Online retailer quits selling games, blames industry
by Ludwig Kietzmann 
{ Feb 1st 2007 at 5:20PM }
DVD Empire, where the completely addicted go for digital entertainment (it says here), has axed its games division and placed the blame on the slouching shoulders of an apathetic games industry. The online retailer has set up a
The overarching reason for calling it quits is rooted in DVD Empire's classification as a "small" retailer compared to the likes of Gamestop and Best Buy. Consequently, the site claims to have difficulty with things like timely distribution, "industry greed," price protection and returning unsold games to pubishers. It seems reasonable for the most part, but choice phrases like "we all know how fast games devalue in prices; this is due to the fact that 80% of the games created are crap," or " it is impossible for us to make money selling video games," sound akin to the thumping fists of a child in the midst of a tantrum.
In an effort to gain a clearer understanding of the situation, however, we contacted Tronix, a small retailer based in New York, and asked them to comment on each of the points made by DVD Empire. For the most part, Tronix reinforces the complaints, but also makes it clear that the industry isn't entirely the success-stomping villain it's been painted out to be.
"Some of what DVD Empire states is true," says J. Cataudella. He shares his personal experience with regards to the list of complaints:
1. Video game industry does not care
"The Video game industry (publishers) only sell to mass merchandisers and distributors (i.e., middlemen), because minimum orders are usually way too large for a small operation to handle. So in essence, yes, if you are a small retailer, publishers are not even approachable. Oh, and I remember when I first started up and worked for a small computer gaming retail outlet, Nintendo and EA would actually sell directly to our store with very small minimum requirements. Of course, that was back in the 80's."
2. Can't make money
"You need to sell high volume to make up for the poor profit margin. If you are buying from a distributor, you are paying more than a mass merchandiser who is purchasing direct from the company. Not to mention, part of your earnings go to the credit card companies for accepting their cards."
3. No price protection, game prices drop quickly
"Yes, there is no price protection for independent retailers, and prices drop quickly in this hit or miss business. It does not affect us (Tronix) as our suppliers are the one with the inventory to worry about – we just bring in what is needed daily for each order. I can see how frustrating it can be for small shops that have to keep stock around."
4. No product returns
"That's correct. You need to research the upcoming games as thoroughly as possible before finalizing your numbers; you are definitely stuck with them. Look for early reviews, gossip, publisher/game designer history, and always stay way low on movie-based games. Most games do suck, and can have even a "one day lifespan", where as titles like Animal Crossing on the DS can sell practically daily for an entire year."
5. Distribution is dumb
"It's not that they're dumb. Distribution have to deal with headaches similar to the small retailer, but on a much larger scale. We happen to be in the same vicinity as our suppliers, so we receive our new releases on the same day as the big mass merchandisers, or at most, a day later. Game Companies however, offer specialty shops like EB and GameStop promotional/bonus items to encourage pre-orders, which the independent retailer is never part of as we are forced to deal with distribution."
6. Games are better suited for brick and mortar retailers
"It all depends on your business model. If you have a niche market, you can survive among the big guys on the web. Our customer base is 98% international – we have very few US customers, otherwise we would have not been around as long as we have."
Is it tough surviving in the gaming industry as a small retailer? Absolutely, and with corporate giants like Gamestop absorbing smaller outfits, it looks set to get harder, even in the online world. But is it impossible? Lashing out at the industry might not have been the most mature approach for DVD Empire to adopt, but at the very least, we've been given further insight into what goes on behind those virtual shopping carts and garish sale banners.
[Via Next Generation]
Reader Comments (Page 1 of 1)
Jeffler @ Feb 2nd 2007 7:07AM
Kinda unfortunate. But very true.
Game Artist @ Feb 1st 2007 5:37PM
I wonder how much the distributor is taking as profit? I know that margins arent nearly that close for game bought directly from the company. I estimate that A publisher's cost is somewhere between $25-$30 including their profit. Basing that on the employee pricing for games and what the approximate profit per title is.
