Broadpoint AmTech Analyst Ben Schachter doesn’t question the fact that digital distribution of games is increasing, but he doesn’t see it having an effect on GameStop’s business until 2017.

Limited hard drive space (he estimates 70% of current-gen consoles have no hard drives), bandwidth limitations and an extended console cycle (which Schachter sees continuing through 2014) are among the factors that will allow brick and mortar retailers to fend off their digital counterparts reports IndustryGamers.

Physical media still holds sway over gamers as well, notes Schachter:

…consumers attribute a value to having a hard/physical product that can be sold, traded, and is portable. GME's own study put the residual value of physical game disc at approximately $10-20 dollars vs. a download-only version of a game.

He also points to the “relative failure” of downloadable content for Grand Theft Auto IV:

The Grand Theft Auto (GTA) franchise is among the most well-known and successful brands ever created in the video game industry, yet having digital-only distribution of a product tied to GTA's most recent console title led to very disappointing sales. The bottom line is that retail still matters.

In these trying economic times, as our sister-site GameCulture reports, more and more gamers are resorting to digital downloads for mobile devices because of the attractive price points.

We often hear publishers bemoan the fact that they don’t see any revenue from used game sales. But is that really true?

In a recent interview with IGN, Game Crazy’s Director of Used Games Marc Mondhaschen says that publishers are reaping benefits from game trade-ins, albeit indirectly:

We did a study not too long ago for a very large vendor who we managed to figure out for them 20 percent of their sales inside the first 28 days were paid for with trade dollars. So you got 20 points of their sales that wouldn't happen unless we had a trade business going. And that's specialty retail. Game specialty retail is maybe a third of the channel, 35 percent of the channel. So you got 10 percent of your sales that wouldn't happen unless somebody was out there trading games with your customers.

And if you didn't have specialty retail it would be pretty hard to sell innovation into the channel at all. I mean, Wal-Mart doesn't really buy Katamari Damacy. So, in order to innovate, in order to grow innovation in the business you need a specialty games retailer that actually knows something about videogames. And in order to have them, they need the margins through used games...

Mondhaschen explains that while publishers don’t typically see any money from used game sales, they do benefit in other ways:

When The Lost and Damned came out we started selling a whole lot more Grand Theft Auto 4, both on the new side and on the used side. Which, then, sort of funds people's ability to go play L&D again...

-Reporting from San Diego, GamePolitics Senior Correspondent Andrew Eisen...

Despite the stunning revelation of a bureaucrat screwup that invalidates 25 years' worth of game and movie content rating enforcement in the UK, all parties in the game supply chain have agreed to proceed as if the law was still in effect.

The British government is expected to fix the loophole, which dates back to the Maggie Thatcher era, later this year.

As reported by gamesindustry.biz, members of the UK's Video Standards Council have agreed to continue enforcing ratings. VSC exec Laurie Hall explains:

All sectors of our membership, whether they are video distributors, videogame publishers or entertainment retailers have confirmed that they will continue to conduct their businesses as usual.

Whatever the position of the law is at present our members will continue to operate as if it was mandatory. So far as videogames are concerned they have been acting upon this basis under the Pan-European Game Information (PEGI) system for quite some time.

As noted by Joystiq, the ESRB is currently listing the upcoming PC version of Manhunt 2 with an Adults Only (AO) rating.

GamePolitics readers will likely recall that the console versions of Manhunt 2 generated a major controversy in the summer of 2007 when the game was banned in Britain and tagged with an AO here in the States. Rockstar subsequently released a toned-down version that earned an M (17+) rating for the U.S. market.

That was a critical milestone, because the Big Three console makers won't license AO-rated games for their systems, which makes it tough for a publisher to earn a return on its investment. That's why you don't see any AO-rated console games. While the open architecture of the PC negates licensing concerns, an AO-rated Manhunt 2 would still get thumbs-down from major retailers like GameStop and Wal-Mart.

That means that Rockstar is either planning a digital distribution campaign for Manhunt 2 or that it will edit the PC version - as it did with the console editions - to earn an M from the ESRB. Of course, there is a third scenario: Rockstar could ship an M-rated version to retailers while distributing an AO-rated version online.

