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The Almighty Buck Entertainment Games

Game Retailers Make Money On The Margins 91

This week's Escapist deals entirely with the business of selling games, and the article A Marginal Business details how EB and Gamestop make their money. From the article: "'Used games are keeping the entire ship afloat,' a vice-president of marketing for Electronics Boutique tells me. 'EB and GameStop make basically no money from new product.' No money from new product? But everybody knows the retailers are the real profiteers of the interactive entertainment industry, brutally extracting marketing development funds and ruthlessly returning product in the name of the all-mighty dollar. Right?"
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Game Retailers Make Money On The Margins

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  • I'm pretty sure... (Score:4, Insightful)

    by Bin_jammin ( 684517 ) <Binjammin@gmail.com> on Tuesday January 03, 2006 @07:03PM (#14388448)
    it's the publishers that demand such high prices. Same with cds and dvds.
    • I don't know if that's the case. To my knowledge, publishers and developers only get money from retailers when they send the game out new. The retailer buys the game at, say, $45, and sells it for $50. When EB or GameStop take your used game, you are, in effect, the supplier, and they pay you for it. They just mark it up a lot higher.
  • EB and Gamestop? (Score:2, Informative)

    by Anonymous Coward
    I thought it was the gaggle of producers that got all the credit for money-grubbing. As in, EA. I can't recall hearing anything specific about the retail chains.
  • I've been screwed over by retailers since before this happened. So I'll get my games direct from the publisher, or ebay? Retail is just another redundant link in the food chain. Maybe if they'd have more respect for the customer in the first place, and employed staff who know what they're talking about and don't have an `if it's not on the shelf we don't have it in stock` or `I'm only working here because I need a job - any job - for the money` we'd have some sort of reciprocal relationship.

    Better luck w
    • A staff that actually knows games, you say? And possibly one that likes games? And is possibly, heaven forbid, honest about it? I know a certain publisher (you all know the one) that will not like this idea...

      "No, ma'am, this football game is not very good. It's the same dumb game from last year, only with updated player names. If you want a really good game for your child, try something original! We have [[obscure japanese shmup name here]], it's excellent."

      • > A staff that actually knows games, you say? And possibly one that likes games?
        > And is possibly, heaven forbid, honest about it? I know a certain publisher (you
        > all know the one) that will not like this idea...

        99+% of all the games ever sold have been through retailers which have clearly had no moral qualms whatsoever about pushing shoddy crap at anyone with a credit card.
      • The only problem with the staff who is knowledgeable about games, is that they put too much of their own opinion into it.

        Last two games I bought at a retail store were Blitz: The Leage and SSX: On Tour. Football and snowboarding.

        The guy working the register spent about 5 minutes trying to convince me that Call of Chtulu was better. And that I *should* be buying Morrowind because I hadn't played that yet. He went on and on about it.

        Finally, the girl that works at the store told him, "Hey- I don't think he
        • Heh, I had a similar experience. I was in, ugh.., Gamestop just to make an impulse buy on a game. I wasn't out looking for anything in particular, but I was probably going to buy something. So the guys at the counter start having a loud conversation (paraphrased):

          First Guy: "Oh, Alien Hominid is cool."

          Other guy: "Alien Hominid sucks and anyone who likes it sucks, what systems is it out for"

          First Guy: "I think its out for Gamecube and Playstation 2"

          Other Guy: "See, it isn't out for XBox, it's only ou

      • Unless the staff happen to have tastes that run the same way as profitable business, that'll cause the game shop to lose money.

        As far as the staff are concerned, they should match the right game to the right player.
        The right player is the one in the shop, and the right game is whatever is in front of the player.

        Anything else is a luxury that staff can only afford when they own the business.
        • It may not be immediately profitable for cinemas to issue refunds if you walk out of the movie but it builds customer relations. Selling people good games and helping them to avoid bad ones will make them more likely to come back to you because they know they get better service.
      • I know the publisher, but their football game is very good. For at least 3 or 4 years now, it hasn't been the same game each year. The engine has improved to the point that it's worth the new engine and not just the roster updates. The standard /. reply is that it's missing features from last year, but those features are NOT part of the football engine and are not missed by people who are only interested in using it to play football (which is what the game is designed for). I like originality but I plan
    • Look what happened with Valve. They've made a huge effort to cut out the middle man so they can sell their games direct to their fans. They didn't need a publisher for HL2 and partnered up with Activision (I think) for retail distribution as part of a contractual obligation. With their next game they'll have a much stronger bargaining position when looking for retail distribution, if they even bother with it at all.

