Wednesday, April 2, 2008

Church and State (otherwise known as Publisher and Retailer)

Some of you may have read the coverage on joystiq and kotaku about how EB Games Canada is offering a pre-order promotion with HAZE on the PS3. The promotion is very simple, and has been done before (God of War 2 – PS2). They are saying if you pre-order HAZE before its launch date, you will be able to play it for one week, return it with receipt, and get full store credit towards something else.

Naturally, this is a pretty sweet deal. This basically amounts to a free rental on a new release game. What truly pushes this deal to Olympian status is it qualifies as a “Trade 3 get it Free” title. Which really mean you can trade three of your used games that have a trade in value of $8 or more and get HAZE for free AND get the full $60+GST back as credit after one week. Congratulations, you have just effectively more than doubled your trade in credit. There are whole sites and threads on forums devoted to how you can maximize your trade ins so I won’t elaborate here.

The rub here is not that EB is offering a free rental of HAZE, but it’s really because they are cutting into the bottom line of Ubisoft, the publisher of the game (and that the Americans aren’t offered this same promotion – that’s right, Canada is on top!) How this happens, as kotaku reported, is that EB games is profiting 100% from the used sale of this game. Here’s the math:

*Assuming taxes are all included and that wholesale cost per unit is $35, and cost of operation not included

Cost to you:

$24 ($8 games X 3)

Play HAZE for one week and refund for store credit: $60

Spend store credit for another $60 game

EB Cost:

$35 for HAZE from Ubisoft

Sell 3 used games for $20 each = $60 (at this point, they have made almost 2X their money back)

Give you another game they purchased for $35 when you return HAZE

Turn around and sell HAZE for $55 (which is 100% profit)

EB Net total: (-35+60-35+55) = $45

So why does Ubisoft care? Because they don’t get a bite of that $45 EB just made from you. Now why should you care? Because Ubisoft is trying to stop this from happening and if they succeed, it means that publishers and developers will now have a direct effect on the trade in values of a game, not just the MSRP (note that the “S” stands for suggested). This is bad for the consumer as prices will no longer be determined by the consumer and market competition will effectively halt. The end result of this promotion is that everyone BUT the publisher wins. EB makes money and you are happy because you got to play one game and return it for something else for more than you paid for.

What will be more likely is that Ubisoft will inflate the first week sales and pre-order numbers of this game, win some advertising dollars, and make Rainbow 6 Vegas 3 a clone of R6V1. They will get their supper, they just have to wait a bit longer.

EDIT: Thanks to M.Y. for the kind input on prospective volume pricing for new games. Values in calculations changed to reflect possible per unit pricing for EB Games from distributors. Links to original articles also updated.

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