We wonder how Valve might react to handling an AO game if its Steam service, which currently distributes Rockstar's GTA IV online, is under consideration as a potential digital distribution source for Manhunt 2.

Brand-new games at used game prices?

A pilot program that does just that is being tested at a Best Buy location in Utah. While it sounds like a good deal for consumers, Wedbush-Morgan analyst Michael Pachter doesn't expect to see the Best Buy experiment gain traction on a large scale.

Of the program, under which Best Buy will match used game prices in effect at either GameStop or Game Crazy, Pachter said:

I don’t think it will do well.  The price match means that Best Buy either cuts their profit per game in half, or wipes it out altogether.  I don’t think that they can afford to sell $60 games for $50, and don’t think that it will be effective in the long run.  If it does well, then GameStop will cut used game prices to the point where Best Buy can’t match without losing money.

The used game debate rages on...

Joystiq reports that big box retailer Best Buy is testing a used price matching program for new releases at its store in West Jordan, Utah (see pic).

In the pilot deal Best Buy will sell customers new games at used prices offered by GameStop and Game Crazy. This should save game buyers at least five bucks, and maybe more for certain games - and saving money is always a win for consumers.

There's more discussion of the Best Buy test program at CheapAssGamer.

The Wall Street Journal reports that mega-online retailer Amazon.com posted a 14% revenue increase for the financial quarter ending June 30th, but its profits fell 10% from $158 million to $142 million.

Amazon’s Chief Financial Officer Tom Szkutak commented on the drop laid much of the bad news on declining video game sales:

You're seeing an industry slowdown in videogames and consoles.

Despite singling out games, other factors impacted the profit fall such as “flat” media sales in North American (including books and music) and a $51 million legal settlement paid to Toys R Us.

Via: GamesIndustry.Biz

Reporting from San Diego, GamePolitics Correspondent Andrew Eisen...

A pair of video game websites weighed in on the controversy over used game trades this week.

Crispy Gamer serves up a well-reasoned two-parter by David Thomas:

The price of a game is, at the end of the day, exactly the balance point between what someone is willing to pay and what someone is willing to sell... The trouble is, the publisher wants back in on the deal, and goes out of its way to convince you that it still owns a piece of that junk you bought from it...

 

The used market, it turns out, isn't screwing [game] publishers... Instead, the used market helps keeps people in the game by letting them play games that they wouldn't otherwise bother buying... Used games help make game fans out of game tourists...

Meanwhile, Destructoid's Jim Sterling has a bit of a rant on the topic:

Have you considered what happens to a publisher when you buy a secondhand game? They lose money! Oh, you might argue that publishers already make money off the original sale of the game, but they don't! In fact, whenever a secondhand game is bought, the original $60.00 transaction disappears from our corporeal plane of existence, erased from history as if it never happened...

The main issue with secondhand games is that no other industry ever has to deal with a similar problem. Think about it -- have you ever bought a used car, or even heard of a store selling used clothes or music? Of course you haven't! The very idea is preposterous...

A new report by Wedbush-Morgan analyst Michael Pachter should put paid to game industry whining about used game trades. Although, somehow, we doubt that will happen.

According to gamesindustry.biz, Pachter found that up to 100 million (!) used video games are traded each year in the United States. That figures accounts for a remarkable third of all game sales.

But Pachter also reports that the used game trade has a positive impact on new game sales, not the negative impact so often claimed by a variety of game industry types. The outspoken Pachter comments:

The vast majority of used games are not traded in until the original new game purchaser has finished playing - more than two months after a new game is released - typically well beyond the window for a full retail priced new game sale.

If trade-ins occur at GameStop, they should position the trade-in customer to buy more new games than he/she would otherwise normally purchase. Because the average used game value is around 20 per cent of the new game price, we think that used game trade-ins fuel incremental sales of over six per cent of total new game sales, suggesting that the cannibalisation from the used game 'push' is more than offset by the benefit from used game currency.

