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Businesses Sony Entertainment Games

Sony Profits Conundrum 84

Posted by Zonk from the coming-and-going dept.
Alice, over at the Wonderland blog, has an interesting post wondering about the state of Sony's finances when put in contrast with their view on second-hand game sales, and new title prices. From the article: "Yet it turns out that discounting new releases also results in higher sales. MCV continues: 'BVG's The Chronicles of Narnia jumped ten places up the ChartTrack top 40 last week, thanks to a 16 per cent sales increase, following its slashing to £19.99 at most High Street retailers.' My question: what the hell are they complaining about? Why curtail the perfectly reasonable and legal second-hand market if they're making money hand-over-fist with the current situation?"
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Sony Profits Conundrum

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  • Greed (Score:5, Informative)

    by Gomer79 ( 43434 ) on Friday January 27, 2006 @05:30PM (#14583227) Homepage
    Because they could make a little MORE money if there was no second hand market!

    • Re:Greed (Score:1, Redundant)

      by Tebriel ( 192168 )
      Exactly
    • Parent hit it spot on. We've seen this same problem in the Home Movie industry, the Book industry (remember the hub-bub over the Amazon used books?), the Music Industry, and many other entertainment outlets. Producers of content want 100% of the profits, even if the current situation is beneficial to them.

      For more info, look up killing the goose that laid the golden egg.

    • Re:Greed (Score:3, Interesting)

      by ClamIAm ( 926466 )
      Getting a percentage of each used game sale is probably Sony's wet dream here, but they should look at other industries to see a perfectly reasonable and much better idea. Car manufacturers often have "certified" used cars, where they go through and perform maintenence and slap a warranty on the thing.

      Games could work the same way. Work out a licensing scheme where used game retailers could buy a special console that checks for errors and disc scratches. They then make sure the manual and everything is

      • I think EB Games already guarantees that a used game will work like new. I'm not sure how long they give you. I can see this working with hardware and maybe online PC games, if at all.
      • While a certified used car seems to make sense, a certified used game just doesn't make sense to me.

        A car is a fairly complicated mechanical and electrical system. Wear and tear is going to happen, but you don't throw away the entire car--just change some fluids, replace some parts. There is added value in the manufacturer saying all of those systems are in good condition.

        An optical disk just isn't like that. You have an unreadable disk? You no longer have the product. What's the added value? You can
        • Wear and tear is going to happen, but you don't throw away the entire car--just change some fluids, replace some parts.

          They could give second-hand purchasers a new CD/DVD which would have no scratches glitches etc at all and just destroy the original. After all, it's the content they're licensing isn't it?
          • Then you have the exact same product as a new game. They can sell a new one for expensive, or a replacement for cheap. . . . I know which one I'd do if I was Sony. I don't think it's right but they want to sell you the license to that data, on that medium. They want to eat their cake, and have it too.
      • Either that, or second-hand retailers could do what they've always done and inspect visually for scratches and guarantee used games to work, thereby still making scads of cash and not forking over a dime (which they shouldn't) to the original developer/publisher.

        This is a non-issue because there's nothing special about games that should allow them to retain any sort of ownership over a product that they've sold. If used game sales cut heavily into the profit margins of developing and selling games, then t
        • I'm not advocating a mandatory tax given to Sony. Sony could offer this type of service, where the retailer follows some codified set of instructions, places a "Sony (or whoever) certified" sticker on the box, and charges more for it. If there's a market for this type of thing, then great. If it tanks, they'll probably shut up.
          • But where's the benefit for Sony if they don't get a cut of the profits? I suppose they could make some money off these little widgets you're talking about but that's not the kind of market in which Sony would likely be interested, especially when the end result cuts into their sales in a market in which they already have a serious stake.
            • The profit's in licensing the stickers. Although, I agree, a retailer could just as easily apply their own snappily-labeled guarantee program.
          • I don't see what the hype is about, Sony is blaming reductions in pricing of new release games on the price and availability of second hand games.

            The article goes on to mention some other software makers are attempting to restrict the second hand market (this occurs in commercial software, auto desk is infamous for demanding an exorbitant re-registration fee (hundreds of dollars) on it's software when bought second hand.

