Editor's Note: This is the third in a series called Secondhand Nation, which takes a closer look at how thrift stores, garage sales and secondhand shops have fared during the recession and what the future holds for the frugal consumer. One of the easiest ways for consumers to save is to buy used instead of new. But while that strategy is great for customers and bargain-hunters, can the people who make products survive when no one buys new anymore?
To find the answer, look no further than the video game market, where resale has been around for a while. For many in the gaming industry, it's hard to remember a time game developers and the resale market weren't at odds.
Ben Noel, executive director of the Florida Interactive Entertainment Academy at the University of Central Florida, worked as a vice president at Electronic Arts ( ERTS) in the late 90s and early 2000s, a time "video games were just becoming a real market," he says. "There was legislation that worked in the favor of the 'Blockbusters' of the world for leasing products, and then the aftermarket became an issue for the publishers, starting about 10 or 15 years ago," Noel says. "It was tough to negotiate with those specialty stores, but obviously publishers would like to have value in their property that gets resold."
The price of resold video games, while great for consumers, is costing game developers billions of dollars each year, according to Scott Steinberg, CEO and lead analyst for the video game consulting firm Tech Savvy Global. "The bulk of the dollars go for the retailer's pocket," Steinberg says, and "the developer is not seeing a penny from that second transaction."
Like Hollywood films, video games cost money. Beyond the fees paid to top-notch designers and artists for concepts, publishers such as EA also have marketing, distribution, stocking and shipping fees to worry about -- not to mention the bulk of revenue national distributors such as Wal-Mart ( WMT) get at the point of sale.
"Games cost as much to make as independent films," says Steinberg, and gamers' demand for visually rich, high-tech content is making "the bets higher and everything riskier" for developers.
Game publishers are feeling the pressure to produce better games not just from consumers, but also from their own need to stay competitive. "Quality is going up across the board," Steinberg says. "We're training players that every year you're going to get better products, and that takes time and money, manpower and resources to create."
A push for better quality in a recession is tough, though, especially when consumers want an inexpensive product. And where do customers turn for the same quality at a lower price? Resellers.
Activision's soon-to-be-released Call of Duty: Black Ops, for example, will cost gamers $60 if they buy it new, but in as little as a week, resellers such as GameStop ( GME) can flip the product for a fraction of that. The savings for the consumer are obvious, but their impact on the gaming industry is another matter.
GameStop's resale strategy has been lucrative for the company, which bases nearly 80% of its bricks-and-mortar business on trade-ins. But for game developers and firsthand retailers now elbowing their way into the resale market, the business of secondhand goods raises questions about who gets hurt and who suffers a significant loss of income.