Rory D @ Feb 1st 2007 9:10PM
Their game selection is atrocious. Good riddance.
polly @ Feb 1st 2007 5:49PM
Wow. I sympathize with them, but man, even their 20% off prices are too high. $40 for Kameo and N3?
treeman @ Feb 1st 2007 6:04PM
I went to checkout what games I could pick up at a 20% discount, and even at a reduced price I found nothing. Perhaps offering quality games might have helped sales all along...
Chessasaur @ Feb 1st 2007 7:32PM
I'll go along with their complaint about crappy games even if "80%" is a little too high. None of the big 3 have any interest in stopping the sale of crappy games. You shouldn't have to read reviews just to keep from wasting your money on a scam - as in "once you open it, it's yours and your money is ours".
MosquitoControl @ Feb 1st 2007 6:18PM
No loss.
Honestly, what incentive do customers have to buy from this site?
With B&M you can go and get the product in your hands today.
But with online? Prices are standardized, with the only difference being shipping. Why would I go to this site over Amazon? Amazon will ship for free, has a better reputation, and likely has better service in place.
So why would I go purchase from this site over Amazon?
skarloss @ Feb 2nd 2007 11:36AM
I used to work for ALL the major retailers(gamestop when it was still Babbage's, EBgames when they rocked and Game Crazy just recently...). I left the industry about 2 years ago DISGUSTED with the state of things. yes, there are SOME great games out there, BUT for every GOW or Zelda, how many AWFUL games are out there??? FUCK! I can tell in one hand the number of times I have had a MAGICAL TIME(akin to reading a good book or watching an awesome movie) playing a videogames! as a former insider and after seeing the countless number of NUMBNUTS buying the crap that is madden or tomb raider or sonic year after year after year, I wholly agree with EVERYTHING DVDE has to say about the games industry.
There are a FEW game companies who really care about making a great game. and EVERY one of them cares about making money but the blame for all the inventory and price gouging falls entirely on the retailers. people bitch about walmart and starbucks killing the little people(THEY DO, THESE FUCKERS ARE EVIL) the Gamestop effect may be fucking the game industry...
I remember when I used to have fun going to buy a game...
h0mi @ Feb 1st 2007 6:40PM
"No price protection, game prices drop quickly"
I've not seen it from a consumer standpoint... game prices generally remain static (with some sales here and there that can bring prices down by $10 but only for a week).
moominsean @ Feb 1st 2007 11:06PM
Gee, now I can get that copy of Chicken Little for 20% off. Seriously, the game selection sucks...even most of those listed as 'currently unavailable'. Looks like they need to send out flyers to all the 12 year olds to get rid of what's left.
And, sorry, but complaining on your business website is pretty unprofessional. Sure, the situation may suck, but if you don't like it, look for a way to change it, don't bitch like it's a high-school girl's blog. Heck, I'm kind of shocked they used the word 'crap'. Doesn't offend me, but it doesn't exactly foster a business-like attitude.
It's a bum site anyway. Overpriced, and then shipping on top of that. everything is about 4 bucks more than amazon.
WamBam @ Feb 3rd 2007 2:38PM
I used to buy alot DVD's from them until I realized that renting from netflix was alot cheaper. I wonder if they were hurt buy the online distribution and used games. I think that brick and mortar stores make up for such losses by selling used games. They're able to make a profit on used games and get around the pitfalls of new games that DVD Empire was having.
Mythor @ Feb 1st 2007 7:25PM
Boohoo?
Seriously, if they're struggling so hard to make any money via selling games, why are they selling games at all?
I call bullshit on this one. If they weren't making a profit they wouldn't keep selling them. If they could make a better profit selling something else, they'd be doing that. Etc.
NotWelshMan @ Feb 1st 2007 7:58PM
"choice phrases like "we all know how fast games devalue in prices; this is due to the fact that 80% of the games created are crap," or " it is impossible for us to make money selling video games," sound akin to the thumping fists of a child in the midst of a tantrum."
That's a little harsh. The comments are perfectly reasonable. We all know that 90 percent of games are sub-par. Of course, 90 percent of books published are sub-par too - but they have a larger target market, and so even sub-par stuff will sell eventually. That last copy of Budget Fighter 3D IV is never going to shift, not least because (unlike books, films or music) in two months it'll look and sound dated, and may even become actually unplayable (particularly with PC games).
