Lost Revenue: One-Third Of Game Sales Are Used

According to Michael Pachter, an analyst at Wedbush Morgan, used game sales account for one-third of the total game sales in a year, coming in at over 100 million units as a $2 billion industry. He claims that game publishers shouldn't worry, though, as these sales occur outside of a new game's launch window and the practice actually drives new game sales by providing additional funds to a potential buyer.

While the numbers are very interesting, I disagree with Pachter's analysis. Publishers should look at used game sales as two billion dollars of unrealized profits. The behavior shows that consumers are willing to buy games outside of the initial launch window as long as it is at a reduced price. If publishers decreased prices on games on a sliding scale as time went on, pricing the product competitively with used versions, they could capitalize on massive untapped profits.

This makes the most sense for digital distribution, where product "inventory" just scales as needed for demand. Of course, Pachter believes serious digital distribution of full games on consoles won't happen until 2019. Luckily Microsoft disagrees, and will have classic 360 titles available for download through LIVE by year's end. The biggest challenge to digital distribution for core games isn't really hard drive space (I'd expect to see bigger hard drives with Natal packages come 2010), but retail chains that look unfavorably on day and date digital releases.

With test cases for digital distribution of older (but still current-gen) games happening this year, and companies like EA approaching game creation less as products than services, I do think the publishers can shift a good deal of that $2 billion used game market into revenue. Which is an important project to focus on, as Pacher's argument about used sales fueling new game sales doesn't really hold up to closer examination.

The assumption likely rings true for person-to-person sales of used game titles. A used game buyer is saving substantially over a new version of the title, and as a result has more cash on hand to buy a new release. The seller of the used game sees significant revenue from the exchange, which can amount to near half the price of a new title.



But in a model where GameStop or Best Buy is acting as a third party on the exchange, the margins are so severely in favor of the middleman that publishers should be sweating. A used game seller walks out of the exchange with pocket change, and the new buyer of the title is getting a minimal discount over a new copy. If publishers provided a digital alternative a few months from release at the price of the used title minus the price of a "sale" of the game to a store, the total consumer savings would be the same, and the publishers would be raking in large and otherwise unrealized profits.

For marketers, game publishers moving to better engage used game buyers will be a very good thing, as digital distribution and games as services both open up new opportunities for brand involvement. Measurement will benefit as well, increasing the tracking of actual title reach from what appears to be the current 66% estimation (based on new game sales) to a more reliable number. The used game market will still exist for a while yet, but I believe it will shrink down along with piracy as publishers and platforms roll out competitive measures.

3 comments about "Lost Revenue: One-Third Of Game Sales Are Used".
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  1. David Wilson from AMN Healthcare, July 2, 2009 at 12:32 p.m.

    Excellent post! You are definitely on the money here. I'm sure Microsoft will also be able to come up with an automated price elasticity formula to maximize marginal profit over each game's product life cycle.

  2. Dan Ciccone from MTV Networks Digital Entertainment, July 2, 2009 at 1:29 p.m.

    If publishers decreased prices on games on a sliding scale as time went on, pricing the product competitively with used versions, they could capitalize on massive untapped profits.
    I disagree. If a gamer is willing to wait for the price to drop, then the "used" game market will adjust to offer even cheaper prices to the consumer if the publisher is going to drop prices after a certain amount of time - cutting into everyone's profit - be it a GameStop selling used games or some guy on Amazon or eBay and/or the publisher itself.

    Full digital distribution will happen way before 2019. Nobody in 2002 would have thought there would be full digital distribution in music and movies just 5 or 6 years later and it happened. Gamers are much more passionate and technically savvy than other media consumers and the technology is currently available for digital distribution. As soon as Microsoft works out a rev share with a few major publishers, they'll launch a new console with enough hard drive space to hold hundreds of games and the industry will change overnight....just ask Blockbuster...

  3. Terry Dugas from NET Nebraska, July 2, 2009 at 2:25 p.m.

    Console makers should look to the PC channel for guidance. A few months ago, Steam was selling Left 4 Dead for $14.95. I purchased two additional licenses. This week, they are offering Fallout III for $24.95. I'll buy at least one new license.

    Game publishers are receiving some portion of this. In the past, however, I would have purchased copies from eBay, cutting out the publishers entirely.

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