'Games retail is unsustainable' says supermarket giant TESCO. But why is it going so wrong?

Note: This article is based on UK examples, but the implications are the same worldwide

Supermarket giant TESCO's entertainment chief, Rob Salter, has told MCV: "I think there is little doubt that the current commercial model for games as packaged goods is unsustainable." That's not good. In fact, it's the latest in a long line of gloomy news stories of late, especially in the UK thanks to GAME's struggles and ultimate lifeline (GAME not dead - jobs and stores saved as high street retailer finds buyer). Something is seriously broken – but does anyone have the answer?

As countless small businesses will tell you, TESCO is clearly very good at nudging out the competition. So it's little wonder it's seen GAME on the ropes and started putting the boot in with offers like Mass Effect 3 or SSX for a mere £24.91, along with Street Fighter X Tekken and Saints Row: The Third for a crazy-low £21.91 each. It's hard to see how GAME can compete with that. Truth is, it probably can't. And while that may be harsh and ruthless, this is only business. TESCO's seen its golden opportunity to remove a key competitor from the market, so it's hitting GAME's weak point for massive damage.

Above: TESCO is the master of real-time weapon change - we're seeing it right now

As our Business Studies teacher told us, these rock-bottom prices are almost certainly what's called 'loss leaders'. These are products that a business deliberately sells at a loss, literally losing money on every sale but with the aim of winning over customers in other areas. So a supermarket might sell Cola cheaper than it costs to buy in, but hoping the customers will stay in the shop and spend £50 on other groceries. In this instance, it's more to do with pricing GAME out of business. Make a loss in the short term, gain market share in the long term. Clever.

To add insult to injury, TESCO's even started calling itself 'The home of gaming', which sounds ridiculous, but isn't an outlandish claim when you consider its offering 'the largest number of gaming stores in the UK', '393 stores open at midnight for new game releases' and a 'pre-order price promise'.

Sounds great, right? However...

As wonderful as this sounds, TESCO is still unhappy with the situation it's found itself in, which is where we come back to that dramatic headline. "The current commercial model for games as packaged goods is unsustainable." And Rob's reasons are worryingly hard to argue with. They are:

"In determining how resources are allocated, space for example, a retailer looks at key factors like market growth, margin, cost to serve and ease of operation, shrink risk, returns and exit protection, and broader traffic and spend driving properties.

"Video games currently scores poorly on every one, and that cannot be good for anyone involved in the games business and for its long term future."

When it's laid out like that, it's evident that he's right. Games are expensive, lose value extremely quickly (like Rayman Origins there, already down to $14.97 new according to reports), take time to either security tag or keep behind the counter and pack in, plus there's no guarantee anyone coming into the store to buy a single game is going to stay in the store and do their weekly shop. It's not a very easy fit for the supermarket model… or any high street retailer in fairness.

But what can be done to make things better? It's been rumoured that the next generation of consoles will be 'always on' in terms of internet connectivity (Xbox 720 will be a powerhouse, require always-on internet connection [Rumor]), with the very real possibility that every new game will be forever tied to a single user account. It could happen. I think it needs to happen. Hit page 2 and I'll tell you why.



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  • cptnoremac - October 6, 2014 9:29 a.m.

    I'm sure my point has been made by someone else, but do you know what people do with the money they make from reselling their new games? They buy more new games. If you force them to keep their new games and lower the prices, you don't really make any extra profit; you just piss people off. Even more concerning for me: What happens to these games in the future? I like collecting old games and enjoying them. The SNES is still my favorite system. There's no way I could have had every cartridge I want back when they were new, so I naturally have to pick up some used ones over the years to collect all the ones I want. But what if this proposed system was in place then? Say I picked up a copy of Super Empire Strikes Back, but LucasArts is out of business now. How do I pay them for the right to play the game if they don't have servers set up anymore to take my money and enable the game to be played by my account? Or what if the video game market as a whole crashes? An always-online console would be pretty useless if there's nothing left to connect to. We'd all go back to playing our PS3s. I want to know I own something I buy. If it only works as long as you give me permission to use it, I don't really own it. I won't give a dime to anyone offering such a ridiculous deal.
  • The_Boz - April 11, 2012 5:52 a.m.