As for not being able to make a profit - this isn't a tantrum. It's their primary reason to quit. Games are hard to make a profit with. Not just games, either.
Here in the UK, there's a big fuss on at the moment with supermarkets and the competition laws. Companies like Asda (owned by Wal-Mart) and Tesco are forcing local shops to close. Now, as MosquitoControl points out, to the consumer, this is seen as no loss - after all, we all shop at Tesco or Asda, right? Convenience, and all that.
But what happens when only Tesco and Asda are left? There is no competition, and no way into the market. Those who once owned shops are jobless, and those formerly cheap supermarkets are able to determine prices again - this time, they don't have to cut costs.
So it is a pity that these guys have been forced out of business. It's capitalism at work, but it just goes to show that a free market isn't as free as it should be.
Rocketboy @ Feb 1st 2007 7:38PM
Wow.. it really looks like they had no idea what they were doing buying video games. How many lame 2003 movie titles do they still have in stock?
NoHitHair @ Feb 1st 2007 7:44PM
Those "choice" phrases you objected to are all sound observations: games DO devalue extremely quickly (I worked at an EBGames for 3 years, I think I'd have some idea), 80% of games released ARE largely worthless and it IS very hard to make money selling new video games. If you did your research, you would've found that it's nearly impossible for a retailer to claim the standard 50% markup on new video games, instead netting them closer to an average of 35%. This is in stark contrast with most other consumer electronics, where some profit margins can be as high as nearly triple. As for the actual systems, retailers make absolutely no profit on them which is why places like EBGames/Gamestop require such a high attachment rate.
DVDEmpire sounds like they simply told the truth of our current gaming situation. It's too bad Joystiq is too shortsighted to realize that.
Psyclerk @ Feb 1st 2007 8:48PM
The fact that they came out with this cry-baby list would make me question ANY purchase from them. Sorry, kids, sometimes business doesn't go your way. Either learn from it and move on or leave. Publishing a list that amounts to "waaah waaah" just makes you look incredibly unprofessional.
On another note, props for talking to Tronix. In the early PS1 days I used to order a bunch of my games and controllers from them. I remember actually getting personalized emails from them discussing ordering issues (or maybe it was order confirmations). One guy there emailed me after I had placed several orders to thank me for the business, and offered to send me some Sony swag (pins, mouse pad) in my next shipment. Good times.
Goober @ Feb 1st 2007 7:53PM
I agree that everything seems stacked against the smaller retailer. I truly feel bad for small companies who bought 20+ copies of the .50 game for $44.95, tried to sell them for $49.99 a pop and then found out that they couldn't return them.
It almost seems like its a minor miracle when a smaller game retailer "makes it". Of course on the rare chance that ever happens they'd just be bought out my Gamestop
linus_south @ Feb 1st 2007 7:54PM
that's completely BS it's kind of odd that almost everything they are selling is all crap that has been in dump bins or greatest hits. plus they are trying to sell crap on sale that's still somehow more expensive then any other store selling the same item.
Paul Gandersman @ Feb 1st 2007 8:00PM
those aren't deals, look at the xbox 360 games, they say that Kameo runs for 49.99, the msrp is now 29.99 it has been that for a LONG time, so their "sale" price is above standard MSRP, and they're selling Madden 06 for about 30 some odd dollars! It's 19.99 now! wtf
scott @ Feb 1st 2007 8:48PM
Five dollar profit per video game or console? Not counting the storage costs? Yeah, they sound bitter toward the games industry but they have good reason. Give them a break, Joystiq. They could make more money selling T-shirts printed on the internet.
Ludwig Kietzmann @ Feb 1st 2007 8:37PM
NoHitHair,
Did you just not read the full post? Commenting without doing so seems ... shortsighted.
NotWelshMan,
No, I don't think "we all know" or even agree on those points. :) I see where you're coming from, but I don't think calling 80% of games "crap" is accurate or particularly professional.
