The Cost of Doing Business: Video Games Cost Too Much

In 2008 the video game industry first realized how significant the used game market and the digital game market was to it. Depending upon where you stood within the industry this was either bad-news-good-news, good-news-good-news, or just plain bad news period. It will be helpful if we address the easier of the two events just to get that out of the way first -- so lets talk about digital distribution of video games.

Games were being sold online prior to 2008, but it was in 2008 when the first meaningful statistics became available that provided a level of data that is necessary to begin extrapolation that allows for a reliable scientific "guess" about how a market will perform in the future. The statistics that were being used to extrapolate the performance of the digital software (and particularly digital distribution of video games) markets in the future suggested that digital distribution markets WERE the future. Seriously.

It was not simply one single factor either, but a combination of them. Game consoles had reached the crucial point at which they were finally equipped with both the high-speed network connection required to make game distribution viable online, but also they had the capacity for data storage that is critical to being able to buy and play a game that does not come on portable media -- CD/DVD or Blu-Ray in other words. In short there was a combination of data and infrastructure that came together in 2008 to point the way towards the future. And for a number of reasons the major game companies (particularly those who both developed and published their games) embraced this information like a drowning man grabs for a life preserver.

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Loyalty rewards programs like GameStop's PowerUp Rewards not only simplify the entire process of trading in your games -- the amount you receive is stored right on your membership card for use now or at a later date -- but inject a fraternal sense of self and encourage the trading of games via the regularly published online news letter and member emails...

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In a nutshell what this news did for the games industry was point the way to a future in which they exercised absolute control over their product. They would BE the retail source. The entire traditional chain that ran from their loading docks to the consumer? Well that would cease to exist. Games would still be purchased in game stores, but they would be online game stores owned by the game companies, and they would not involve the need to worry about competition. This was accepted as very good news for most of the game studios and publishers because it seemed to serve as the solution to a set of problems that they had, coincidentally only faced that year -- in 2008 -- and fully understood. What was that issue? Used Game Sales.

A little company called GameStop had taken the model for reselling games that was largely the domain of smaller independent game stores and comics shops, and turned it on its ears, thanks largely to its already solid presence in shopping malls and strip malls all over the world. While their previous focus had been selling new games -- and they would still do that -- in the early years of the new century someone at GameStop realized that there was more money to be made in selling used games, especially with the economy being what it was.

In fact they concluded that there was not only more money to be made in buying and reselling used games, they could make a community out of it, creating a loyalty program that encapsulated the process, promoted it, and made gamers feel good about it even while at the same time they were putting the boots to those same gamers by selling them a new game for $59.99, then two months later buying that game back from them for $9.99 and selling it to the next customer, as a pre-owned game, for $49.99. It was like printing your own money, and what was even more exciting about it? Why the customers were willing participants in the process!

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Gamers need not even leave home, as the pre-owned game market has moved online, and deals can be made 24/7, with the gamer shipping their games off to companies that only exist online.

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Of course that willingness was not automatic -- the wizards at GameStop had to work on creating the environment that was necessary to make it work, and part of the solution to that was to build in a sense of exclusivity to it. That began with there being three prices for a game when a gamer wanted to sell it back to GameStop: there was the base price for cash, which was considerably lower than the second price, which was the game's trade-in value (more on that in a bit), and finally there was the trade-in value that was offered to members of the PowerUp Rewards program (the GameStop Customer Loyalty Program).