    Question, what happens if your console breaks and you need a new console? If that game is tied into that console you will lose all your games. Or if somebody hacks into your account and changes your password etc and you need to create a new profile, it has happened. I have created a new profile because I have had a MSN account for over 5 years, automatically logged in, so when the computer went into a paddy once, I couldn't remember the log in details so had to create a new one. If this is true for the Xbox 720, I will not be buying one, if the PS4 is the same, I will just go back to PC gaming as the games are much cheaper anyway. I have a console because it is like a home arcade, easy game access, no logging in, no booting up, instant loading and trade in my games once finished. One last question, what happens if you have to download your games, what happens if you lose internet connection? What happens if you have a very slow connection? What happens if the servers are down, does that mean your console is defunct? It's a case of bad idea, and no thanks AND I will not send my card details through either, I never buy online, and never will. I like to experience to pay cash, going out to buy a game, just like any other product. I think this will be an own goal for Microsoft and I can see my console days over, well, for the next generation at least.
  • The_Boz - April 11, 2012 5:43 a.m.

    BULLSHIT BULLSHIT BULLSHIT!!! There is always an excuse for the high price of games. Piracy, now the used game market oh and how much it costs to produce a game. How about movies, they cost several more times to create and yet sell for much cheaper and within a year could be selling at £3 on DVD. Not all movies generate a profit at the cinema, and the ones that don't you don't see them selling at a different price to others. The consumer dictates price, if the consumer pays £40 for a game, that is what they sell at. Could you imagine buying a movie for that. It may sound extortionate, but think about it, the movie probably cost more to produce than the game. The thing to save the game industry is to bring down the prices, that way more titles would be sold. Look back at the 8-bit and 16-bit generation. You could by a new game for a tenner, games were never reduced, and even poor games got into the charts. The answer is in the pricing. Gamers are not cash cow with unlimited funds, many consumers don't have a job and are at school, so how many games do you think they will get over a year? The used game market is not killing the industry, but it is run very greedily. You pay top whack for them and the stores give you nothing for them. I never buy used games personally, it just gives me the funds to buy my next new game, even a brand new release at full whack. Also the only thing to stop me buying the latest NHL game is that no way in hell I will pay £45 for it. That is the only reason, if it doesn't come down in price, I won't buy it full stop.
  • pin316 - April 10, 2012 8:52 p.m.

    This is utter rubbish, Making games locked to a single account means that players hav choice but to keep everything they buy. That means that people will be a lot more reluctant to purchase any game that: a) they are unsure of how good the game is (i.e. non-major franchise/mixed reviews etc) b) has no long-term replay value (i.e. if it's non multiplayer or multi-story RPG etc) basically, this would kill the indie/small-game developers, hurt sales of new-IPS, and pretty much propogate the horrible trend we already have of anything good/new/original being shafted in favour of the next CoD/Halo/Fifa etc and that's not even touching on one of the main problems with always on consoles - every single person that buys a console to use offline (wehether it be due to lack of internet/poor connection/no desire to) would be a lost sale, and that's a pretty decent percentage of the market. Same with digital-only copies - too many people have either no internet console connection or restricted download limits that do not allow them to download things the size of games to make it a viable option. There are other ways to solve the problems with used games: 1) Passcode everything (not an online passcode, just codelock the disc). All new sales include a code that unlocks the game for a single account. Any new account needs a new code. These can be obtained online if you are connected with your console, or if not then either from pub/dev websites or over the counter from retailers 2) Post restrictions on the price of games through legitimate retailers - make it so they are not able to undercut the price of new games by such a large amount (i.e. - if you sell our games used at a price which is greater than amount X cheaper than it is new, then we will no longer provide games to your store) And your acceptance of the link that a bloody retail representative places between physical retail of new/used games to developer security the health of the industry is unusually naive for this site btw - they are two different things... What this guy from Tesco actually means is - it's not possible for game retailers to keep selling new games at extortionate prices (seriously - the only reason that devs get screwed over is because their margin is so low), and get away with it - people are becoming more and more switched on to alternate places to buy games, such as the internet, where instead of the 50 it costs me to buy new from Game or Tesco, I can buy it for 40 on day one. Or instead of the 40 it costs instore a month later I can buy it new for 30 online. The massive decreases don't affect the devs/publishers - they get a fixed amount per sale - it simply affects the profit of the retailer....hence why online stores without the physical overheads can sell for much cheaper. Whiny Tesco official is simply whining because they can't screw us over any longer.
  • naryan - April 9, 2012 7:25 a.m.

    What worries me is as each console and PC goes further down the 'download' only route. We should all be wary of the actual ownership of the games purchased. Eve Steam's T&C's state that that you have only paid for the licence which could be removed from the servers at any time... Physical items have benefits with knowing we have a copy available for use whatever happens. However until clause in xbla/psn/steam/gog/origin/etc. is addressed, the majority of 'joe public' won't buy into our digital future. ------------------------ Always have your stuff when you need it with @Dropbox. 2GB account is free + bonus 500mb for each friend with this link (upto 18gb!)
  • jacob_kreed - April 9, 2012 1:15 a.m.

