Online Retailer Drops Games, Slams Sales Model
You may not care whether or not we make money, but we cannot continue to pay to sell video games. It is impossible for us to make money selling video games. Video Game Manufacturers set the price using what is called MSRP (Manufacturers Suggested Retail Price). Here is an example of the video gaming industry greed: they set the retail price at just $5 above the product cost (buy it for $54.99, sell it for $59.99). When we sell a game we make on average 8.3% gross margin. That does not take into account any of the cost to store the video game or labor to receive/ship an item. The only way we can make a profit on an item is to sell it over the MSRP, but unfortunately we are not allowed to do this. Take a $400 console; we only make $5 on the sale—that is a 1.25% gross margin. The game companies make their profit selling to us. We make no profit selling to you.
Due to these low profit margins, major chains such as GameStop (which currently controls over 22% of the game retail market in the United States) do a sizeable proportion of business in used game sales. Responding to emails informing DVD Empire that its video game sales model was doomed to fail without used games, the company posted in an addendum, "Our reply: this proves our point that small retailers can't make money selling solely new video games."
"We knew about the low profit margins when developing our games division, but we strove to streamline operations and succeed within the thin margins. We wanted to provide the service to our customers even in the face of the almost inevitable losses," the company stated. "We could not provide an acceptable level of service from the current infrastructure of the gamesÂ’ distribution system."
Finally, as for why the company stated its grievances publicly, it answered, "Seriously, should we just keep our mouths shut about this? We love video games and are pissed at the video game manufacturers for removing our ability to provide good service. We felt we owed our customers an explanation; we did not intend to create a media frenzy."
Due to the closure of the department, DVD Empire is currently offering 20% off all games.
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thebigbeefsandwich
replywtf. if that's true why would any store sell games.
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Well, like I mentioned, GameStop is extremely successful with its used game model. They rely on that for a huge chunk of their profits. However they are a very large scale operation with a lot of brick and mortar stores and that kind of model is easier for them to pull off.
Also big-box places like Best Buy get a lot more publisher support, that's just a given.
It says a lot that I'm able to get all of my music and books from small independent stores, but I only buy my games from large chain retailers. I simply have no other option. That in itself suggests something about the situation.-
it's a very weird model. you'd think publishers wouldn't mind their games being sold in more places... I wonder if it's the big retailers that have locked it up like this or the publishers.
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A lot of music and book retailers definitely do that for certain material. I'd be willing to bet it's less common in games but hopefully that changes.
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I love buying from indie developers. they don't price gouge, but they get my money to support them. it's win/win.
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Whats funny is that Sony and co would have used game sections shut down because it costs them. However if Gamestop/Ebgames has no revenue, they can't stay open....and if they can't stay open they can't sell new games and it costs the publishers/developers even MORE money.
Such a demented little business model. -
I only buy from large chains as well, there's no other choice. A comic book shop here used to sell new video games, but they stopped awhile back.
On a trip to Saint Louis, there was a local chain called "Slackers" that had tons of used games; their selection was huge! I was happy. The atmosphere alone is so much different in the local shops as opposed to the GameStops, in a good way.
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Stores sell a lot of things at thin margins or, sometimes, at a loss. They are called loss leaders and are designed to get you into the store with the hope that you'll buy other things while you are there.
CDs are a good example. Wal-mart used to sell CDs for $9.98. It threatened to pull out of the CD market entirely if the music industry didnt lower its prices so that Wal-Mart wouldnt be taking losses on CDs. Wal-Mart gave in, however, and now many of its cds are priced at $11-$14.-
There is little or no chance the publishers will change their pricing. Console makers take a good share to recoup their console dev costs through licensing. They take a solid loss on every console sold and rig their licenses to make up for it. They have to.
With next gen titles doubling or even tripleling the development costs, the cycle will simply repeat. Keep in mind we're in a crossover between generations of consoles. From a cost perspective that's a mighty tough financial position for developers and publishers. It is high risk. For the publishers it has to be about volume sales. The big chain stores are far more important than smaller retailers.
Sale of used games is something Sony's gaming division was interested in rooting out. None of those dollars are recovered in their licensing and goes straight into the retailers pockets.
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Why are development costs rising over the previous generation in the first place? I guess I don't understand this. I know it's true, I just don't get why if you made a game in 2004 for maybe the PS2 it maybe cost 1m to make while in 2007 for the Xbox 360 it'll cost you 3-5m to do the same game, but more up-to-date.
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I believe Wal-Mart is actually going to go back to that pricing scheme now that they have such a huge amount of clout in music retail.
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They do have a $9.72 section on their page now, but many titles, new releases and old, are all over the place in terms of price.
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It has to do with volume.
If you are a Gamestop you purchase all your lightbulbs & uniforms in bulk ... your trianing is in bulk .... your marketing is in bulk.
With say Wal*Mart, they use other "proffit centers" to cover all the fixed costs and the games are either just to get people in the store (as Johnny said) or pure proffit.-
Which is why I game buy mostly at Best Buy when they have those $29, $39 specials on new games...And I just buy the $29, $39 game (Titan Quest DVD $29!)...
I used to do regular bargain bin searches at CompUSA, when I worked near one. Walmart has $10 older games, too, but the selection doesn't change much, and it's reissues for bargain purposes: Jedi Knight 2, Civ3, DeltaForce-Blackhawk Down in CD case w/o manual...They don't generally have markdowns...
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