Earlier this week, GamePolitics reported on “benefit denial,” a loss-prevention technology proposed by game retail trade group the Entertainment Merchants Association. The EMA plan would disable movies and video games until unlocked at the point of sale.
 
Not everyone thinks it’s a good idea.
 
Writing for CNET, technology columnist Don Reisinger dubs the plan "a loser."

Piracy and theft is indeed a problem in the video game industry. But it's not so bad that it requires games to be shipped in an unactivated state. Moreover, game piracy is really a bigger problem on the PC than on consoles... And since most of the issues affect the PC side of the business, not even benefit denial will be able to stop piracy...

However, EMA Public Affairs VP Sean Bersell told us that benefit denial is “all about retail theft,”  not piracy. He points to a comment to Reisinger’s article posted by Capgemini, the firm commissioned by the EMA to evaluate the feasibility of benefit denial.

[The benefit denial study], announced by the EMA, doesn't even mention piracy.  And that's because the whole project is about elimination of physical theft of discs, whether DVDs, or CDs, or games on optical discs. It has nothing to do with piracy. Zero.

Reisinger also raises concerns about how well this technology will work with second-hand games, whether Internet connectivity will be a factor, and if the Big 3 console makers' participation will be required.  Bersell commented:

We are not talking about DRM or other software-based technology. The technology to which we are referring would be a physical lock that is opened via radio frequency in the store at the point of sale...
 
The purpose is to make it easier for the consumer to purchase the product... And since EMA is pursuing this and we have been protecting the First Sale rights of retailers and their customers for 28 years, I can assure you that nothing in this will interfere with the rights of consumers to sell, lend, or give away their used games.

DOCUMENT DUMP: Grab a copy of the benefit denial study here.
 
-Reporting from San Diego, GamePolitics Correspondent Andrew Eisen...

In a move that has been anticipated for some time, big box retailer Best Buy has jumped into the used game business, reports gamesindustry.biz. Best Buy will apparently be using a kiosk system similar to that now employed by Wal-Mart.

Used game trade leader GameStop is not bothered by the new competition, however. A spokesperson for the retailer told the Fort Worth Star-Telegram:

GameStop understands that trading in used games and consoles is a highly-assisted activity. We are very confident in our business model that allows our expert associates to help consumers trade in product, a fact not addressed with a self-serve process.

Meanwhile, gi.biz reports that analyst Colin Sebastion of Lazard Capital Markets sees no threat to GameStop with Best Buy's move into used:

While we believe that Best Buy’s entry into the used video game market will create a new overhang on shares of GameStop, we expect Best Buy’s initiative to expand the used videogame market rather than take significant share from the speciality channel.

GP: With the Best Buy announcement we can expect the obligatory round of hand wringing from certain game publishers and developers.

If you purchase your video games from local retailers you’ve no doubt gone through the inconvenience of trying to track down a store associate to release your selection from its display cabinet prison. Or perhaps you’ve dealt with GameStop’s annoying habit of opening games and storing the discs behind the counter.
 
Hey, it’s an imperfect world where people steal stuff so it’s understandable why retailers take measures like this. But what if there was a better way?
 
The Entertainment Merchants Association, a trade association which represents a large segment of North American video game and DVD retailers, thinks it may have a solution which could save the retail industry billions by reducing costs, curbing theft and potentially making the purchasing experience more pleasant for the consumer.
 
The EMA’s solution is “benefit denial” technology that would disable movies and video games until unlocked at the point of sale - sort of like gift cards which have no value until activated by a sales clerk. EMA president Bo Andersen commented on the plan:

It is intuitive that, if we can utilize emerging technology to reduce the shrink in the DVD, Blu-ray discs, and video game categories and eliminate barriers erected to deter shoplifting, consumers will have easier access to the products, additional retail channels will carry these products, and costs will be eliminated from the supply chain.

Baring obstacles such as a lack of accepted standards for such an activation system, the need for staff training, and the cost of implementation, the EMA believes such a solution could debut in late 2010.
 