      I'm actually a big fan of Steam and think it works well.

      Now they're offering other indepe

  • by Rakarra ( 112805 ) on Tuesday January 03, 2006 @07:18PM (#14388535)
    Article quote:

    But everybody knows the retailers are the real profiteers of the interactive entertainment industry, brutally extracting marketing development funds and ruthlessly returning product in the name of the all-mighty dollar. Right?"

    ... Huh? Since when has that been conventional wisdom? Seems the prevailing view is that margins in retail, such as game stores, are pretty thin in general, and competition keeps it that way. Only by growing unbelievably large (like Wal-Mart share) can you have a lot of power in that sector.

    • walmart has very thin margins too, that is the only way they stay as big as they are. unlike markets such as cell phones and software, in a retail market you have to stay cheap or stay good, you can't grab all the market share and coast for 10 years. If you try at the end of that 10 years you will be facing bankruptcy and possible shareholder lawsuits.
      • Yes but Walmart makes enough profit to stay alive with those margins while smaller shops face bankrupcy if they try to compete. That is the nature of capitalism, the bigger you are, the more likely you are to stay profitable and the easier it is to drive all competition out of business.
        • It's not the nature of capitalism so much as the nature of economies of scale.

          It is the incentive for growth - Walmart, Starbucks, everyone, all started with one store and grew to leverage economies of scale. The only place you DON'T see it is where there is no need to succeed to remain in existence - namely the government (with the exception of the military, which does have a genuine survival instinct and much in common with the business world in that way).

  • Overheads? (Score:5, Insightful)

    by Jeff DeMaagd ( 2015 ) on Tuesday January 03, 2006 @07:19PM (#14388542) Homepage Journal
    Given that many of the EB and such stores are in high rent districts, I can imagine that once the new product is sold, all of the margin from their cost to sell price goes to overhead, be it taxes, rent, payroll, utilities and so on. With used games, for reasonably new games, they seem to buy from the individual at less than 25% of the original price and turn around to label it at 75% original list or more, making the actual profit on the used game possibly higher than the new, with less invested.

    In terms of costs, it doesn't help that most of these game stores seem to be very poorly managed.
    • I worked at EB from 2000-2002 and learned quite a few things. Yes, the reselling of used games is there bread and butter, but it's not everything. The markup on accessories and guide books is ridiculous. Magazines are almost pure profit for them...and ESAs (extended warrenties) bring in a buttload too. Back when the PS2 launched I found out EB was only making around a dollar or two off each system they sold, so selling those warrenties with them was a huge deal. You could get written up for not selling enou
  • by thesandtiger ( 819476 ) on Tuesday January 03, 2006 @07:20PM (#14388546)
    I was at a Gamestop the other day and saw someone come in to sell some games. Not 10 minutes later, 2 of those used games got resold to other customers at a pretty good margin.

    Initial sale: call it 49.99 (of which...? is profit?)
    Buy it back used, currently popular title: -$25
    Sell it used: $45
    Buy it back re-used: $-15
    Sell it re-used: $35
    Buy it back re-re-used: -$5
    Sell it re-re-used: $20

    Off of that life-cycle for one game, they can easily make $55 bucks off of one game that had a maximum retail price of $50 bucks.

    Because used game sales are so attractive, they offer incentives for people to buy and sell used games - I have one of those membership cards, and I get %10 off of the price of used games as well as a %10 bonus to the trade in value when I sell games, and also they'll let me bring a used game back for a full refund if I do so within a week of purchase, no questions asked.

    Even better, they have huge leeway with what they can charge for the games - I tend to get pretty good deals when I haggle a little.

    Win win for the retailer and consumer, in my opinion.
    • Your theory is right, your numbers are off a bit, the result is the same. :)

      New game sold for $50, wholesale price from distributor was $36 (this is typical, and is in TFA). Gross $14 to Gamestop/EB.

