Sellers of used video games were contemplating disaster until Microsoft blinked

Sean Olson//June 28, 2013

Sellers of used video games were contemplating disaster until Microsoft blinked

Sean Olson//June 28, 2013

Michele Deller, an owner of A1 Video Game Exchange in Boise, said the store had been putting its non-game items on more prominent display as next-generation video game consoles threatened to use technologies that could hinder used-game sales. Microsoft backed down from its policies that would restrict such sales June 19. Photo by Sean Olson.

In a bumpy two weeks, Treasure Valley sellers of used video games were facing heavy decisions, including whether to stay in the industry at all, before they were given a reprieve.

The drama began on June 10, when Microsoft, the maker of the popular Xbox game consoles, revealed that it would have technology in its next console, the Xbox One, to stop used-game sales altogether if other game-makers requested it.

That would mean that just possessing a physical game disk would not be enough to make the game work, and players could have to pay additional costs – or the cost of a new game – through the console’s Internet connection to play it.

For stores like VIP Gamestore in Boise, that would severely cut into the day-to-day revenues of the business, which relies heavily on resales of recent releases to stay afloat.

Reed Nelson, a co-owner of VIP Gamestore, said the announcement had him re-evaluating the viability of the entire business.

“During the general course of business, we probably wouldn’t be thinking too much about exit strategy,” he said, “but the idea certainly springs forth to mind when it comes to (PlayStation maker) Sony and Microsoft clamping down.”

Michele Deller, an owner of the Video Game Exchange in Boise, said her business wasn’t prepared for what would have been an overnight killer of a portion of her store’s sales. She thought that if any other of the major console manufacturers, Sony or Nintendo, followed Microsoft’s lead, it would end in disaster.

“It would leave us bankrupt,” Deller said in mid-June.

Later, on June 19, Microsoft did an abrupt about-face, announcing that it no longer planned to include restrictions for used games and was dropping other policies that the gaming community had complained about.

“Since unveiling our plans for Xbox One, my team and I have heard directly from many of you, read your comments and listened to your feedback,” Microsoft President of Interactive Entertainment Business Don Mattrick wrote in a company blog post. “You told us how much you loved the flexibility you have today with games delivered on disc. The ability to lend, share, and resell these games at your discretion is of incredible importance to you.”

Mattrick’s reasoning behind the reversal mimicked the original plan Nelson and another co-owner of VIP Gamestore, Bill Greenway, had to fight the initial Microsoft policy.

“Our preparation is, we’re sharpening our pitchforks and lighting our torches. We can go march on (Microsoft headquarters in) Redmond (Wash.),” Greenway said before Microsoft had announced its reversal.

It was relief for the game sellers, but the reality of the threat still exists, Deller said.

Deller’s Video Game Exchange had started putting jewelry and non-video-game electronics in the front part of her store, space normally reserved for just video games or related gear, to show customers what else the store had to offer.

“We are still going to be doing that because the trust issue is still going to be there,” Deller said June 21, adding that the restrictions on used-game sales could come back at any moment.

Greenway said there was only about six months left on the lease for his store, and the owners openly wondered whether they should just give up on renewing it.

“We were wondering that,” he said. “We were also pondering if there were some other things we could branch into.”

There would still have been a market for older generations of the used merchandise – both VIP Gamestore and the Video Game Exchange carry games dating back to the early 1980s – if they wanted to continue to peddle games, but Greenway said that would have offered a slim chance of success without other products.

He said the majority of the sales and trade-ins the store does are in newer releases and current-generation technology.

For stores like VIP Gamestore, even a new game is difficult to peddle, Nelson said, as it brings back a margin that is less than $10. For a large retailer, those numbers can work; but for a small operation, the margin doesn’t cover expenses. Nelson declined to reveal the margin on resales of used games, but said it was much higher than new-game sales.

Deller said more of her business revolves around older games, so she had hoped she could stay open by replacing some video-game revenue with other used products like jewelry.

Greenway said the Microsoft backtrack has saved his store at least temporarily, but the lessons from the initial policy will stay with them.

“We will probably be able to keep going with what we’re doing right now for three or four years easy, and during that time period start looking at options for whatever we want to expand into,” Greenway said.

Nelson said he agrees they should start diversifying, but it never hurts to have an actual exit plan as opposed to flailing about for one when disaster hits.

“Our business model could be a ticking time bomb; we could fail in the end,” he said, adding that there were plenty of ways to avoid it, mainly diversification and increased reliance on older games.