Gaming's most-quoted financial analyst shared some unconventional wisdom about used games today.
In a 210-page annual report about the state of the gaming industry that begins with him thanking Kotaku and other websites for "keeping us on our toes and always asking us to think about the industry in real-time," Wedbush Morgan Securities analyst Michael Pachter sized up the used games industry.
And then Pachter argued why used games aren't the danger game publishers suspect them to be.
On the size of the phenomenon, he stated:
The number of games traded annually is striking; we estimate the overall used game market to be $2 billion in the U.S., with an average ticket of around $20 per used game. This means that an estimated 100 million units of used games are traded in each year, representing around 1/3 of all games sold annually.
A third — or a quarter if the 270-million games sold annually in the U.S. also cited by Pachter doesn't include used games — of games sold annually in the U.S. are used? That is a striking figure, either way you look at it. Kotaku contacted GameStop and the game sales-tracking NPD group for corroboration, but neither replied by press time. The $2 billion figure was reported earlier this year by the Wall Street Journal, citing another analyst.
If that market is so big, why shouldn't publishers, who derive no profits from the sale of used games, be shaken by it?
we think that used game sales benefit new game sales by providing currency to gamers with less disposable income, thereby enabling the purchase of additional games. The vast majority of used games are not traded in until the original new game purchaser has finished playing, typically well beyond the window for a fullretail priced new game sale. Thus, while there may be some limited substitution of used game purchases when GameStop employees "push" used merchandise upon consumers lined up to buy new games, the vast majority of used game purchases occur more than two months after a new game is released. Other than the potential impact at holiday (when new game lives are extended beyond the typical two month sell-through pattern), used game sales just don't impact new game purchases very much…. To the extent that there is a substitution effect, we estimate that fewer than 5% of new game sales are impacted
Pachter's analysis echoes what GameStop reps have told me about a view of the sale of used games furthering the purchase of new games, rather than cutting into such sales. As Pachter notes, many publishers have been acting as if the threat is real, bundling their games with map-pack codes and other add-ons that add value for the first purchasers of a given game disc.
Pachter argues that the ability for gamers to sell their newly-bought games back to GameStop and other retailers for store credit is one of the factors limiting consumer interest in downloadable games. Used games keep them coming into stores and keep the trafficking in new game purchases. Consumers, he writes, perceive less value in the purchase of a digital game that they can never sell back.