Via: Gamasutra
 
-Reporting from San Diego, GamePolitics Correspondent Andrew Eisen...

Earlier this month GamePolitics reported that German Interior Ministers were seeking a complete ban on the production and sale of violent video games within Germany. Given more recent events, it appears that officials may seek to reach beyond German borders as well.

Although the Bundestag has not yet acted on the ministers' ban request, an online video game retailer based in Austria claims that the German state of Bavaria has moved to blocked access by German customers. VideoGamesZone.de reports that the Bavarian Commission for the Protection of Children Against Media Abuse filed a lawsuit to shut down Austrian online retailer Gameware.at. Company spokesman Chris Veber told VGZ:

We've called our lawyer and are appealing, of course... this is violating the freedom of expression and wrong specifications from the [German ratings body], since we are not sending our products out to minors and do not have videos showing violence at [our site]. We are not breaking any Austrian laws...

The economic consequence would be the [silencing of] Gameware.at. No one would be able to find us on Google, the advertisements would be gone, no magazine would be allowed to mention our name...

Veber conceded that violent games are big sellers for his company and that 80% of his customers live in Germany.

Meanwhile, longtime GP reader Soldat Louis reports that last week the Bundestag passed a law to block access to some websites. This would appear to be the legal vehicle being employed against Gameware.at:

Officially, the goal is to struggle against child pornography. But in reality, many people fear that it could be a giant Internet censorship system...  Indeed, now that the law has been passed, Thomas Strobl, head of the CDU for Baden-Wurtemberg state, called to extend it to "killergames"-related websites...

Global Voices Advocacy has more, including information on German citizens who are protesting the government's new policy.

GP: We'll be monitoring the German situation closely.

Although our initial coverage of today's Digital Britain report focused on the long-awaited decision regarding ownership of U.K. video game ratings, there is much more to the story.

In relation to PEGI's big win over BBFC, gamesindustry.biz reports that Britain's Video Standards Council will be given tough enforcement powers to ensure that game publishers and retailers conform to content rating guidelines. The VSC will be empowered to fine companies which do not adhere to the PEGI system and, in extreme cases, may even ban titles from being sold in the U.K.

Of the VCS's role in enforcing the new system, EA's Keith Ramsdale told gi.biz:

The VSC will be an independent body, as is the PEGI system, and while I'm sure there's some joining up to do, it's a tough system.

We've gone further than the recommendations and PEGI will impose fines for non-compliance and possible exclusion from the PEGI system for non compliance...

Of course there will be checks on what content people put in, and there will be highly punitive measures should publishers not comply.

Watchdog group the Parents Television Council lashed out at Target this week during the retailer's annual shareholder meeting in Waukesha, Wisconsin.

According to a PTC press release, Bob Sherman, director of the organization's Chicago grassroots chapter, called out Target executives over a 2008 secret shopper sting. In that operation the PTC says that minors were able to purchase M-rated games 41% of the time at Target stores. Sherman told the execs and assembled shareholders:

On average our volunteers, all between the ages of 11 and 16, were able to purchase video games rated ‘M’ by the ESRB for mature content 36% of the time.  Target stores fared worse than the average – underage children were able to purchase M-rated video games at Target stores a stunning 41% of the time.  Parents have the right to expect that age restrictions for adult entertainment products will be enforced at the retail level...

Target represents families to so many consumers.  Your advertising and community good works reflect how Target is embedded in our lives.  The Parents Television Council is eager and ready to work with you to address this industry-wide dilemma.

Sherman and the PTC also slammed Target for selling mature-themed DVDs to underage buyers.

In contrast to the PTC's numbers, the most recent secret shopper survey conducted by the Federal Trade Commission found that underage buyers of M-rated games were successful only 29% of the time at Target.

If you want to trade in your used games in Broward County, Florida, prepare to give up your thumbprint.

The Broward-Palm Beach New Times reports that the local sheriff's office began requiring game traders to submit to thumbprinting in October, 2008:

Broward County Sheriff's Office spokeswoman Kayla Concepcion said the new requirement comes straight from the Florida Legislature, which enacted a law... that treated video games like second-hand goods sold at pawn shops. Now any store buying used video games has to collect the thumb prints, along with a bunch of other personal info about the seller.