    GAME lost the fight with sales, because there management was creedly. NEVER ,EVER bring a game out on a shop floor at full 49.99 Retail and then say well I dont why it isnt selling. All PS3/4 and Xbox 360/720 should be price a max 34.99 to 19.99. Yes website we be able to go underthat. But if you could get a brand new game 19.99 and all took a car,bike or bus journey to play the game on release day at a pound more. What would you do. Internet only games, Microsoft would be very foolish to go down that road and give console right ps4 and next gen nintendo. Because retail would push those consoles to get a return
  • Sscarebbear - April 9, 2012 2:09 a.m.

    Word is that the 'NextBox' will follow the 'Slim' model, with no detachable hardrive - that would pretty much mean no switching machines (except maybe for MemSticks if they include a port), just accessing profiles on Live. Looks very much as though the idea is to force online purchases/downloads and kick discs into touch altogether. Where one leads, others will follow - so it could be goodbye to retail and hi there online shopping. If so, I'm really gonna miss checking out games in the 'real' world - and being able to see my collection grow on my shelves. Seems like they don't figure in the people who actually keep games over long periods, my collection goes all the way back to 'Lords of Midnight/Doomdark's Revenge' on the Spectrum (inherited from my dad, who kept all his old games and the machines they ran on - all still working too!). He still plays the original 3.5" 'Dungeon Master/Chaos Strikes Back' games on Atari 520. Collectors like what THEY like, not always what Bill & Co want to push.
  • Mezolitik - April 8, 2012 12:35 p.m.

    The sad thing is, there are gonna be so many people who say: "no second-hand games? I'm gonna pirate!" And the sacrifices will be all for naught.
  • monk_on_the_run - April 8, 2012 7:44 a.m.

    Honestly wouldn't mind getting rid of second hand games if it prevents the collapse of the industry. However would this mean more EA-esque login codes to access the on-line? I assume it would make taking your game round a friends or lending it to them very restricted, if that is the case I think the game developers would need to improve/show off a lot more features in their demo's - without making a scenario where there is no point the user actually buying the full game. I don't like the idea of having a constant on-line system, especially for those, such as myself who have been playing on-line less and less.
  • Sscarebbear - April 8, 2012 2:45 a.m.

    Hope this never happens, would kill the experience for me. I don't play online and have no interest in doing so - for me it's all about my skill against the 'machine', plus I actually like collecting/building a games library I can see on my shelves and load up without having to drag my set-up to another room to go online. Sure I could invest in WiFi, but Why Fi should I? I buy games for me, not to make developers/manufacturers money. I appreciate that without secure income steams the flow will stop sometime - that's pretty much what happened with the Gen 1 consoles back in the 1970's - 1980's when everything first moved over to PC. My dad had an Atari 520 console back then and that generation of consoles died out because its market shifted - be a real shame if the same happened again. Just seems wrong that those who play offline should be either forced out or forced to have online links they don't want and wouldn't use. I don't use my Xbox for anything other than games and don't want to - does that mean the market should ignore me and others like me? I'm on my fifth Xbox right now and spend to match my needs, not the markets. I only went Xbox because the games I wanted to play were Xbox games - If another platform has games I want (in the format I want) then I'll switch accordingly. Rant over: Hope it's not going to be Game Over too.
  • Jasman - April 6, 2012 6:39 a.m.

    I reckon more flexible pricing models are needed for games retail. Why can't developers/publishers scale back their budget from the start and plan to retail their game for £20-£30 RRP? Why is the £40/£60 model so fervently pursued? Imagine if the next Battlefield sold its multiplayer as a standalone disc retail disc for 25 quid, while its single player was put up on PSN, XBLA and Steam for £15? It sounds mad, but I think this type of 'option-led' model could really work based on the fact that gamers are savvy consumers who often place a strong emphasis on choice and value.
  • gazzc - April 6, 2012 6:09 a.m.

    No-pre owned seems to me to be working fine for steam and have been doing for some years. Of course new games are not £50 and even titles a few months old appear in sales for silly prices regularly and you can almost always get a demo. Unfortunately console owners are going to have to get used to this idea too because if it does not come with the next gen of consoles it is coming in the gen after that for sure! That does however mean they will have to do something about the pricing which is one reason why so many do buy pre-owned. If they take away the added value of being able to resell the game when no longer needed then they can not justify the high price any longer and people will just not buy. As a bonus, no pre-owned may even kill off the worrying new trend that is selling a full price game with half its content missing until you pay more money.
  • CitizenWolfie - April 6, 2012 3:59 a.m.

