Friday, February 03, 2006

It's in the (Used) Game

Aplia is just down the road from the Electronic Arts (EA) headquarters in the San Francisco Bay Area. For the non-gamers out there, EA makes video games. Around here, you'd know an EA engineer if you saw one--they're the guys in the Starbucks queue sporting varsity jackets with logos from the latest video games. If corporate schwag indicated profitability then you might guess that business is booming at EA.

It's not.

As a recent New York Times article points out, the profitability of video game publishers like EA is particularly weak compared to profit margins in two other sectors of the video game industry: online subscriber gaming and game exchange stores. Read the article to see why.

1. How does the recent Xbox 360 shortage affect the demand for the latest games from Activision and EA? How does subscription-based online gaming affect the demand for games from American publishers like EA?

2. What is GameStop's profit margin on used games? According to an executive at GameStop, the used game market actually helps game producers like EA. How might resale or trade-in opportunities affect the demand for new games?

3. What would happen to the supply of used games if game publishers began electronic distribution of games directly to players?

4. In what ways does the video game industry resemble the textbook industry? Does the used market for textbooks cannibalize new textbook sales? How do textbook publishers mitigate potential losses from the used book market? Think about the re-issue of new editions and the more recent trend of digital textbook delivery.

Topics: Interaction between primary and secondary markets


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