      Current title, used, buyback at $15, if you're lucky. Re-sell at $40. Gross $25 to Gamestop/EB.

      Back title, used, buyback at $5 (again, if you're lucky. $3 is common now). Resell at $20. Gross $15 to Gamestop/EB.

      Total gross over three cycles (assuming it doesn't get sold back as a back title ad-infinitum) is $54.
    • >Win win for the retailer and consumer, in my opinion.
      >
      Yes. It is just the developer who gets screwed.

      But that's okay, they are probably use to it by now...

      • If developers want to avoid getting screwed on the used game market, they can do a number of things:

        1) Create titles so compelling that no-one will want to wait for the used market.

        2) Create titles so original/replayable that no-one will want to sell them to create that market.

        3) Lobby their publishers to reduce the retail price so that more people will be willing to pay full retail.

        4) Stop working with publishers who keep amping up prices while forcing absurd schedules making quality slip.

        There are many ga
        • I agree with the gist of your post, but a couple things strike me --

          3) Lobby their publishers to reduce the retail price so that more people will be willing to pay full retail.

          I think think you mean wholesale price, which would help preserve the margins of the retailers for new games. If they lower the MSRP on new games, all you'll see is the used games being sold for $5 less than the new MSRP. This would hurt retailers in the long run, beacuse their margins on both the new and used games would be l
        • There are actually two people "getting screwed" here, the publishers and the developers. But unless the title is a break-away hit, the developers usually don't see a dime. And if the title is a hit, the developers get a sweet deal on their next title. So really the one getting screwed is the publisher, as the developer is already screwed.

          Unfortunately lower initial price does not always equal higher sales, let alone higher profits. People equate cost with quality (usually incorrectly), and as such cheap
          • However, there are some options that you didn't mention. The pessimist in me suspects these will be the options that publishers explore.

            1. Create games with a single-registration online component, such as your account key in World of Warcraft.

            2. Pressurs console manufacturers to lock games to the first system that plays them, DRM style.

            3. Move to an Xbox Live Arcade style download-only service.

            4. Make re-selling games illegal.


            I suspect you're right, which is really kind of sad. I'd hope that the people runn
          • "People equate cost with quality (usually incorrectly), and as such cheaper games will often sell less overall."

            This reminds me of a client I used to have. He was running an insurance program for temp nurses who do not get health care for the hospitals they work for or their temp agency. The policy wasn't a great one but it was cheap enough that if anything catastrophic happened, they wouldn't be up the creek. Nobody was interested. He then took the exact same policy and charged 15% more for it and it s
      • >Win win for the retailer and consumer, in my opinion.
        >
        Yes. It is just the developer who gets screwed.

        But that's okay, they are probably use to it by now...


        What's this crap about the developer being screwed? No on would say that I screwed over Toyota because I bought a used car, so why is it different when it comes to games? I didn't pirate it, the makers got their money. If they don't want people to sell their games, then make then longer or put in some damn replayablity.
    • Is that used game full refund policy only for the loyalty card program, or is it a general store policy? It sounds like a decent policy. Is there any cost for the loyalty card program?
      • I don't know if it's general or just for the program - I was told about it when I was signing up for the program, though. The cost of the card thing was $9.99 (I think - might usually be $15 but I got a discount) - it also comes with a year's subscription to their gaming magazine, which, while not tremendously useful, does provide more reading material for the can.
  • Having been burned with online pre-ordered games, my son and I buy our games at either EBGames or Future Shop (in Canada). If it's not in one store, I go to the other(s). The guys that pre-ordered their games online get their copy a week later and pay shipping to boot. I also purchase older games as well, i.e. just picked up a new copy of Civ3 for $10 last week at EBGames. Expecting the clerks to have expert knowledge of 'Latest Game III' is unreasonable IMHO, as they probably get paid squat, and probabl
  • by EvilMagnus ( 32878 ) on Tuesday January 03, 2006 @07:26PM (#14388591)
    Really - pretty pages to look at, but someone needs to tell their webmonkies that the web is not print. It took me forever to find the 'next page' button, and I don't like reading web content in three column layout. Even the IHT learned this lesson, and there are many other print-to-web publications out there that show how you can do this without compromising aesthetics.
    • Try turning on Firefox's "Minimum Font Size" feature.

