle class withering on the vine. Getting rid of resale won’t change those limits, so it’s actually quite unlikely that revenues will increase. They might concentrate, as a smaller and smaller number of big-name franchises scoop up more and more of those single-game buyers, but not increase.

Ormand’s quite aware of this, I think. Most of that section—only one of several, but all fitting this pattern—talks about the downsides of losing resale, not the upsides. It’s not a bad piece, mind, but that’s why I was a bit baffled reading it. What this article’s really saying is that losing resale is going to have terrible effects on the industry and on gamers. So why make the article about how everything will be fine, when all the available information suggests that it’ll be anything but?

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