            I wonder who those software companies are that are pushing for a similar re-registra

      • Pretty pointless if you ask me. This is going to drive the cost of used games up a bit right? Usually certified used cars cost a bit more than non-certified. Someone has to pay for the warranty and the checking and all that. When I buy a used game I know I can take it back if it fails. It's not a major transaction like buying a car. I pick a game, cough up a few bucks, go home with game and give it a play. If it no worky, I take it back. A bit of a hassle maybe but I'll be back in the game store in the near
    • Yeah, if they make 5 billion this year and they couldve made 5.1 billion by squeezing things in a few places, then someone isn't doing their job. Welcome to the life with "The Corporation".
      --

      http://wi-fizzle.com [wi-fizzle.com] Fo' Shizzle Dizzle!
    • > Because they could make a little MORE money if there was no second hand market!

      That is not greed, it is stupidity. If there was no second hand market, they would sell fewer units. This is because the content they sell has a lower value to the purchaser than the current retail price for many purchasers. That defference is made up for by the owner selling his property on again, albeit for a reduced price. Without the ability to sell second hand, there would be fewer people prepared to pay current prices.
    • Because they could make a little MORE money if there was no second hand market!

      Some may think this, but I don't think it is so simple. It may seem silly, but I am more willing to buy something at a high price if it has a good resale value. It seems too many people, including corporate types, assume that products are simply expendable. However, I am not so wasteful whenever I can help it. I am willing to buy used if it is in good shape and priced right, and I am willing to buy new as well.
    • On the other side, we could say that used games buyers are cheap...

  • Ehh, thats fine... (Score:3, Insightful)

    by engagebot ( 941678 ) on Friday January 27, 2006 @05:34PM (#14583294)
    "Why curtail the perfectly reasonable and legal second-hand market if they're making money hand-over-fist with the current situation?"

    When have you *ever* heard a company say "Eh, thats fine. No thanks. I think we're plenty good..." on the subject of profits?

  • Risk Analysis (Score:3, Insightful)

    by ClamIAm ( 926466 ) on Friday January 27, 2006 @05:34PM (#14583296)
    I am rather certain that before large corporations begin trying to manipulate the echo chamber, they do some research and compare the risks, rewards, and consequences of doing so. We may think that Sony's insane for complaining about the used game market, but I'm sure that they've thought about the possible negative reaction that could occur by them talking about this, and reasoned the possible profit outweighs the possibility of or the seriousness of the public backlash that could/will happen.

    It's a bit like the scene in Fight Club when the narrator explains how his company issues recalls. If the court settlements are less than the cost of a recall, they aren't going to fix those cars.

    • Re:Risk Analysis (Score:3, Interesting)

      by AKAImBatman ( 238306 )
      It's a bit like the scene in Fight Club when the narrator explains how his company issues recalls. If the court settlements are less than the cost of a recall, they aren't going to fix those cars.

      The first rule of Fight Club is, YOU DON'T TALK ABOUT FIGHT CLUB! ;-)

      That being said, you need to remember that Fight Club is just a movie. Any sort of court settlement is likely to include a requirement that the defective vehicles get recalled. Thus it's usually cheaper and easier for a company to jump on the issu
      • In regards to corporate recalls and the like, I wasn't really referring to that specific scenario. I was thinking more along the lines that corporations often make decisions that put profit first, sometimes making choices that are morally dubious, anticompetitive, et cetera.
      • "In other news today Corporation A agreed, without admitting any wrong doing, to pay Cash Amount B to Plaintiff C. Plaintiff C filed suit against Corporation A earlier this year for Product D failing to spin down in the CD-ROM drive on Plaintiff C's computer when the Eject Command was sent to the CD-ROM drive vie software rather than pressing the eject button on the drive itself, resulting in the Projectile Product D decapitating Plaintiff C's Terrier. Now here's Heidi with the weather."
    • I am rather certain that before large corporations begin trying to manipulate the echo chamber, they do some research and compare the risks, rewards, and consequences of doing so.

