Why Is Walmart Selling Used Video Games?

PORTLAND, Ore. (TheStreet) -- Just about every major developer has been getting away from physical game sales for years and this is when Walmart decides to buy and sell used games? Well, that last horse-buggy dealer probably made a killing, too.

Last week, Walmart announced that it planned to "shake up the marketplace" by letting customers exchange old Nintendo Wii, Sony PlayStation 3 and Microsoft XBox 360 games for store credit. Basically, consumers could sell off their games to buy paper towels and formula while Walmart sells them back to the general public at a tidy profit. Granted, Walmart is having a tough time moving the inventory currently sitting in its back room, but at least it's trying to generate money with a proven formula, right?

Well, kind of right. Temporarily correct at best. The gaming store chain that Walmart is targeting with this new scheme, GameStop, made $2.4 billion buying and selling used games last year. The bad news is that is that this isn't the Funcoland era anymore and used games aren't the currency they once were. In the mid-'90s, enterprising young gamers walked through the doors of their nearest mall's Funcoland and sold their old games and consoles for a chance of walking out with newer, glossier games and gadgets. The value of gamers' turned-in treasures was dictated by sprawling, demand-driven Funcoland pricing sheets that is still questioned by graying, irate gamers today.

Though a series of mergers and acquisitions that engulfed game shops including Funcoland, Software Etc., Electronics Boutique, Texas-based Babbage's eventually grew into the nearly 7,000-location behemoth now known as GameStop. That chain has been targeted by both console producers and developers for making a living off of their used titles, but has survived despite the emergence of downloadable content and one-time features such as access codes for online play.

But it realizes its game-selling days are numbered. During the Consumer Electronics Show, Sony unveiled plays for the Playstation Now that would allow gamers to play games from the PS1, 2 and 3 without relying on a console or discs. Gamers, ideally, would be able to use the service on Playstation Vita handheld consoles, Sony Bravia televisions and tablets and smartphones -- think Sony's Xperia smartphone, for example. Sony has also hinted that it may try to give those games a little bit of extra life by introducing them to a new generation of online players with new retrofitted tasks and trophies for each game. GameStop's share price fell by more than 8.5% after Sony's announcement before recovering slightly.

Technology still has a long way to go to catch up to that dream, though. In cold, unflinching reality, Playstation Now is just a cool idea that Sony's recent purchase of streaming company Gaikai makes possible, but hasn't made workable. As the folks at Ars Technica pointed out, Sony needed to drag a server to Las Vegas just to make its presentation work. Even at that, there were a whole lot of issues with latency -- the delay between a gamer pressing a button and that action actually occurring on-screen -- for those who were able to try Playstation Now firsthand.

Folks who own a PlayStation 4 or a Nintendo Wii U and have tried taking a Vita or a screen-enabled controller for a spin around the house may have run into similar issues, as that's basically local game streaming through your router. While services such as OnLive have already tried streaming games, it's been a tough slog at best.

That said, players have been able to buy and download games digitally through the PlayStation Network, XBox Live and various Nintendo online channels for years. Online competitors such as Valve, whose Steam online gaming and cloud storage service has 3,000 games in its online library, has already done what console makers are just getting around to -- saying goodbye to discs. With cloud storage for all of its customers and a whole lot of multiplayer functions that put them on par with Playstation Network and Xbox Live, Valve's Steam accounts for more than 75% of all PC game downloads. At CES, Valve announced that 14 third-party hardware partners would be producing Steam Machines, or consoles allowing gamers to play Steam titles including Call of Duty: Ghosts and the Grand Theft Auto series in their living rooms.

If that's the future, why is Walmart so focused on gaming's present? Because it doesn't really care about used games. It doesn't want to be the equivalent of CE Exchange, the game, video disc and mobile phone trade-in joint that's helping Walmart with its own game exchange -- or a retro gaming shop. It wants to crush GameStop in the area that it's focusing on next: hardware and broader electronics sales.

Sony's PS4 and Nintendo's 3DS handheld device still move 35,000 to 37,000 units a week, according to VGChartz, while Microsoft's XBox One is selling close to 50,000 units a week as Microsoft bundles in the popular Titanfall game. Even the 12,000 or so weekly sales of the older PS3 and Xbox360 rival the 13,000 Nintendo Wii U units sold each week. That's still a large chunk of income for any shop that wants to knows as a game headquarters, and that $2.4 billion in 2013 is enough to prop up GameStop while it makes the transition.

Walmart is clearly in no mood to let that happen and wants to stop GameStop from sapping away hardware sales just as Walmart's own same-store sales are slipping. But Walmart hasn't exactly shown itself capable of doing much with electronics other than giving away third-party products cheap on Black Friday. As our Rocco Pendola points out, Walmart is already making Apple regret its decision to let the megaretailer sell its products by placing iPads and iPhones in shabby cases that look like they were recycled out of old Nintendo Entertainment System displays that Sears threw out in the late-'80s.

GameStop, meanwhile, has placed increased focus on its sale of refurbished electronics and has seen its share price rise 50% within the past year. The chain would sweat Walmart's intrusion on its turf more if the big retailer's store-credit stipulation didn't force game sellers to do what 0.6% fewer consumers did last year: actually shop at Walmart.

-- Written by Jason Notte in Portland, Ore.

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Jason Notte is a reporter for TheStreet. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, the Boston Phoenix, the Metro newspaper and the Colorado Springs Independent. He previously served as the political and global affairs editor for Metro U.S., layout editor for Boston Now, assistant news editor for the Herald News of West Paterson, N.J., editor of Go Out! Magazine in Hoboken, N.J., and copy editor and lifestyle editor at the Jersey Journal in Jersey City, N.J.

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