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Used Games: By the Numbers

Posted on the 14 February 2013 by Findthebluekey @FindTheBlueKey
Used Games: By the NumbersTimes have never looked bleaker for the used game market, a market that seems less and less likely to survive the next few years. Developers, publishers and hardware manufacturers have long been railing against the sale of used games, blaming them for low sales figures, launch failures and generally using them as a ready-made scapegoat for all the woes of the industry. It's come to the point where both Microsoft and Sony are pursuing technology capable of blocking used games on their systems, a move that has done little to endear them with their loyal gamers.
But how much are used games really taking from sales figures? And does the benefit outweigh the cost?
What I'm going to try and do here is look at this issue purely as a numbers-game. I could spent all day railing about the principle of the issue, or the ethics behind it, but I feel like I might be wasting my breath. I want to really drill down to the heart of the matter, because as any economics class can teach us, it's all about the money.
The most accurate Gamestop data I was able to dig up was from 2011, in which they are listed as having sold 5.6 billion dollars in new software, and 2.6 billion dollars in used software. This means that used sales make up less than a third of the total sales from any given Gamestop retailer.
Okay, but 2.6 billion dollars is still a large amount of money, that is hard to deny, right?
Used Games: By the NumbersWell, first we need to take away the 1 billion dollars Gamestop paid out for in-store credit for their trade-ins. That is money going right back in to gamers' pockets. And if there is one thing gamers want, it's more games. As of 2011, Gamestop's CEO Paul Raines stated that 70% of all trade-in credits go immediately in to new software.
Now obviously there could be bias in that number, as it's in Gamestop's best interest to maintain that impression. But for lack of a better option, that is the number I'm moving forward with. In the end though, it does fit the impression that I have personally have of the used games industry. A gamer takes in their old games and leaves Gamestop with a shiny new title.
So if 70% of trade-in credit goes back into new titles, that amounts to 700 million dollars no longer going to new game sales. So, let's say the used games industry vanished tomorrow, I feel its not unreasonable to assume that there would be 700 million dollars no longer going back in to the games industry, all of it tied up in a stack of old games on a shelf.
So we're now down to 4.9 billion spent on new games. But now we have to deal with the 2.6 billion that consumers have spent on used games. If used games were to disappear tomorrow, that money would have to go somewhere.
The question now remains, what percentage of that 2.6 billion would be converted into new game sales?
In order to work this out, I'm going to need to make a few reasonable assumptions in the place of any hard data. Generally, even if these numbers aren't precise, they'll allow for a reasonable comparison. Those assumptions are:
- The price of a new title is $60
- The price of a used title is $40
- 2.6 billion is the most consumers are willing to spend at the current price model, but not necessarily the amount they will spend at a different price model
This last assumption deals with a principle called Opportunity Cost. To put it simply, as the price of option A increases, its relative appeal in comparison to Option B decreases, leaving more people willing to choose option B.
Based on the approximate cost of a used game, and the amount of used game sales done by Gamestop, I've come to a number of approximately 65 million used game transactions each year.
Now, some percentage of these will be converted into launch-window sales, basically any sales within the first 6 months of the games launch. Gamestop has listed that only 4% of their used game sales are for titles released in the past six months. If used games were no longer an option, I'd wager the final number of converted sales would be higher than that, but I wouldn't be willing to push much past 15%. For the type of people willing to hold out for used games, that $60 price tag can be an enormous deterrent.
Next, I'd be willing to guess that you'd be able to sway another 15% of that used consumer base after the price drops to $40, and another 10% after it drops to $20, way down the road. You have the advantage of price, but the game is no longer in the public eye. 
So what numbers are we looking at? Lets do some math!
Used Games: By the Numbers
(65 million * 0.15) * $60 + (65 million * 0.15) * $40 + (65 million * 0.1) * $20 = appx 1.1 billion
So, 1.1 billion dollars, that's still quite a lot! But lets not forget about that 700 million that we had to take off, to account for the loss of money from trade ins that gamers will have. This puts total new game sales at...6 billion dollars.
A whopping 0.4 billion dollars higher than it was at the beginning of this whole ordeal. An increase of 7 percent. Way to swing for the fences, games industry.
Used game sales make up less than a third of Gamestops sales, but approximately sixty percent of their profits. Clearly used games are keeping the Gamestop franchise going, as there simply isn't as much money as being a game retailer as you'd think.
So tell me, games industry, in a world where retail sales are still an enormous chunk of your bottom line, is 400 million too steep a cost for healthy distribution system?

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