      So what did Sony compare and research when they stuck a rootkit on music CDs? Did they think about the negative reaction and the increased profits to counteract that reaction? Oh, there were no profits but a loss and a PR disaster to boot? My bad
      • Well it would stand to reason that Sony will be less likely to go for a ridiculously evil activity like this after getting spanked both in various United States state courts and the court of public opinion. Then again, if they were reasonable they wouldn't be so hot on excessive DRM activities to begin with.

        Guess I'm just muddying up the issue.
      • First, my comment was about companies going on PR campaigns, spreading FUD and the like. The rootkit issue is a bit different.

        However, I believe that Sony probably did do some research before shipping off thousands of rootkits. Just look at the "nobody even knows what a rootkit is" line that was trotted out. They knew what they were doing.

        So they either did crappy research in this case, or they figured it was justified somehow. There are reasons they would try such a thing. Perhaps they wanted to s

    • ""Most people, I think, don't even know what a rootkit is, so why should they care about it?"" Ya, they think a lot about how people might react to thier point of view when considering making more profits.

  • 'Control. It's all about control.' (Score:4, Insightful)

    by Channard ( 693317 ) on Friday January 27, 2006 @05:35PM (#14583305) Journal
    You don't need to be a bargain basement Colonel Sanders to know that someone at Sony apparently wants to keep a tight rein on distribution/selling of their games. They're a part of the same industry that insists on region coding for DVDs.
  • ... Corporate Greed.

  • From the department of duh (Score:4, Interesting)

    by MMaestro ( 585010 ) on Friday January 27, 2006 @05:53PM (#14583500)
    Yet it turns out that discounting new releases also results in higher sales.

    Discounting new releases means higher sales? No, really? /sarcasm

    Gamers have asked for new releases to come down in price sooner, rather than waiting for the company to think 'well gee, sales and hype have hit rock bottom lets try discounting games now that everyone already bought second-hand copies and hope we make some more sales.'

  • "Greed" is glib (Score:4, Interesting)

    by tengennewseditor ( 949731 ) on Friday January 27, 2006 @06:08PM (#14583663)
    Simply because a corporation seeks to maximize profits doesn't mean it shouldn't keep the customer's interest in mind. It's in Sony's interest to keep the secondary game market alive so that PS2 console owners remain happy and come back for the PS3. But yes, this also obviously hurts the primary game market. There's an obvious tradeoff here, which makes a console maker's decision whether or not to support or squash a secondary game market an interesting decision. Simply calling it "greed" marginalizes the whole conversation because it's obvious and insufficient at the same time.
    • But yes, this also obviously hurts the primary game market.

      I don't think this is the case. When I think of the reasons that I would personally buy a used game, there are only two that come to mind

      • the game is out of print
      • the game is significantly cheaper used.

      Neither of these really affect the primary market. If there aren't any used games that I want to buy, I'm not going to buy a new game just to make up for it. There are of course corner cases here, if I was choosing between buying two games tha

    • Re:"Greed" is glib (Score:3, Interesting)

      by GregWebb ( 26123 )
      OK, case study.

      I'm 27 and I own a PS2 (though admittedly I was a late customer, only got it in late 2004).

      I have 15 games for it (and a social life, and a girlfriend! really! she likes some of the games too :-)), of which only 7 were new.

      Of those 7:
      * 1 was bundled with the machine (GT3)
      * 3 were seriously cheap anyway (original Codemasters Indycar, £10, WRC3, £10 and Stock Car Speedway, £7)
      * 1 was in a sale, on a voucher and largely for my girlfriend anyway (Sonic Mega Collection, £20

  • No Technical Solution to Secondhand Sales (Score:4, Insightful)

    by Nom du Keyboard ( 633989 ) on Friday January 27, 2006 @06:14PM (#14583729)
    Perhaps they have to complain about secondhand sales because there is no reasonable technical solution to them. Sure there's been talk that once you insert your new game into your new PS3 that game will suddenly be rendered unplayable on any other PS3. Boy would that be (yet another) bad move on Sony's part, to wit:

    o Your PS3 dies (they do) and when you bring your new one home none of your games play on it.

    o End of the game and PS3 rental market (unless you can keep each game with each PS3. This will not help PS3 penetration at all.

    o Although you keep you PS3 locked up when you're not playing it, you little brother grabs you new game and takes it to a friend's house to play before you get a chance to play it yourself.

    o Overall glitches that plague any new technological protection measure may only impact a few percent of the players, but that's still many thousands of now angry gamers.

