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Dennis McCauley
Joined: 2006-09-30

[URL=http://biz.gamedaily.com/industry/feature/?id=14397]GameDaily BIZ[/URL]

Retailers' greed

If Sony, Microsoft and Nintendo speak the truth, then the blame in all of this falls squarely on the shoulders of the retailer. It may be legal, but is it ethical? Well, the business world is not exactly a shining example of what's ethical or not; the retailer, like any company, cares about the bottom line, not you. And as it turns out, selling the hardware as is may not be profitable for the retailer either, according to Hal Halpin, former head of the Interactive Entertainment Merchants Association. (Halpin, it should be noted, has effectively "switched sides" by recently founding the Entertainment Consumer Association to fight for gamers' rights.)

"As I understand bundling, the primary reason for it is because there's no margin to be had on the hardware. So, retailers oftentimes by the time they stock a product and get it from the distribution centers to their stores and onto the store shelves are actually losing money on the hardware itself, not altogether different from the hardware manufacturers," Halpin explained.

He continued, "The demand is so unbelievably high with every new console introduction and the supply is so phenomenally low each time that they need to make money when they're selling the consoles, and so they bundle them with things that they hope consumers will also want and need anyway. They try to make them competitive; it's not like they're intentionally throwing bad games in there to get rid of them. They usually try to bundle pretty good packages and then they can make margin on the sale."

Halpin also agreed that the console makers likely have little say in bundling practices. It would seem to be entirely a retail initiative. "To the best of my knowledge, the publishers really have very little involvement," he said. "They're fully aware because it's part of the sale process, so they're definitely vested, but I don't think there's a lot of work that goes between them on what the bundles will be or how it will be bundled. It could be that times have changed and maybe that situation has, but to the best of my knowledge it's strictly retailer centric."

Fight back!

It may not be easy, but consumers can make retailers phase out these bundles (or at least offer standalone consoles at the same time) if they stick to their guns. "What our members and what consumers should do, in my opinion, is vote with their wallets. If they are able to go to stores where they're not bundling and they feel very strongly that they shouldn't be subjected to purchasing bundles, then they should go to retailers and support the retailers that don't [bundle]," said Halpin. "The problem of course is with the supply and demand issue, you pretty much need to go where you're going to be able to get it, and at this point if you haven't pre-purchased or pre-ordered your product it's very unlikely that you're going to be able to get it because demand is so significant."

He added, "You know, I was actually debating this with my wife who's a hardcore gamer, and I said, 'If you vote with your wallet, that's really the way to effect change.' And her response was, 'Well, that's great any other time when there's plenty of supply out there.' When demand is this high and supply is so low, even if a third of all the gamers in the U.S. said, 'You know what? We're against bundling and we're not going to purchase bundles,' then there's still two-thirds of people out there who are willing to snap up the systems at whatever the cost.

"That's the challenge from the consumer's perspective. From the ECA's perspective, this is actually the first time that it was raised as a potentially questionable legal matter... It's certainly worthwhile looking at because if it's of concern to our members it's of concern to us. And oftentimes it just plain out sucks... so it's definitely something we will be looking into going forward, but I don't think there are any easy answers in the short term. There's a possibility for the ECA to work with the retailers broadly; I have a pretty good relationship with just about all of them, on a personal and professional level... So another four to five years from now hopefully we'll use that time in order to work closely with retailers, and even forge some partnerships between the ECA and retailers who are willing to give our customers discounts or offers on bundling."

Times, they are a changin'

Ironically, by the time the ECA gets big enough to help settle this matter before the next round of consoles hits in five years, it may not actually be a problem anymore, depending on the direction the video game industry takes. "The longer, bigger term question, which may be the ultimate answer to yours is the razor and razor blades argument has been working for the industry for 20 something years... but if it gets to the point where digital distribution through the consoles becomes a reality and retailers aren't able to effectively sell packaged goods going forward, and they're not selling the razor blades but only the razors, at what point do they stop selling it entirely?" Halpin queried.

Indeed, if digital distribution is the future, then bundles may not be a problem for consumers. GameStop already started its own digital downloads service, which Halpin said was a "very prudent move." He added, "They really need to be out in front of digital distribution because it's a huge threat. When I first started the IEMA almost ten years ago, Jeff Griffiths, who was the CEO of Electronics Boutique, said to me, 'This is the single biggest threat to retail that this industry has ever seen.' ... It'll be interesting also to see what happens when the power shifts from the retailers to the manufacturers; with digital distribution will they be doing bundling? You can buy your PS3 but when you go home you have to download the ones they're forcing [laughs]."

As of press time, GameStop was unavailable to comment on their bundling practices. Aside from its in-store PS3 pre-order program, which sold out in minutes, we're guessing that the only other way to purchase a PS3 from them will be via yet-to-be-announced online bundles. The retailer says that online pre-order details are "coming soon." Considering the base price of the PS3, we may witness the most expensive video game console package in history when those details surface.

So what can you do? If you're not willing to shell out for a bundle, you're going to have endure camping out at a major retailer like Best Buy, Circuit City, Wal-Mart, etc. Even then, you'll have a hard time getting one because of limited supplies. Many of these stores are holding midnight launch openings, so the diehard consumers are going to show up many, many hours in advance, if not days. Furthermore, most of the big chains aren't going to be offering pre-orders on the PS3 or Wii either—although mega retailer Wal-Mart already offered and sold out of its pre-orders—and many may not even sell them online during the launch period.

Our advice? If you can live without one of the new consoles for a few months, you'll be able to get one far more easily in early 2007 without worrying about any bundles.


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