Evan @ Feb 1st 2007 8:56PM
It's a lot like the comic book industry... Comic book stores have to buy through a distributor (Diamond), cannot return unsold books to their distributor, and books are quickly superceded by new issues.
It's obviously tough on comic book stores, but it also harms small publishers! Many comic book stores are hesitant to order unproven titles because, if it doesn't sell, then the store will never recoup the cost of the book. So, only books with "guaranteed sales" (e.g. X-Men) are widely available for purchase, and new books are never given a chance (it's been suggested that "Spawn" would never have risen from obscurity if it was released in today’s comic retail environment). The situation perpetuates itself, so that now only a handful of "mainstream" comics sell over 100,000, the majority of titles sell under 5,000, with little in between and no way for a comic to climb to the top without a proven name like "X-Men" or "Spider-Man" in the title.
If this happens to the game industry, it could be the end to games like Rez and Katamari. If stores are under too much pressure, unproven titles become too risky to stock.
Abscissa @ Feb 1st 2007 10:09PM
"90% of everything is crap."
- Sturgeon's Revelation
NotWelshMan @ Feb 1st 2007 10:02PM
Ludwig:
Okay, let me - kinda - rephrase.
Every day, games websites and magazines review a tonne of new games. Depending on the reviewer in question, an "average" game will get between 4/10 to 7/10 (which will vary, obviously, depending on the actual method of rating).
Now, I'll admit that calling 80 percent of games crap is probably mistaken, and is decidedly unprofessional. However, look at it from a consumer's point of view. I have £40 in my pocket, and can only afford one new game. So I buy the one that I've heard of, or that I know got the highest scores or the most good press. Being someone who reads a reasonable amount of gaming news, I pretty much ignore a game that scored 7/10 or under, unless I really like the franchise. Because 7/10 in today's game industry is crap.
But marketing comes into this, too. In this instance, "crap" doesn't only necessarily refer to the quality of the game - it refers to the way it was marketed, and the franchise it belongs to. Personally, I don't like WWF Smackdown games, but they sell a lot through the franchise: you want a wrestling game, you buy the one with the real (ahem) wrestlers in it. Alternatively, Okami, or Prince Of Persia SOT, sell badly: good games without enough positive marketing, and without known franchises.
Sure, the store itself has a bit of work to do. They can promote their own products. But it's hard for a site that already has narrow profit margins to drop prices further to promote a game that doesn't promote itself - especially when the store has a hundred other games that look just as exciting.
As I said, "crap" is not a professional word, and I think they could of rephrased. I just think his point is valid.
JD @ Feb 1st 2007 10:13PM
To those complaining about DVDE prices, did you not read the article? "No price protection, game prices drop quickly" and "Distribution is dumb". These guys have to pay more than Amazon because they can only purchase through a distributor.
If they do buy the "$49.99" version of the game and then MS or Sony or Nintendo drops the price to "$19.99", DVDE (and other small retailers) is stuck with the $49 version of the game. I'm assuming larger retailers can send back existing inventory for the "greatest hits" version.
Don't book publishers take back hardback versions that don't sell? And once the paperback version comes out, that's the final price? Why can't game publishers do the same thing?
You are quickly going to see nothing but overpriced "just released" titles at the big box stores. Hmmm, sounds like GameStop, but they have overpriced used games too.
Digital distribution is the future.
Dan Green @ Feb 1st 2007 10:14PM
Deep Discount should have never started selling video games -- it doesn't fit their business model. I'm a long-time customer of theirs, having purchased DVDs from them for a number of years, because they do offer great deals, they ship most if not all of their products for free and thei customer service is top-notch.
The problem with games is there is no room for price markdowns, which is the reason every one goes to Deep Discount in the first place -- buying a game for $58.99 instead of the regular retail price of $59.99 is not a deep discount.
I think it's a good move by Deep Discount, but they should stop complaining and point the finger at themselves for the bad business decision that was made to start selling games in the first place.
NotWelshMan @ Feb 4th 2007 9:00PM
"Don't book publishers take back hardback versions that don't sell? And once the paperback version comes out, that's the final price? Why can't game publishers do the same thing?"