      While it's not at all uncommon for that to "break" a site, it often renders the text of The Escapist partially or totally unreadable. Fortunately, I find that is also true of the articles themselves, so all in all I'm not missing much. When the Slashdot discussions are routinely several times more interesting or intelligent (and much better laid out on my browser), you have a problem with your website.
    • I think it's a really nice looking page and it's comfortable to read. I had to go check out the page to see if it was really as bad as you say... I can't figure out how it took you forever to find the link to the next page, it's not like it's hidden in a mess of text and images. It's exactly where I would expect it to be and exactly in the first place I looked. I wish more sited were designed this way. What's distracting is messy graphics and columns of ads on either side of the text... like Tomshardwar
    • Also, the layout is completely broken here (Firefox 1.5 Linux). The columns of text are about 1.5 times the height of the background box, making it unreadable. I think it's to do with font size.
    • I had a similar reaction when I first tried reading an article on this site. However, the articles are generally quite good, so I persisted and found that in Firefox you can navigate back and forth through the pages using the page-up/page-down keys. This doesn't seem to work in IE, though.

      Now I'm used to it, I actually quite like flipping through the pages on a key press.
  • Yes and no. The trick is that no, retailers don't make money on the games themselves. They make money selling the SPACE on the shelves. No money, no space. It's part of how Doom made it big - rather than buy space at stores like Best Buy, they bought space on the counter at Circle K, 7-11, etc. This is, btw, how grocery stores make their money.

    Anyhow... of the 50$ of the game, the store usually gets 10. The Developer gets 5. Who gets the rest? Congrats, you get a biscuit. Yup, it's the publisher/di
  • I havent bought many games at the retail level. I just buy em online. Steam allows you to just pay and get the game downloaded automatically, while others might send a DVD too.

    Put it this way, people shop around online to buy hardware. More and more are doing the same for software now. If you had to buy the latest Radeon, would you just hop into the next door computer store or look around online for the best deal?

    The thing with brand-name computer parts is that you can be sure they're all the same. The Gefo
    • by Anonymous Coward
      You're the game publishers' ideal customer. You drop their cost to produce the game (no physical media), you increase their margin (no middle man) and you can't resell what you downloaded when you're not going to play it anymore. You're basically paying full retail price for an intangible that you have no real rights to, only a "license" that can be terminated on a whime. How do you make out on that deal?
      • ou're basically paying full retail price for an intangible that you have no real rights to, only a "license" that can be terminated on a whime.

        Read a EULA lately? You can have your CD Key banned from the master server on a whim.

        How do you make out on that deal?

        Well, it's cheaper than retail, and you get it on the spot. You also know that your money isn't going to Vivendi.

  • Do retailers ever refuse to buy back or sell used stuff based on EULAs? Just curious if anyone has an example.
    • Re:EULAs (Score:1, Informative)

      by Anonymous Coward
      Do retailers ever refuse to buy back or sell used stuff based on EULAs? Just curious if anyone has an example.

      When I worked at Gamestop, we couldn't take back any game with a serial key like Everquest (PS2) or Phantasy Star Online (DC, et al).
  • economic rant

    Almost every retail entity works on razor thin margins, really! Were talking 1 or 2 percent. When I was in retail, we were happy if we made 1 cent on a 20oz Pepsi. It's not some bizarre phenomenon specific to new computer games, its just the way it is. To be successful, you have to sell a LOT of sodas! (ne: Wal-Mart).

    As for the 'insane margins' on used games... Clue time, the same thing happens in other used areans. The used music stores here in New York, for example, may give you a dollar or

  • by jgardn ( 539054 ) <jgardn@alumni.washington.edu> on Tuesday January 03, 2006 @08:53PM (#14389074) Homepage Journal
    I have been working at online retailers since college. I've worked at retailers in high school and during college. They always work on the margins, and sometimes, their profits from sales amount to negative.

    Where do they get the money to keep afloat? From other sources. Some companies get paid by their distributors or manufacturers to advertise. That's right, Retailer Y gets paid money by Manufacturer X to advertise Retailer Y's store. Since advertising is money that has to be spent anyway, this translates to free cash. Others get cash from investors who believe if they can hold on one more year they'll hit it big. Others have some other service or plan that they are selling besides the product.