    With Doctrine of First Sale allowing you to do what you want with it otherwise, Sony better just learn to live with used games that they are not going to be able to collect even more money from.

  • Optimum price (Score:3, Informative)

    by sterno ( 16320 ) on Friday January 27, 2006 @06:30PM (#14583885) Homepage
    Yet it turns out that discounting new releases also results in higher sales.

    This is about as duh as it gets. It's basic economics. At a given price, based on demand, you'll sell a given quantity. Lower the price, and generally you sell more. Raise the price, and you generally sell less. Of course it depends on factors like whether people can live without it (gas price increases for example).

    The question is whether they make more money selling more copies at a lower price than they would selling less copies at a higher price. By the logic suggested here, they'd be making piles of money if they gave the game away because they'd sell more.
    • By the logic suggested here, they'd be making piles of money if they gave the game away because they'd sell more.

      Well at the volumes they'd produce games, I'd dare say it actually costs less than a penny to phyiscal produce a game box and the game inside (not counting the huge budget of making the software part of the game).

      So yeah... They could afford to give it away at an almost free price as long as it above $1. If a new game was sold at $1, I'd bet everyone who owned a PS3 would buy one.

      However, if the

      • Ummm... no (Score:4, Insightful)

        by sterno ( 16320 ) on Friday January 27, 2006 @08:29PM (#14584922) Homepage
        So yeah... They could afford to give it away at an almost free price as long as it above $1. If a new game was sold at $1, I'd bet everyone who owned a PS3 would buy one.

        Not really. Distribution cost of a game is negligible in the grand scheme. It's the cost of developing the game, marketing the game, etc, that are expensive. Now you might think, well at $1 they don't need marketing, but then that only works for that one game, otherwise all the games start competing with eachother at the $1 mark, and you now need a marketing budget again.

        A good developer is going to cost between $100-150K per year, give or take. So how many developers does the game require? How many graphics people, etc? Suddenly you're getting into quite a bit of money. How long does it take to develop the game. A year? Two? Five? Multiple that times the salaries and you see how this goes.

        Now, keep in mind that for every game they release that sells well there are a few others they make that don't. So in order to remain profitable they have to charge more for games to make up for the duds they lose money on.

        So a couple years of development with a group of developers plus marketing costs, packaging, and distribution it costs quite a bit to make just one game. If that one game fails, then you have to make up that cost on other games. If you've noticed, the cost of games has been pretty consistent over time. There's been a steady increase as inflation is incurred and game complexity increases, but overall what I pay for Half Life 2 is on par with what I once paid for pac man (and arguably cheaper).

      • Not true. At Best Buy once I saw a copy of Terminator 3 for xbox. On the cover it listed that it contained a coupon for a free red baron pizza. Even if the price of the pizza equalled the $10 for the game, I wouldn't have bought it. Why? Because I don't care how cheap something is, if it's crap, I don't want it. Not everyone would buy a $1 game. Hell, some people wouldn't take it if they were giving it away for free.
    • Baicly, simple economics says that if changing the price (up or down) of what you are selling results in a greater total profit (i.e. a greater * ) then you should change the price.

      If selling games cheaper resulted in greater total profit, the games companies would be doing it. (although given the way big media is operating these days, an understanding of basic economics is probobly beoynd them :)

  • Where Sony misses the point... (Score:3, Insightful)

    by Dhaos ( 697924 ) on Friday January 27, 2006 @06:38PM (#14583949)
    The fact of the matter is that used games are HELPFUL to the gaming economy.

    For one, used games help those who are addicted to having the newest games. How? Habitual new gamers will go out, buy a new game, play it, and sell it back to the store, used. They'll then use the (smallish) amount of money they get back towards the purchase of a newer one. So, in effect, used game sales are subsidizing the sales of new games.