I remember working at Penguin Books for a couple of months - they used to take back unsold books. But books have a couple of perks - there are a multitude of discount bookshops to sell at, and books age better than games. And books, ultimately, can be pulped and recycled - unused games simply fill up landfill space.
Davedrastic @ Feb 2nd 2007 12:06AM
Doesn't anyone appreciate DVDEs' honesty?
Seems to me that their gripes concerning distribution are legitimate. If a successful online DVD reseller can't make money from video games then who can (the big boys).
Dummy spit for sure, but good on them for providing an explanation.
Interstate78 @ Feb 2nd 2007 12:07AM
As manager of a store, someone who's been in independant retail for 7 years now, I totally understand DVDE's decision. You cannot simply jump into gaming retail without having a very, very experienced management team.
The margin that we make on games is ridiculously low. I`m talking less than 10% in most case. In sheer numbers, we make between 1.25 (thanks, Nintendo!) and 10$ per game. Needless to say, 10$ is very rare.
A videogames store cannot operate without dealing pre-played games. It's your pre-played games that allow brick & mortar shops to live.
I saw someone say it wasn't true about the pricedrops. Well just pay attention. The worst offender is by far Ubisoft. They'll chop the price by up to 50% within a month if sales are lower than expected. Independent retailer suffer a loss when that happens because we can't get a serious price protection.
What DVDE would have needed in their management is an old Vet like me-- Someone who knows what's shit and what's not.
severian00 @ Feb 2nd 2007 1:53AM
I am a manager at a medium size retailer and I'd like to counter a few points made on this subject. Prices on games do fluctuate based on the popularity of the title. Your Maddens and NBA games typically come in costing a retailer $40 for a game we sell for $50, $45-55 for a $60. It usually stays whatever starting retail price until midway through the season on the sport, then drops by $10. At the end of the season it usually has dropped $20. If you are sitting on inventory that you have purchased at $40 and the going price goes down to $30 you are losing $10 on each piece of that inventory. If you work the distributor you may get a price comp prorated on your next order to make up for the loss if you are willing to take on more inventory at the lower price. It really does depend on your business model though whether you decide to take on inventory in order to potentially gain a slight increase in your profits. If you go the other route of going straight from your distributor to the customer as the other retailer was talking about, you face no downside on the potential for having unmovable inventory, but lose some of the additional $$$.
In some cases it can really kill you to have to guess what will be big. Our chain bet big on The Matrix Path of Neo and 50 Cent Bulletproof. Just about every one of our stores still have 20+ copies a year after release and we've seen the value of the titles drop from 50 down to 14.99-19.99. That's an awfully big hit to take just on 1 title. At the same time if you aren't willing to order big, you may miss out. We were constantly out of Gears through the holidays and when we got them, each store in our chain got about 10 copies. Some things are guaranteed sales: Madden, NBA Live/2k, MLB, Zelda, etc. Others aren't: True Crime, Dead or Alive. Sometimes you get blown away by somethings popularity: Gears, Brain Age, Lego SW. It's so much a guessing game and once those reviews hit you can find that you bet heavy on a 6 outta 10 and bet low on a 8.5 sleeper hit.
refinedsugar @ Feb 2nd 2007 1:09AM
... and people love to crap on stores that push pre-orders.
Mad @ Feb 2nd 2007 1:09AM
#23 - says it all.
http://en.wikipedia.org/wiki/Sturgeon's_Revelation
Alas 90% of DVD's are crap also !
NoHitHair @ Feb 2nd 2007 3:35AM
Ludwig Kietzmann:
I imagine it must be both depreciating and depressing to realize an inability in yourself to properly refute another's comments farther than a single line. This is, of course, assuming you would be able to grasp such a simple concept. If your intelligence is any indication as to the state of your life, I'd recommend a tight noose and a flimsy chair.
@29 & @32:
It's promising to see people who truly understand the gears that make a small business function, especially ones involved in video game retail.
Ludwig Kietzmann @ Feb 2nd 2007 7:36AM
NoHitHair,
Since you were obviously more occupied with constructing a laughable sequence of insults, I'm going to assume that you did not, in fact, read the post in its entirety. Your original, cursory comment conveniently ignores the fact that we printed another retailer's claims and explicitly indicated that they *reinforced* DVD Empire's complaints.
