Pachter Predicts Problems for Best Buy Pricing Program

[Andy Chalk]

Pachter Predicts Problems for Best Buy Pricing Program

Industry analyst Michael Pachter says GameStop [http://www.bestbuy.com/] is destined for failure.

Best Buy began testing the new game GameCrazy [http://www.joystiq.com/2009/08/07/best-buy-testing-price-matching-of-used-games/]. Under the program, every game in the test store (a Best Buy rep confirmed that it was in fact a local test and not nationwide, although whether more than one store is taking part is unknown) is subject to some kind of discount to keep them in line with used prices.

Lower prices on games are always good for gamers but Michael Pachter, the industry's foremost guy with an opinion, says they're not necessarily good for Best Buy. People near the test store in West Jordan, Utah, who want to take advantage of this sweet deal had better move quickly because Pachter doesn't think the program is going to be around for long.

"I don't think it will do well," he told GamePolitics [http://www.gamepolitics.com/2009/08/10/pachter-best-buy039s-new-games-used-prices-experiment-destined-fail]. "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."

I'm no big-time analyst but I do know a thing or two about margins on videogames and to put it bluntly, they're tight. Lack of profit on new game sales is the main reason GameStop is so enthusiastic about pre-owned games (which offer much greater profit), warranties and other programs. If Best Buy is forced to hack ten bucks off every new release it sells, it will almost certainly end up selling its games below cost, whereas the much greater profit margins on pre-owned games will allow GameStop to lower those prices substantially and still make a few bucks. It's a potential windfall for gamers as the two companies try to outlast each other, but I have to go with Pachter on this one: I don't think this is a fight Best Buy can win.


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[HardRockSamurai]

Simply put, I agree. I see absolutely no way Best Buy could possibly profit from this. However, I doubt it would put Best Buy in the gutter, seeing as they sell far more electronic products than GameStop ever will.

Incidentally, I love the title of the article. Replace a few letters, and you've got yourself a natural modern-day tongue twister.

Patcher Predicts Problems for Pest Puy Pricing Program

 

[obisean]

I have to agree. I don't see this working out overly well for BBY. Though, if I could ever get to this store, I just might take advantage of this.

 

[scnj]

This must be the first time I'm agreeing with anything Pachter says. It's an interesting experiment, but one that seems doomed to fail from the outset. Best Buy would be better served trying something like taking $5 off new games, since enough people buy new games over pre-owned for there to still be a market and possible profit.

 

[New Troll]

This works out great for Wal-Mart who both those companies are ultimately fighting against. Now all Wally World has to do is sit back and let them destroy each other.

 

[GonzoGamer]

He would be right if Gamestop took as much as $10 off a used game. But they don't, until maybe it's a few years old.
Usually (at least with any game that came out in the past couple of years) the used price is only a dollar or two cheaper than the new price.
I think Best Buy can handle that.
Bonus: you don't have to give BB money ahead of time to get a new game at launch and you don't have to wait on line as long either.

 

[ffxfriek]

10 is too much and it could work and then again....

 

[manaman]

Who is to say this is not the start of something horrid. This could be the start of big box retailers getting a break in order to try to cut out the used game racket from places like Game Stop and Game Crazy.

 

[AkJay]

In related news, Sally Sells Sea-Shells by the Sea Shore.

 

[scotth266]

Spoiler: Parody time!

This Just In: Pachter Hit By Blinding Flash of the Obvious

Industry analyst Michael Pachter suffered an attack of the psychological phenomenon earlier today when he predicted that GameStop [http://www.bestbuy.com/] is destined for failure.


Best Buy began testing the new game GameCrazy [http://www.joystiq.com/2009/08/07/best-buy-testing-price-matching-of-used-games/]. Under the program, every game in the test store (a Best Buy rep confirmed that it was in fact a local test and not nationwide, although whether more than one store is taking part is unknown) is subject to some kind of discount to keep them in line with used prices.