    Another way used games help is by expanding brand awareness. If I go into a store and see Series Game 3 on sale for $6, I might buy it on a whim. If it's particularly compelling, it might lead me to purchase Series Game 5 at full retail price. Sony hasn't lost any money in this series of transactions, and has effectively marketed its game to me.

    So...once again, Sony needs to chill out!
    • You bought an news game for 30 $.
      The reseller buy it 10 $ from you.
      It sells it for 20 $.

      Maybe you'll then buy a new game, but more than not often you'll buy an used game at the used game shop when the reseller just gave you the money, of course you can also spend your 10 $ outside of videogames.

      Assuming the best case: you keep your 10 $ to buy a new game, the industry will have the income from 1,33 games but more realistically it will just be the income for one game. Without the used market it would have b

  • What an epiphany! (Score:5, Funny)

    by RyoShin ( 610051 ) <<tukaro> <at> <gmail.com>> on Friday January 27, 2006 @06:57PM (#14584114) Homepage Journal
    I've just realized: Sony is right! Second-hand markets is a horrible, horrible idea. I mean, if other people aside from the original purchaser are able to make use out of an item after the original purchaser no longer wants it, then it will drastically hurt sales.

    And not just in gaming! No, my friends, Sony is thinking too small. We need to extend this War Against Reuse (WAR).

    Let's bring on folks like Certa (Serta?), Ikea, and Nike. Lots of people sell their used mattresses, furniture, and shoes at garage sales- think of the profit loss! This needs to stop. In fact, let's take a page out of the RIAA Playbook and create laws banning garage sales altogether. It's too hard to visit every garage sale, and pick out those items which were not originally created by those owning the so-called "garage", and there's a much higher percentage of second-hand goods being sold at these things, so closing them for good will solve most of the problem.

    But, before that, there are more evil companies out there- yes, I'm talking about Goodwill and Salvation Army. These companies, posing as places to sell moderate-condition items at a low low price and hiring those who might not otherwise get a job, are stealing hundereds of thousands, if not millions, of dollars from legitamite, multi-billion dollar companies. These large profit companies have people to feed, too! Will no one think of their children?

    We need to pick up this WAR and fight those diabolical enough to sell us used goods as a fraction of the new price. This is just horrible. I'm so glad I had this epiph-

    Oh, wait, that was just gas and hot air.

    Continue about your day.
    • Reminds me of the way the 'clones' in 'Brave New World' were conditioned to throw out items that broke/tore and buy new ones instead of repairing them.
    • You can't compare sales of used videogames with sales of goods like mattress or cars:

      If you sell a car you didn't use it in full, and you sell its residual value which represents the remaining usage potential.
      If you happen to buy an used car you won't be able to use it as long as if it was new.

      Whereas when you finished the videogame you used it in full.
      But for someone else its usage potential remains full.

      The so-said used videogames aren't used at all.

      If each time an used car/mattress/etc.. (even almost exh
      • Make the game worth keeping. Either lower the price, up the replayability, or simply accept that some people will sell their game no matter what you do.

        You've been able to rent movies for a massive amount of time. Why do people still buy them?
      • not entirely correct.

        Vido games have more value in playing it right away than cars do. there aren't many suprises in cars and hearing a lot about a car doesn't affect it's value. a used game does have diminished value because over time more similar but better games may come out. even if the absolute value of the game remains constant (game server population doesn't decrease) the marginal benefit of the game does go down when for $5-$10 more than the used game you can pick up a better, similar game new.
      • well take a look at a used game

        it has scratches and smudges on it (In somecases it has everything done to it except been pissed on)

        it doesn't mean it will work 100% in your system cause of said scratches and smudges, I've encountered games that got alittle scratch way out on the outside of the disc and it refuses to load, that doesn't exactly sound like it's able to be used for a long time to me (since you know, it refuses to load the first time)

        You will probably have to buy a disc repair kit or ta

  • But... (Score:3, Insightful)

    by Locke2005 ( 849178 ) on Friday January 27, 2006 @07:32PM (#14584427)
    Having a high resale value increases the value of a new car... why doesn't this principle apply to games as well? Won't Sony sell more games if people know they can readily sell them on the used market, thus their cost for the game isn't $50, but rather $50 less what they can resell it for? Do the car manufacturers complain about used car sales cutting into their profits? No, because most people buying a used car probably couldn't afford a new car anyway...