While most of the video game world's attention next week will be focused on the Los Angeles Convention Center and the glitz surrounding E3, a small group of industry professionals will meet to tackle environmental concerns.

On Monday the Greener Gaming Gathering, billed as a "video game sustainability luncheon" will take place in Burbank. The event is sponsored by AGI Polymatrix, which manufactures media packaging and is being held in association with game retailers trade group the Entertainment Merchants Association.

Speakers at the invitation-only event will include Wal-Mart's senior buyer for video game software, Darin Dickson. Cody Sisco from Business for Social Responsibility will make a presentation and an expert panel will discuss sustainability issues related to replication, packaging and transportation of video games.

GP: It's encouraging to see the video game industry thinking proactively on environmental issues.

The Jack Thompson-authored SB 152 is scheduled for discussion by Commerce, Consumer Protection and International Affairs Committee of the Louisiana State Senate at 1 p.m. Central Time today.

The measure, sponsored by Sen. A.G. Crowe (R), is similar to the Thompson bill which recently was vetoed by Utah Gov. Jon Huntsman. SB 152 would hold companies which advertise age restrictions on products guilty of a deceptive trade practice if the product is then sold to someone underage.

GamePolitics spoke briefly with Sen Crowe last week. He told us at that time that he did not expect to have Thompson testify and indicated that the bill as currently written was a "placeholder," meaning that its content was likely to undergo substantial revision. It is unknown what form such revision might take. We also have an e-mail in to Thompson for an update as to whether or not he expects to speak at today's hearing.

GP readers should be able to follow the action live via the Louisiana legislature's webcast system. To watch, click here for the committee list. Just before the hearing begins, a TV icon should appear to the right of the Committee on Commerce, Consumer Protection and International Affairs. Click on the icon to watch the hearing. You'll need to have RealPlayer installed.

On Monday the gaming press, including GamePolitics, was abuzz with news that Wal-Mart had apparently entered the used game business in direct competition with category leader GameStop.

However, Ars Technica's Ben Kuchera dug deeper into the story and reports that the game trade machines currently located at dozens of Wal-Marts in the Northeast actually belong to Ohio-based e-Play. Although it's not stated, one would assume there is some type of financial arrangement between the companies. e-Play CEO Alan Rudy told Ars Techica:

Walmart is providing vestibule space to e-Play at 77 of its Northeast region stores. Some stores have Video Game Buy Back only kiosks and some kiosks are full-functioning, but e-Play manages all aspects of kiosk operations for both types. While we have over 200 other retail locations, this is currently a pilot program with Walmart, but we are optimistic of its success and future expansion.

Rudy believes e-Play is well-positioned against newcomer to the used game trade, Amazon.com:

The e-Play trade method does not involve printing shipping labels or waiting on snail mail to deliver your games or to return your Amazon gift card. Soon, e-Play will also post their buy-back pricing online so customers can preview this information before going to a kiosk.

Check out the Ars piece for some fascinating details on how e-Play machines keep traders honest.

Prepare for a renewed round of video game industry whining now that Wal-mart has apparently entered the used game business.

Neocrisis reports that the editor's local Wal-mart has installed automated game trade-in machines which exchange credit for used titles. Or should, anyway. Neocrisis reports that the machines at his store were glitchy and couldn't complete his trades. When functional, the machines should accept PS2, PS3, Xbox, Xbox 360 and Wii games:

The machine looks extremely similiar to the Redbox DVD rental machines. When I went to use the machine, however, it still had more than a few bugs that need fixing... But still, if there is one business out there to give Gamespot some competition, it's the giant Wal-Mart.

Kotaku has more, including word that the project is being tested at 77 Wal-marts in New York, Massachusetts, Connecticut and Rhode Island. Payment for used games is not in Wal-mart store credit, but rather is handled by a third party, e-play. Money for trades is charged back to the trader's credit card up to three days after the transaction.

Via: CheapyD on Twitter