When Pachter recieved word of the program, he suffered an attack of the Obvious: a severe mental disease. Symptoms of the Obvious include seeing bright lights, temporary blindness, and the strange ability to cause people around the victim to say: "No shit." While under the influence of the Obvious, he made a statement about Best Buy's new program.

"I don't think it will do well," he told GamePolitics [http://www.gamepolitics.com/2009/08/10/pachter-best-buy039s-new-games-used-prices-experiment-destined-fail]. "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."

For some reason (possibly due to his status on the Internet) Pachter was able to influence gamers from an incredible range of 300 miles from where he sat to say "NO SHIT!" when he made the statement. Because of several badly timed "NO SHIT!" statements disrupting a nearby Star Wars wedding, government authorities are now seeking a method to prevent flashes of the Obvious in Internet personalities.

I'm no big-time analyst but I do know a thing or two about margins on videogames and to put it bluntly, they're tight. Lack of profit on new game sales is the main reason GameStop is so enthusiastic about pre-owned games (which offer much greater profit), warranties and other programs. If Best Buy is forced to hack ten bucks off every new release it sells, it will almost certainly end up selling its games below cost, whereas the much greater profit margins on pre-owned games will allow GameStop to lower those prices substantially and still make a few bucks. It's a potential windfall for gamers as the two companies try to outlast each other, but I have to go with Pachter on this one: I don't think this is a fight Best Buy can win.


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But now for the real response. Pachter didn't need to be an industry analyst to predict that. Hell, my MOTHER could have predicted that. And she doesn't know ANYTHING about games.

 

[Keldon888]

Honestly, with the way GameStop shafts people on their refund for actually selling back used games they can easily afford to drop used prices way past where Best Buy can follow.

Think about it, browse their used shelves, 30-50 dollar games abound, those people got paid less than 10 dollars if even that for each. Best Buy wouldn't have a chance.

 

[Helmet]

Speaking as a Best Buy employee- Best Buy is truly stupid enough to try and make this work. I wish I could say this is the dumbest thing they've done, but I can't.

Just recently, we renovated the store to include a Musical Instruments department. We've got three Music Stores within a mile of my store. We get almost no business in MI.

We pay manager to walk around the store and not do anything except direct customers to the correct departments and send employees where they need to go. We also pay employees in each department to not sell anything, but instead stand in the department, direct customers, and call for help from other associates.

To be honest, I have no idea how Best Buy is still in business.

 

[MK Tha Rebel]

Bad move, Best Buy. They're going to lose money for sure, even if the plan works and they sell more games, they'll still be in the hole.

This isn't going to stop me from taking advantage of it, though.

 

[Therumancer]

Well, I have mixed opinions on the subject. To be honest I think video games are sold for a massive profit as it is. Something that has been under discussion here on the escapist before. It was mentioned in an earlier article about Brazil that pirates there are able to effectively sell the games for like $5 apiece and make enough of a profit to build their own mini malls and such.

I have also talked about the corruption in the video game industry and how it has done things like coordinate the $10 price hike which is technically illegal to do, although nobody is really paying attention which is how they got away with it (in comparison look at what happened when gas companies tried to do the same thing: a massive federal investigation).

Of course it is true that not all of that profit goes to retailers.

The big question here generally comes down to how much of a discount Best Buy can get from the game companies by purchusing games in bulk. I am guessing that they are a bigger business than Gamestop is (overall) with deeper pockets (again overall). Basically if they offer to buy several million units of a game to distribute then they are probably going to get them for a song compared to Gamestop.

If someone can get a new game for the price of a used one, or even a couple dollars more, most people are probably going to go after the new game I'd imagine.

I could see it potentially working, but it's not something that they can ease into. They'd either have to jump in with both feet and maintain the project for years before expecting it to fully have an effect, and it is a gamble.

