Disruption of games

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The speculation of Microsoft’s next-gen console having systems in place to stop people from playing used game discs has many people speculating. If true, the used game market could take a nosedive in an empty pool. The idea is that once a game is installed and played on a single console, it cannot be installed on any other console. So, once you install it, it’s your for life. Even if you lend to a friend, he couldn’t play it.

Now, I know quite a few people who, once they are bored with a game, will trade it in for store credit and get another game. This business would come to a halt. While I know people who would not shed tears for their $10 credit for a $50 game being around anymore, there is also a misunderstanding about how the used games market works. When you trade in your game, they are essentially taking a chance that the game will be bought by somebody else. While they give you a $10 credit and them mark it up to $30 on their shelves, if the game does not sell, they’re out that money for good.

“So what? They make plenty of money from new games, right?” Wrong. Game stores usually buy a game for $45 and sell them for $50. Not a big profit. Now perhaps you can understand why they are willing to take such risks: much bigger profits.

So what is the uproar then? Developers do not get a cut of used game sales. They make money based on how many new games are sold. While people purchase a game 10 million times, only 5 million of that may be new games.

With this new suggestion of locking a disc to a console, the used game market is cut. The business of selling games becomes disrupted. So why is this “better” for consumers? Well, if developers can make more money on their games, they can lower the prices on them. Naturally, consumers win.

This begs the question; why not just go digital on games? XBox Arcade does that now. There is Steam as well. Why not just sell those AAA titles digitally? This is because of places like Walmart who threaten to cut shelf space for everything if they do. Stores do not make much money on games, but they do make money on peripherals, like controllers and HDMI cables. Companies like Microsoft make good money on those too. With games on the shelves, people will come in to buy the games and increases the chances of buying peripherals as well. Walmart makes money, Microsoft makes money, and prices stay high.

This has been true for quite some time, but physical stores are losing to virtual stores. Amazon can give you a comparable deal to Walmart. What’s more, they could set themselves up to sell games digitally as well. By cutting out more need for physical game discs, they can cut prices. At that point, if Walmart were to do away with selling peripherals, they would only be hurting their own bottom line.

We have two cases of disruption that essentially cut out the middleman. Companies can sell virtually direct to consumers without shelling out money to print millions of discs and get a much better return. This may take some time to bring about, but at this point, it seems inevitable.