    If Tesco had a designated "Game" department I'd definitely buy from them more often. As it is, I feel a bit weird picking up a new game along with a loaf of bread and a pack of beers. I used to make the extra journey to GAME/station because of pre-order bonuses and their staff being pretty cool (at least in my nearest branch anyway). But since all the ones by me have closed I'm pretty much forced to buy from Tesco now anyway. At least they're getting better now I suppose and doing midnight releases and such. As for the preowned debate, I usually buy new purely because I like to open up a nice, crisp, box fresh copy of a new game without having to peel off an ugly "PREOWNED" sticker off of a slightly scruffy looking box. But that's just me. I'll only really buy preowned if it looks in good condition and it's a game I wasn't interested in enough to buy day one or if I've played a demo and really liked it. I hope publishers will continue to put out boxed copies of games. Otherwise I don't like the idea of being hostage to my internet connection and having to wait for A: The PSN or XBL store to be updated and B: to spend hours downloading the game after that. Boxed copies are immediate. You just put it in (then install) and play. Plus you are a slave to the RRP with most triple-A games being at their premium price. I really can't see why people would choose that over buying a disc and possibly even getting trade in deals etc. Honestly, I think until (at least here in Europe) we are getting 1000mb broadband speeds like in Korea and Japan, a download-only market is something I don't want to be a part of.
  • Spiderpope - April 6, 2012 1:13 a.m.

    If games become locked to one account then two things need to happen in order for the market to continue its current level of sales: 1)Demos available for everything. 2)Game prices need to drop. Without these two changes i can't see it having a positive effect on sales. In the current economic environment, people don't have a great deal of money to waste. So they are unlikely to fork out £40 on a title that they cannot get money back on if it turns out to be dire. I know i'm certainly less likely to buy a day one game without the possibility of trade in without either playing it first or it being cheap enough to write off. As for Tesco, they'll back whatever will let them fleece their customers and/or staff best. Just look at their hastily abandoned slave labour scheme in the UK.
  • Fruitbat - April 5, 2012 5:24 p.m.

    I'm amazed this is being treated like a revolutionary new idea when it's how the entire PC software market works. Download or buy shareware/trial version, buy or input license key, use full product. Buy disc second hand, purchase software key as well. From disk defragmenters to professional media suites, this is how software works. Why should games be any different, especially given their enormous production costs?
  • Spiderpope - April 6, 2012 1:15 a.m.

    It works for PC largely because when it comes to software even day one AAA titles are £10-15 cheaper than console titles. It's a lot easier to justify taking a punt on a £25 game than a £40 game. That coupled with an abundance of demos available through services like Steam and you've got a good system. Perhaps we will see Lionheads Fable II system expanded to more games - get the first level/X-hours for free, pay for the rest if you want to continue.
  • metalgatesolid - April 5, 2012 3:05 p.m.

    Have said im fine with this since it was first mentioned. I download games on the PS3 (Journey, Infamous, Pain to name but a few). I have no problem with downloading games. However, the price of downloadable games must be adjusted. A few bargins aside i will not pay £50 for a downloadable game when stores sell them cheaper.
  • DRTHVDRMAN - April 5, 2012 12:28 p.m.

    My problem really with the no used games comes to problems farther down the road. I had gotten Mirror's Edge the day it came out and loved it. After I was done, I let someone borrow it and it got lost. So just the other day I went and bought it used, seeing as you really can't find it new for a cheap price very easily. If used games were no longer playable, I would never again be able to play Mirror's Edge, nor would anyone who had not gotten it in that initial 3-month window after launch. Therefore the real problem would be would companies continue to make games after the release so consumers down the road would still be able to play these games? I really don't mind having games be locked to one account, but unless games could be "unlocked" or something after a certain amount of time (year or two after release), people would surely miss out on great games just because they were not able to get them when they first came out, especially if it's due to pricing (and it doesn't sound like prices will necessarily go down if the production values will be twice as much as they currently are). If that's the case, sure games like COD which will easily earn back the money may only raise the cost a bit, but smaller games would have to surely raise the price, just making it that much harder for people on a budget to afford it before it all the sudden would disappear and be hard to get.
  • Beartoe - April 5, 2012 9:14 p.m.

    Your argument is strictly based on the fact that new games only produce enough units for the first 3 months of it's market life. which is obviously not the case. especially when you can't get a used copy it would be in the best interest to gaming companies to continue producing units well after it's release date. so say if you did buy and lose your copy of mirrors edge, you would simply have to go to the store and get a new copy for roughly the same price as a used game because used games would not exist. there by lowering the cost of of games and returning more profit back to the studios that deserve them. which, in turn, would keep future games well within the affordable range for consumers.
  • gazzc - April 6, 2012 6:15 a.m.

    Assuming it all moves to digital and physical copies are no longer available then the issue of not being able to find a game would probably not exist. Also you would never have lost the game to begin with if you had it tied to your account.