    Retail is about living life on the edge, with barely enough ground to stand on. When times are good, they are really, really good. (And Christmas is a really good time for everyone!) When times are bad, numbers turn red, and managers start sweating more and choosing which salespeople to let go. For most of the year, no one really knows whether they'll get bonuses or get fired.

    It's a tough game. It's tough because if you are a clerk or a salesperson, unfortunately, your higher salary works against you. One store I worked at told me upfront. "If you're good, we'll give you a raise." And then the manager said, "If you make too much money, we'll let you go!"

    But this is the same everywhere. Publishers are trying to find out how to whip out more product from their factories for cheaper. Distributors are trying to justify their take on the supply chain, wining and dining both suppliers and buyers. And retail shops are trying to manage the head-ache that dealing with people instead of lifeless products brings. Add to that the workers who want to bleed every dollar from their employers, consumers who are about as loyal as a goldfish, and then the government who wants to tell you how to run your business and take their cut of your money as well, whether or not you are profitable. It's a game where everyone is pitted against everyone else.

    Remember, one reason the internet is great for retailers is because you can now run your mail-order business for much cheaper and have more content that interacts better with the catalog readers. We've come a long way since Sears has published their first catalog, and we have a lot of ground to cover yet, but all signs point towards the internet solving a lot of problems mail-order has.

    But you know what? All of this uncertainty and stress and competition leads to a superior product and distribution chain. In America, you CAN buy almost any game you want in almost any condition you want for a pretty decent price in pretty much any locality. Not so in most of the rest of the world. In America, you CAN start a new publishing or producing company to compete with the big dogs. It's not easy, but if you are good, you'll succeed. It's what makes it all happen. It's all because we have these free markets where people compete for money and no one is coerced to do anything they don't want to do (except in special cases).
  • And bought my games with their employees-get-cost discount. Typically on console games that was in the area of 10-12$ less than retail (which was the typical 49.99). So around 38-40 dollars is what CompUSA paid for each console game. PC games had a bit more mark up, usually around 15-17$, to bring them to 49 if they were a "top tier" release. I heard from people at other chains (Best Buy for example) that their cost was slightly lower, perhaps because, compared to CompUSA, they had more retail outlets and b
    • Are you implying Compusa and Bestbuy are losing huge because they don't sell old games? I find it odd that they continue to stock the latest and greatest when they keep losing money. Everyone knows they don't sell every game in stock.

      • Actually I meant to click to reply to another posters question about how high the mark up is on games as best I could based on my experiences. But I clicked wrong.
      • CompUSA and BestBuy are using games to give you a reason to go into the store. While you're there they hope you might buy some other stuff. Maybe a nice new HDTV or surround sound system to play those games on. Guess what the mark up is on those items.

        Games aren't quite a loss-leader, but they're fairly close in some cases. BestBuy can afford to make money through the rest of their product and have thin margins on games. If the stopped selling TVs, sterios, and other electronics then they'd probably get
  • When the retail price of a game is $50 or more, it doesn't surprise me if people would rather wait for it to go 'bargain bin' or 'used' rather than buying new. No sense getting burned on a lousy game. Again. *ahem* Don't you see games becoming the next 'used car' market?

    Hokey/hostile copy protection schemes such as Steam and Starforce aren't helping matters either. No sense ragging on Steam since it has been hashed out here before, and Starforce's hardware/software-hostility has a cult following of gamers
    • Hokey/hostile copy protection schemes such as Steam and Starforce aren't helping matters either. No sense ragging on Steam since it has been hashed out here before, and Starforce's hardware/software-hostility has a cult following of gamers who stay informed of titles NOT to buy.

      How is Steam an Evil copy protection scheme?