    If Sony really wanted to do away the the second-hand market, they should simply offer trade-ins for games - turn in a used game and get a new game at a discount that is greater than the game traders pay for used. Then they could simply destroy all the used games, or resell them themselves at a profit... again, this is exactly what car dealers do.

  • An end-game? (Score:2, Insightful)

    by Gingernads ( 831161 )
    So lets take this for a little walk.... Steam (and online verifications full stop) allow for ownership verification at point of play. The sell for this is often against our old friend piracy. These can kill a games second-hand value as you cannot always transfer the registration. This is a control mechanism that has potential to step beyond piracy prevention. So in order to allow the first purchaser to perceive greater value by not making the game worthless second-hand, the publishers set up a scheme wh

  • TFA is just marketing/posturing BS (Score:3, Insightful)

    by javaxman ( 705658 ) on Friday January 27, 2006 @08:55PM (#14585103) Journal
    TFA ( the real article [mcvuk.com], not the blog that wonders WTF the Sony tool in the article is talking about ), is nothing but SCE UK's commercial director Kevin Jowett doing his best to support some publishers in their belly-aching about the used game market. Pure PR, and it's not even aimed at consumers, it's aimed at game publishers.

    BTW, any Brits care to tell us if a "Commercial Director" actually serves any legitimate business purpose ?

    Anyway, it's entirely likely that neither Sony nor the publishers really care ( or more importantly, could do anything about ) the used game market. The publishers were just trying to deflect attention from the fact that other, very telling, important factors just might account for their declining revenues ( like crappy management and lack of compelling, original games, perhaps? ). It's a bit like the music industry pointing a finger at file-sharing and saying "that's where our profits are going!", except that the game publishers have even less of a reasonable argument here, as nobody is breaking copyright laws.

    The arguments make no sense. Why, just because I might spend $10-15 on a used game, would someone infer that if that game wasn't there, I'd be buying a new $50 game instead ? No, I'd just be cursing my decision to buy a console with only very expensive games, and that would ( negatively ) impact my decision to buy another, or at the very least be bummed that I can't find that old game. Equally, nobody thinks of used games as being "as high quality" as new games- they're often scratched, and with very few unfortunate exceptions, even sequals are at least incrementally better in some ways than the earlier games.

    To boot, what would they do about it ? Unfortunately TFA doesn't provide a link back to the "(MCV 9/12)" about publishers trying to do something about the used game market, but the used game market is like any used item market. It's not going away, and that's a good thing, or where would I buy that copy of Star Wars Starfighter ( or any other out-of-print game ) ?

    Stupid asshat corporate whine. Not worth the words I just wrote, unless to hear someone ( like me ) smack these idiots around in public.

    • That's an interesting take on the story. Of course, publishers are constantly looking for excuses for poor performance, the current favourite being supermarkets selling games at lower margins.

      Unfortunately, the concerns about the second hand market have a grain of truth. If you walk into a specialist retailer or most high street entertainment stores in the UK, a significant proportion (25%+ in some cases) of the stock will be used. You won't see any used CDs, books or DVDs. I understand the situation is eve
      • I understand the situation is even more extreme in some US stores.

        Well... it depends on what stores you are talking about. I walked into an EBGames recently, and yea- easily half ( perhaps more ) of that store's stock was used games. On the other hand, a good number of stores that a lot of people actually buy games at ( the big-box retailers and such ) don't sell used games at all.

        We live in the real world where sadly 95%+ of the public who want to play games don't have the awareness (or even the means

  • To kill the used games market, companies like Sony could conceivably lock a game so it can only be used with one console. One way to do that would be to include a code with each game, which you then had to enter into your console to play the game. That code would be verified online and then locked to your console or online account, similar to an online game.

    That would kill the used games market quite cleanly.

    However, it would also be an extremely bad idea.

    The more people own a console, the more attractiv

  • I HATE SONY!

    Man, I can't wait for the PS3 though.

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