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Video Games' Second Life

Already contending with soft sales and rising costs, video-game publishers have one more thing to worry about: The used-game market.

That was one of the implications of GameStop's (GME - Get Report) earnings report earlier this week and of recent game sales data.

Though new-game sales have been weak in recent months, GameStop, the leading video-game retailer, reported strong demand for used games and expects that strength to continue -- at least in this quarter.

Whether sales of used games cut into those of new games is an open question, say analysts. But the strength of used-game sales is an indicator that in the near term, consumers are becoming more cautious about spending money on games.

With Microsoft (MSFT - Get Report) having recently launched its new Xbox 360 game console and with other new game machines on the horizon, many consumers are likely saving up money to buy the new machines, they say.

"Consumers are going to be a little tighter with their wallets, says David Cole, an analyst with industry research firm DFC Intelligence. "That's a big challenge for software publishers overall."

Hard numbers for used-game sales are difficult to come by, because none of the major industry research firms track them. GameStop itself has only recently begun divulging information about its used business.

But if GameStop's numbers are any indication, the used business is a significant part of the industry -- and it's growing rapidly.

Sales of used products -- which include both hardware and software -- amounted to $511.8 million last fiscal year for GameStop, or about 28% of the company's sales. That was up sharply from two years earlier, when such sales totaled $296.4 million, or just 22% of the company's overall revenue.

Electronics Boutique, which recently merged with GameStop and also released its used sales results in recent months, saw similar growth over that period.
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