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Video Games' Second Life

Another factor that can lead to price cuts or poor unit sales is the increase in consumers' attention on next-generation systems. Publishers, in response, could have a hard time drumming up interest in games for previous-generation devices.

But the rise of the used games business could be one more factor weighing on new-game sales. Why spend $50 or $40 on a game for an aging console, when the same game can be gotten for half as much, just days or weeks after the release?

The problem for the publishers is that while retailers benefit from consumers choosing used games, they don't. Publishers, as widely believed, don't get a piece of the action after the game's initial sale.

"It's a bit of a sore spot for publishers, because obviously, they'd like to see every unit sold be a new unit," says Anita Frazier, an analyst with industry research firm NPD Group.

Some analysts think the threat to publishers posed by used games varies depending on the quality and perceived value of the games. Despite the rise of the used market last year, Microsoft and Take-Two Interactive (TTWO - Get Report) still sold millions of copies last year of Halo 2 and Grand Theft Auto: San Andreas, respectively. For titles such as those, people will continue to spend top dollar.

Assuming that such games live up to their hype, few owners are likely to part with them, which helps to limit the supply of used games -- and keeps the price of them high enough to pose little threat to new-game sales.

"If you continue to put out good games ... maybe you don't have as big a problem with the [used] market," says James Lin, an industry analyst with the Simba Group.

Still, analysts aren't entirely convinced that the used-game market poses a big threat to the publishers. In many cases, the market for used games appears to be different than that for new ones, says Michael Pachter, an analyst with Wedbush Morgan Securities.
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