Truthfully it largely comes down to whether Best Buy has the oomph to pull a "Wal*Mart" on Gamestop. See, on a certain level they might be able to eat a loss if it means being able to corner the video games market (and then raise their prices). Sort of like how Wal Mart drove a lot of their competition out of business, and then simply raised their prices to the normal level.

If you think for the long term like Wal*Mart did, even bleeding money for 10 years is worth it if you become the only game in town as a result.

 

[73loup]

I definitely see Best Buy having to cap the maximum discount, but this will drive the used stores to drop their prices below that. I see that as win-win: new games are now X amount cheaper and the used games are actually down to a reasonable price. Unfortunately I think Game Crazy/Stop will be underhanded enough to lower their trade in prices even more.

 

[Zer_]

Well, I have mixed opinions on the subject. To be honest I think video games are sold for a massive profit as it is. Something that has been under discussion here on the escapist before. It was mentioned in an earlier article about Brazil that pirates there are able to effectively sell the games for like $5 apiece and make enough of a profit to build their own mini malls and such.

I have also talked about the corruption in the video game industry and how it has done things like coordinate the $10 price hike which is technically illegal to do, although nobody is really paying attention which is how they got away with it (in comparison look at what happened when gas companies tried to do the same thing: a massive federal investigation).

Of course it is true that not all of that profit goes to retailers.

The big question here generally comes down to how much of a discount Best Buy can get from the game companies by purchusing games in bulk. I am guessing that they are a bigger business than Gamestop is (overall) with deeper pockets (again overall). Basically if they offer to buy several million units of a game to distribute then they are probably going to get them for a song compared to Gamestop.

If someone can get a new game for the price of a used one, or even a couple dollars more, most people are probably going to go after the new game I'd imagine.

I could see it potentially working, but it's not something that they can ease into. They'd either have to jump in with both feet and maintain the project for years before expecting it to fully have an effect, and it is a gamble.

Truthfully it largely comes down to whether Best Buy has the oomph to pull a "Wal*Mart" on Gamestop. See, on a certain level they might be able to eat a loss if it means being able to corner the video games market (and then raise their prices). Sort of like how Wal Mart drove a lot of their competition out of business, and then simply raised their prices to the normal level.

If you think for the long term like Wal*Mart did, even bleeding money for 10 years is worth it if you become the only game in town as a result.

They aren't sold for massive profit. The price of any game needs to be split between three parties minimum. We have the Developer, the Publisher and the Retailer. Throw in the cost of development and you can see why games are so damned expensive.

 

[dochmbi]

I don't understand why someone would ever buy a used game from Gamestop, when you can get it a lot cheaper on the internet. Only getting a small discount entirely defeats the purpose of buying used in the first place.

 

[hansari]

People near the test store in West Jordan, Utah, who want to take advantage of this sweet deal

Oh, come on!!! One store in Utah?!

 

[Echolocating]

I've never been a fan of GameStop's used games policy. I don't understand the "value" of saving $5 with the very probable chance that the game has been mistreated and thus not likely to last very long.

There was a young kid in front of me at EB Games the other day with a handful of games, I'm going to say 5 GBA and DS games, and he received $17 for them. I suppose it's money he never had, but is he honestly never going to play them again? He obviously doesn't care about them anymore, but damn.

The reason GameStop and the bunch can charge ridiculous prices for used games is purely because of the young children with disposable income and clueless parents that allow it to happen. These kids are chewing through games faster than the developers can make them, I swear. I believe the Blockbuster in my town offers a flat fee game rental service (like $30 a month) in that you pay the money and can take out any game, return it and take out another game, return it, etc. until the month is done. (There might be more to it though, so don't hold it against me if I'm wrong.) Why any of these kids wouldn't do this instead is beyond me. Kids who don't grasp the value of money and parents who couldn't care less, I guess.

GameStop will eventually become a game rental place, I think. That's my underpaid non-analyst opinion, by the way.

