Saturday, January 29, 2011

The Evils of Gamestop

A month without a post? Let's say this blog is still in the beta-testing phase. I'll let ya' know when we go gold.

Gamers seem to have a... very tenuous understanding of industry economics. While many of us understand clearly why Gamestop is bad, and why purchasing pre-owned games is an act that, by itself, may be doing more to destroy (or at least drain the life out of) the gaming industry. But many of us do not: this is for them.

There are 2 ways to buy a game: new and used. With new games, we can even buy them online, and obtain them digitally. Generally speaking, digital distribution is top dog--it is wildly beneficial for both the consumer (us) and the developers, and helps to cut out the vile middle-men (Gamestop, in this case) that seem to be actively try to screw over both the consumers (again: that's us) and the developers. It's a win-win for the good guys. But I'm getting ahead of myself: let's examine things more closely--where does our money go?

Digital Sales: Nearly 100% of the money goes to the developer, since distribution costs are are low and manufacturing costs are nonexistent.

New Sales: Roughly 25% of the money goes to the developer, the rest goes into distribution, manufacturing and licensing (think that's the right word).

Used Sales: Exactly 0% of the money goes to the developer, no exceptions.

Whereas for retailers, they get to take about 35% of the money from a new game sale, but get to keep 100% of the money from a used sale. That means they make more profit selling used games. Gamestop's whole bussiness is built around the idea of selling the same copy of a game multiple times. Let's try a more concrete example, for anyone who still doesn't understand this.

Albert buys a new copy of The Witcher. He pays $66 for the game. Of that $66, $6 goes to the government (sales tax). $10 goes to UPS, for delivering the game. $25 goes to the manufacturing plant--the people who printed the cover, manual and disc, and assembled all three into a single package and sealed it for distribution. $10 goes to Gamestop. That leaves $15 for the developers.

Of that $10, let's say 4$ is used to pay for marketing, $6 is used for employee salaries, and $2 is used to pay for the actual resources and utlities needed to produce the game--reference books, computers, desks, chairs, air-conditioning/heating, cleaning, electricity, etc., etc.

If you don't own The Witcher, just go ahead and buy it now. I'm sick to death of generic Fantasy romps, but even considering the pitfalls of the genre, this is one superbly-crafted game.

That leaves $3 out of $66 in profit for the developers. What do they do with this loan dollar? Do they use it to give the higher officers bigger bonuses? No: they invest it into the production of their next game. Or, in this example, since we're dealing with CD Projekt Red, they use that small profit to fund a massive overhaul of the game, making it look better and run better, AND to hire new actors to re-record all of the dialog in the game.

If 10 people guy The Witcher new, CD Projekt Red gets $150 and Gamestop gets $100.

Pretty awesome, huh? Now let's see what happens with used games.

Bernard buys Fable III for $66 dollars, with the same breakdown as before. Gamestop gets $20, and Lionhead gets $10.
But the following week Bernard decides he doesn't like Fable III, so he trades it in to gamestop. If he's lucky, he'll get $20 for it. At this point, Gamestop has lost the $20 it made from the initial sale, but the developer hasn't lost anything.

Then Charlie shows up, and buys Fable III used for $55 dollars. $5 is taxed, but the remaining $50 go straight to Gamestop: the manufacturing, delivery and development costs have already been paid for by Bernard's purchase. If we assume that these prices are constant (and we all know how quickly trade-in values depreciate--Fable III can be sold new for $50 today, but you'd be lucky to get $3.50 trade-in) what happens if 10 people buy the game used? With the $20 trade-in lost, each copy yields $30 profit--triple what Gamestop would earn with new games.

If 10 people buy Falbe III used, Lionhead gets $15 and Gamestop gets $300.

Now let's use realistic factors:
100,000 new game sales would give the developer $1,500,000. That's pretty damn good, ain't it? And Gamestop would get $1,000,000. That's really, really good. But, conversely....
100,000 used game sales would give the developer a minimum of $15, and Gamestop would get a maximum of $3,000,000.

Used games sales profit Gamestop and ONLY Gamestop. You are buying a game, but the developer does not recieve any of it. Because of that, the developer has less money to go around--which means lay-offs. It makes the developers buy off reviewers, invest far too much of their budget into marketing, and to take fewer risks with game development: all done in order to sell a game that people will want to buy BEFORE it's released. Because if you don't buy a game on day 1, you're more likely to buy it used. Day 1 sales become more important than anything else, leading to review embargoes, pre-release hype, viral marketing, and all other manner of nonsense. But where does the money for all of these marketing come from? From the development costs, and less money and staff mean shorter games, buggier games, greater emphasis on graphics and superfluous nonsense than on actual substance. Sound familiar? And if you're out to make a game consumers will want to buy before it's even released, odds are you're going to avoid trying anything overtly new or different. Odds are you're going to take a look at whatever's currently selling best, and you're going to try and do the exact same thing. Gameplay variety might not sell, so best not to go there. Narrative variety? Same thing. Ever wonder why the market was saturated with nothing but bland first-person shooters? Ever wonder why the RTS and Simulation genres are dead? Ever wonder why every big-budget RPG tells the same story with different set pieces? Hell, ever wonder why 90% of video game protagonists feature nearly-identical facial features, haircuts, physical builds, personalities and gender?

Easily among the most recognizable and least unique character designs of the past decade. Think of any 10 blockbuster games from the past five years: how many feature a nearly-identical protagonist?

The emphasis on day 1 sales means, in effect, that day 2 doesn't really matter as much, let alone week 2. Developers have less and less incentive to produce quality products, because most of their sales (typically) come from consumers purchasing the product before  anyone knows what the quality will be. And it doesn't stop at just quality--more and more these days, we're seeing developers releasing games so ridden with bugs and glitches that they are nigh unplayable. Thanks to the dominance of used-game sales in the past five years, we've seen a massive decline in the variety, quality and stability of games.

It should be painfully obvious to everyone by now: Gamestop, specifically Gamestop's policy of selling used games, is doing more to adversely effect the quality and variety of the games we play than anything else. Gamestop is killing the industry like a leech, slowly draining the developers of their life's blood.

1 comment:

  1. I need to point out that the statistics I referenced are a product of my imagination, and therefore are not perfectly accurate--the idea behind them, however, is. The key thing to realize is that for each new game sale, the developers only get a fraction of the money.

    For a more concrete example: A book that sells for $25 in a bookstore only yields about $0.15 for the author (depending on contract). The rest goes to the retailers, distributors, manufacturers and publishers.