You could have easily "refuted" my comment and made your position clearer, but instead you lashed out like an infant reading a comic book wedged in a psychology manual. Inconsequential denigration as the sole means of argument? Quite unheard of on the internet, I'm sure.
Jon @ Feb 2nd 2007 9:59AM
Their complaints are valid. I have managed Electronics Boutique, Babbages, and finally worked at a mom and pop video game store.
All three stores were happy to get the new releases in, but only the first two would consistently get in the new titles. The mom and pop store had to struggle to get titles in a timely fashion from the distributor. No direct shipping from the publisher.
Margins aren't there. They really aren't. When was the last time that you walked into a Gamestop and didn't get verbally assaulted about trading games in? How about the hint book? Need a memory card? Accessories and pre-owns are where margin is found. And for trading games in, unless you are beating games within the first couple of weeeks, or you have one of the rare gemes that maintain some value, you are usually getting 1/3 to 1/4 of what you paid. Then when you see where it's priced, it's a 54.99 price tag for used, versus 59.99 new?
I have talked with district managers who would happily not sell a single new piece of software, live off of trade ins and selling used games. Margins in the used department are 50% and up, sometimes 200-300%. This makes selling a new game with 5% markup seem like folly.
As for markdowns, they happen. How many games before they get to greatest hit status are already at that price point or at least discounted heavily?
And buy back? Doesn't always happen for the big boys either. I had the entire bottom of a cabinet full of Superman for the nintendo 64. When I took the store over I have 40 or so copies, after 3 inventories and pleading with a dostrict manager (not a lot of space in these places) the games finally went back to our warehouse. Whether the publisher ever helped out with a buyback I do not know.
Competition is a good thing. But when it comes to games retailers there isn't a whole lot of competition. A lot of the same prices and the only differences would be driving times to the various locations. Some change would be nice to see here.
birdguy @ Feb 2nd 2007 10:08AM
I work in retail selling electronics for a small company (small compared to bestbuy and gamestop). We don't sell video games even though we have access to through our distributor. Why? EXACTLY for the reasons that DVD Empire is talking about--fixed prices, high prices, no returns, bad games, price drops, etc.
I don't know why DVD Empire decided to bitch about the situation on their site, somewhat unprofessional. That said, it's a huge problem for retailers, I am sure even for large retailers, that the industry and its customers are so accustomed to timed price drops. Possibly with Nintendo as the only exception, most publishers drop their prices at the earliest hint of a slow down.
The book industry has similar price drop scheme, but they protect their best selling properties much longer than game publishers. Also, subsequent cheaper version of hardcover books are paperback and news-paperbacks, which ARE cheaper to produce and offers a slightly different reading experience due to size and paper quality, which allows both paperbacks and hardcoverbacks to sell at the same time at difference price points.
Games are all the same with exception of the greatest hits cover, so once the price drops, the retailers have to sell ALL of their games at the new low price. With lack of returns and price protections, the previously stocked games have to be sold at a loss.
The whole model, whether online or offline, is totally screwed up, the timed price drops need to stop because it only breeds an army of cheap ass gamers who wait for price drops. Price drops are okay, but the publishers need wait a lot longer than they do now. Nintendo's President Satoru Iwata has talked about this price drop problem and he knows what he's talking about.
Scott Winston @ Feb 2nd 2007 11:47AM
I like the writer interviewed one guy, and now thinks he's some kind of business genuis who knows enough about life to characterize DVD Empire as immature "children" who were "lashing out".
Um, they probably lost a lot of money trying to make it work and I for one don't like that fucking Gamestop is the only game specific retailer you can can find locally these days. Oh, sorry, was I "lashing out" just then. Man, I must really be an immature child. You guys are such assholes sometimes.
theandyman85 @ Feb 2nd 2007 5:05PM
For those who keep mentioning that their selection is horrendous....they have been getting rid of their games for quite awhile and these are the ones that are left. This isnt a case of this "just" happening, all of their good titles are already gone and these are mostly the 80% left that are crap.