 

[Therumancer]

[They aren't sold for massive profit. The price of any game needs to be split between three parties minimum. We have the Developer, the Publisher and the Retailer. Throw in the cost of development and you can see why games are so damned expensive.[/quote]


I call "BS". We've already seen that people can build up a substantial economy based around selling games for $5 a pop, and the things they were apparently building with that profit seem perfectly in keeping with a game's development budget.

What's more one of the recurring comments about game prices is how games are currently seeing "development budgets akin to Hollywood blockbusters". Well, guess what? Those movies typically make their money back within the first weekend of release for $7-$9 a pop. To own a copy of one of those movies on DVD (which is just gravy at this point) costs you about $15-$20. The profits for a movie might be divided up a dozen differant ways (you can have producers, executive producers, associate producers, and then directors and/or stars who have contributed money for a cut and have a stake in it in some cases). Really, it doesn't matter how many ways it's divided up. If your movie costs say 185 million dollars to make, and you make 350 million dollars the opening weekend, you've made more than it costs. If someone who contributed money gets boned out of a share, that's a contractual matter, not a lack of success.

The reason WHY people are willing to contribute those levels of money to video games to begin with is because of the massive profits that can be made (and like any investment it's
a gamble, a game or movie can always bomb). A lot of it is about that huge amount of pure profit that comes from the insane price tag. Not to mention a level of arrogance in the gaming industry that has a lot of writers/developers/etc... acting like they are bloody rock stars (and of course a lot of the money in budgets is spent pandering to those egos). I look at guys like Itagaki from the Ninja Gaiden/Dead Or Alive series (or at least at one time he was). The guy went down fighting over several million dollars, which sort of demonstrates part of the issue. When you have game designers fighting over wads of cash that would make REAL Rock Stars wet themselves with envy there is definatly a degree of rot within the industry.

Simply put, the only reason why games are not a whole heck of a lot cheaper is ridiculous levels of pure greed. I mean honestly, the US is capitolist so I'm not saying the game industry doesn't have the right. But let's be bloody honest, the prices have little to do with development or distribution, those are just feeble excuses for game producers/writers/developers who want to act like movie and rock stars and pass the price on to the gamers. If they want to fill of a private jet full of cocaine and hookers, that's their business, but don't try and tell me their not a group of greedy, corrupt B@stards. In the end if comes down to whether I pay the $60 a pop for the games or not, and until people stop paying it's not like there is any incentive for them to stop.


I am however not going to stop leveling criticisms at the game industry, and pretty much calling them what they are. Truthfully if I was in that position I might act the same bloody way.

Let me also put this into another perspective: the whole copy of D2D downloads was that by cutting out packaging and distribution the price of games could be substantialy lowered. Allowing games to be produced cheaper, and delivered for less. What actually happened? Well D2D games cost the same amount as their real life "physical copy" counterparts, and now that the technology has been tested the industry seems to want to go TOTALLY D2D without lowering the prices so what they used to consider the expense of packaging and distribution turns into even more pure gravy.

Sorry, nobody is going to convince me that modern game writers/developers barely put ends together, subsist on tuna-fish sandwiches, and largely carry on due to their sheer love of gaming. Rather they seem to take a huge chunk of that budget, live off of it while developing, on top of their salary, churn out a game based on an established engine (Unreal, Havok, etc...) and then let the publisher milk the product for sales, while they land their next sugar daddy for another project.

Oh yes, and for all the contreversy about "booth babes" I really feel sorry for an industry whose yearly convention involves watching a bunch of demos, while hanging out with a lot of professional escorts and amateur models.... oh the humility of the games industry tugs at my heart strings. How can they POSSIBLY get by on $60 a pop.

Let's face it, the industry has gamers by our collective wrinklies until we can do something other than toothless internet petitions. They might as well be honest about it. The gaming industry is just as big a pit of corruption, sleaze, and greed as the modern "Babylon" known as Hollywood. Unlike Hollywood it doesn't have the guts to admit it and even turn it back on itself and make it part of the mystique.