      It seems to be quite the opposite of what most companies are doing. I can play any Valve game I've bought since 1998 on any computer that can handle the software without digging for
  • >In an interview with Computer and Video Games, Mark Rein of Epic Games was blunt:
    >"If you walk into EB in the U.S., they try and sell you a second hand version of a game
    >before a new one. I think that's bad. It would be fine if they share that revenue with us.
    >They can also be marketing partners with us, as well. We can have an official refurbished >games policy. That's the problem. Those resold games use server resources, tech support.
    >The majority of guys calling up saying "I don't have
  • Just about every game you get from EB is second hand anyway, in terms of it's usage. All their game discs come out of a big drawer behind the counter, and everyone takes advantage of their returns policy, at least once, which allows you to bring back a game within two weeks if it just didn't "float your boat". These returned discs go back in the drawer with the new ones and it's not unusual for someone who purchases a new game to get one which has already passed through several sets of hands before. They
    • Yeah but that doesn't fly at EB's in Canada anymore.

      IF you open the game? Tough. You're done. If it doesn't work, you bring it back for EXCHANGE only. If it's not opened okay, refund/trade-in. Otherwise tough beans.
    • That's certainly not the case at every store. While it is true that we "gut" some of the games we receive and leave the discs in envelopes behind the counter, EBGames does not [currently] have the return policy of which you speak and I do not think they ever did. Yes, we do have the 7 day return policy on preplayed games, but for new games - if you've opened it - it's yours, buddy. I don't know what kind of store you guys ran when you worked there, I guess you didn't care about even the simplest of thing
    • I'd never buy new or used from EB. The 3 in my area only sell their games opened. And some of their used games only only a couple of bucks cheaper than new. The private places are a much better deal for used games, everything else being equal. I'll leave EB to the retards.
    • I bought my last game from EB and Gamestop retail stores last month because of their opened box policy. I had bought a new Nintendo DS game at the local Gamestop for my son for Xmas and complained that the box had been opened. They said it was their only copy so they had to open it to put it on the shelf else it would get stolen. Christmas day my son puts the "new" game into his DS and there are save game files from months before the date I had purchased it. They had given me a used game and charged me a ne
      • I know that at several retailers (at least a few years ago) that it was rather common for employees to open and/or take home a game to copy it and then re-shrinkwrap it with the machine that the store had.

        Actually, most Office supply stores have shrinkwrap machines available for use and if you know the guy there, he can often re-wrap it for you. Doesn't work great for some games that have the harder plastic wrap, but if you pull it off right, it's a charm!

  • Offtopic but... Does anyone else find it awkward when "product" is used as the plural instead of "products"?
    • Not really bothersome to me. It's quite acceptable in microeconomic terms (and business jargon) to refer to what you produce as product, irrespective of quantity. The form 'products' as a plural is probably technically, etymologically, correct only for product from multiple producers.

      The 'product' of company A refers to all that company A produces.

      The 'products' of companies A and B refers to all that they together produce.
  • Sure there's a battle between retailers and publishers, but something could still be worked out. Say a 12 month period during which only retailers get to sell a new game. After that the developer/publisher can sell directly from their website(s) and lower their prices. Instead of ebay being the only place to find out of print games, I'd like to give a few dollars directly to developers for $20 games that once were $50.
  • I've made my opinion known before. I think retail stores selling used games is wrong. I won't get into the reasons I feel that way here.

    What I will say is that I think that the publishers are the problem. They're charging too much for their product, and even Mark Rein, quoted in the article as speaking out against used sales, thinks that publishers charge too much.

    The solution is simple. Publishers need to lower the price charged to retailers by at least 33%, but ONLY do it for retailers who agree not to se
    • If EA announced that they wanted to charge 50% extra to stores that stocked a particular unrelated but legal item (because that's what your scheme really amounts to), exactly how long do you think it would be before EB and Gamestop went running to the lawyers?
      • No, that's not what my scheme amounts to. There is a difference between increasing price for people who don't agree to a partnership and providing a price incentive to join a program such as this. If EB or GameStop wanted to sue EA for offering a discount for joining their program, they would be welcome to it, but they'd lose. That is, they'd lose if the case wasn't thrown out of court right away, which it probably would be. Of course IANAL.
    • The majority of game sales for the big publishers like EA, Activision, etc, are not through specialty retailers like EB and Gamestop, but through general retailers like Walmart and Target. These retailers probably get lower wholesale prices than the specialty retailers because of a larger volume. Granted these same retailers sell a much smaller selection than specialty stores, but that selection is pretty focused on the big-publisher titles.

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