Reply With QuoteDVD Empire sounds like it has a reasonable beef to me. But I'm assuming the problems they rail against mostly apply to console games.
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Basically, games manufacturers don't provide jack for overhead, don't allow for returns, and doesn't give them money when demand goes down like other industries.
Granted, it always seemed odd to me that other media industries would do things like take back product, and give money back if the product wasn't selling, but hey.
Still, the fact of the matter is that neither side likes each other. Game stores can't survive on the 8% margins given, and publishers despise giving them that much, and also despise the fact that stores need other business, like used, to make ends meet.
DVD Empire sounds like it has a reasonable beef to me. But I'm assuming the problems they rail against mostly apply to console games.
80% of video games may be crap, but so are 80% of movies.
It sounds like they're able to return the crap movies, though.Originally Posted by XPav
The problem is that DVDs have a much, much lower price point than console games. Customers will be much more forgiving of a bad DVD at $15 than a bad game at $60.
A lot of this started with Nintendo.
A great many of the above items, like returns, and price reductions, and common in the toy industry. When Nintendo first started, Howard Lincoln used the power of the Nintendo brand to stop some of those practices. Retailers acquiesced, and so the status quo has been. Most did not complain, as the volume was great, and the markup was good.
The margin for games has slowly gone down, as prices have remained steady, and development costs, and the publisher's cut, rose.
The problem DVD Empire had is they're tiny. All the issues about returns, pricing etc, are all down to them not being able to negotiate decent deals. The industry most definitely does returns & price support with the large retailers. Most of retail certainly doesn't pay the price they're claiming for a 'new' game - the 'standard price' I've seen again & again was around $35 for a Xbox/ps2 game that sold for $49.99.
This is pretty much true but does raise the question of whether it's really good for the big retailers to have such advantages. It certainly makes it very difficult for new competitors to enter the market. And even the big retailers have difficulty making a profit on games - GameStop/EB rely heavily on used (almost to the detriment of new) and mass market retailers (Best Buy, WalMart, etc.) view games as a break-even proposition, relying instead on the games customer to buy more profitable items while they are in the store.
The question is whether an entire industry can work based on a model where only the manufacturers make money.
I think this is indicative of a problem across the entire industry. For example, EB Games wouldn't be so hell-bent on selling used games, if they actually made any money off new games. And if the publishers had retailers who were actually incented to sell their games, maybe they would sell more.
There's two sides to that, though. I think EB would have to make a lot more money than is feasibly possible off new games to kill the allure of their used game business. Those used games that they sell are mostly profit, and profits that subtract directly from game publishers' bottom lines. So while there is blame to go around in the whole mess, I can understand why publishers would be reluctant to give retailers a bigger cut of the pie. I'm not sure what the solution is; perhaps publishers could offer better margins to retailers, with the caveat that they can't resell the product. Or perhaps they could come up with some sort of profit-sharing arrangement on used titles in exchange for better margins overall (and especially on new product).
While i stopped buying used games from the local 'Game' store in the uk(i think it's like EB, maybe even owned by them, but the uk high street store) because i want to support devs, i agree with that point. From talking to a local manager he admitted they make most of their profit margins on the used game sections at their stores, and why they have become the prominant display in most of the outlets.
This is the gamasutra article of the same DVD Empire thing:
http://www.gamasutra.com/php-bin/new...hp?story=12616
Interesting. The margin at MSRP off wholesale here in Australia for a small indie store is ~25-30%. Obviously a lot of stores discount, some get different deals, individual titles vary, we didn't get returns etc etc but that quoted margin isn't believable for me.
It's still a very tough business so I understand why they would get out of it but I think they're exaggerating.
My question was what caused chains like EB to move so heavily to used games, because it didn't get as popular until the PS2/Xbox came around. Was it EB looking to make up for lower profits from new games or did they just realize one day they could make a alot of money that way and went with it.
The markup is higher in other countries to start with. Just look at the price of PS3 when it launches in Europe and convert that to US dollars. Heck, don't you pay like $100AUS for a new game?
Everything these guys are saying is completely true. If you're not buying from the publishers directly and in enormous quantities, you get a shit deal from distributors. That's why you see so few independent game stores anymore.
I think I heard this story before, when they comic book industry nearly died. Low margins, no returns, death of many, many mom & pop stores. Distributor consolidation (Marvel bought several distributors and the rest died - thus Diamond). Yeah...not good.
One report I read highlighted the differences between comics in the early 70s vs. afterwards. A hit comic of the 70s, e.g., Batman, would sell 650k books. Now, 65K is a huge, smash hit.
I was buying comics in the early 70s. Part of it is that they were relatively cheap (like 15 cents), but then newsprint got expensive and prices skyrocketed.
Anyway, on topic -- if the margins are so thin, what keeps the industry alive? Why invest in games at all? The occasional hit?
The retail margins are slim, but that doesn't mean the publisher margins are. Essentially, though, publishers operate like movie studios - put out a bunch of stuff and hope a certain percentage are profitable to make up for the ones that aren't.
Big box retailers don't look at games as a profitable business, they look at it as a draw to bring customers in. If you get in the habit of buying all your games at Best Buy, for example, you'll probably look for CD's or TV's there, both of which are much more profitable.
When I started working at GameStop in 1999 a $50 game cost us $32-$35. By the time I left in 2005 it was over $40. That's why used was so attractive, because we only paid 35-50% of what we resold for.
Game margins have always been horrible. No tmuch different than hardware margins. It surprises me when I see small stores selling games at all.
We typically pay AUD$89.95 and street prices are often $80. Less the 10% GST (sales tax) that is included, that's AUD$73 -- or about US$54. Higher than the US equivalent no doubt, but it doesn't seem entirely out of line to me to cover local distie costs and margins.
I'm not doubting the point these guys are making...it's a brutal business -- I closed my shop last year after 11 years.
I'm still dubious that the margin is 8%. And I don't see anyone complaining about the brutal <5% margins in other markets (such as PC hardware).
I think you may be scarily near to the truth.
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