DVD Empire Getting Out Of The Game Selling Busines

[Atrocities]

I am interested in what Tim or other might have to say about this. It is indeed very interesting that DVD Empire would post this on their main game web page. They are, or at least seem to be, very P'ed Off.

LINK To DVD Empire

We are closing our video games division?

We are sad to say that we are closing down our video games division. We also feel we owe our customers an explanation:
1. Video Game Industry Does Not Care:
The video game industry only cares about mass merchandisers like Toys-R-Us, Wal-Mart, Best Buy, etc. They completely ignore the needs and wants of the medium to small game retailers. Below is how they do it.
2. Can’t Make Money:
You may not care whether or not we make money, but we cannot continue to pay to sell video games. It is impossible for us to make money selling video games. Video Game Manufacturers set the price using what is called MSRP (Manufacturers Suggested Retail Price). Here is an example of the video gaming industry greed: they set the retail price at just $5 above the product cost (buy it for $54.99, sell it for $59.99). When we sell a game we make on average 8.3% gross margin. That does not take into account any of the cost to store the video game or labor to receive/ship an item. The only way we can make a profit on an item is to sell it over the MSRP, but unfortunately we are not allowed to do this. Take a $400 console; we only make $5 on the sale—that is a 1.25% gross margin. The game companies make their profit selling to us. We make no profit selling to you.
3. No Price Protection + Games Prices Drop Quickly:
Surprise, Surprise….we do not receive price protection. Price protection is a way to decrease the risk of purchasing a product that may not sell. It puts the responsibility of producing a quality product in the hands of the manufacturer. When something doesn’t sell, the manufacturer reduces the MSRP. If the MSRP falls, price protection would give us our initial investment back. Again, we are not big enough to receive it. We all know how fast games devalue in prices; this is due to the fact that 80% of the games created are crap. So take the fact that we only make $5, now if the price of a game drops $20, we are now losing $15 every sale.
4. No Product Returns:
This one blows our minds; we are not big enough to return products. The game industry releases many bad games, and word of mouth spreads fast to the consumer. All of those bunk games sit on our shelves. If we do end up selling them, we lose more money, due to the lack of price protection. They won’t let us return the bombs. So if we buy a bad title, we are stuck on an industry-induced money losing ride through the land of price drops. Of course, if the video game industry produced quality games, we wouldn’t have this issue.
5. Distribution is Dumb:
Since we are not one of the top game retailers we have to buy through a middle man or distributor. First off, this obviously raises the cost of the product, and second, distribution is horrendous for new releases. We get them 3-4 days after street date. You can buy it from the store before we can ship it to you. This is completely unacceptable to the customers that pre-order games from us.
6. Games Are Better Suited for Brick and Mortar Retailers:
There is not a huge selection of games; it is a new release industry (majority of sales are in the first two weeks of release). Large retailers make money on other products after they get you in the door. We do not; most people come to a website to purchase a video game, not a video game and a bunch of movies. There is also no game catalog market, if you wanted to buy an old copy you would buy it used. So retailers are able to stock all new games, and they can return the ones that don’t sell. Games bring in great foot traffic for physical retailers and they make money elsewhere. EB Games/Gamestop relies heavily on their used business. It is very difficult for online retailers to have an advantage, except for convenience.
7. The Final Reason:
The final reason we killed our video games division is the industry does not let us provide the same level of service that we do with DVDs. We cannot continue to have our good name tarnished when we cannot control how we receive the product. We do not want to lose potential long-term customers due to a poor experience with a video game that is outside of our control. We attempted for the past five years to make it work but decided to call it quits. It breaks our hearts. Everyone at DVD Empire is a huge fan of pc and video games, and we are truly sad to see this division go.
8. The Only Positive:
20% off all games…have fun.
Updates:
We caused a major stir online from our recent decision to drop our video game division. Here are a few points to clear any confusion:

1. We knew about the low profit margins when developing our games division, but we strove to streamline operations and succeed within the thin margins. We wanted to provide the service to our customers even in the face of the almost inevitable losses. We could not provide an acceptable level of service from the current infrastructure of the games’ distribution system. We did not want our customers to purchase non-game items from us, see our excellent level of service, expect the same level of service with games, and be disappointed. We lost customers and did not make money. There is simply no argument to keep selling games.
2. People responded to our news with: “well, your model sucked you should have sold used games and accessories”. Our reply: this proves our point that small retailers can’t make money selling solely new video games. In the past, we sold used games and accessories, but it did not help our quest to provide excellent service to our customers. We currently have a very successful used DVD division; it’s not the model, it’s the media.
3. People stated: “You are just a bunch of whining brats.” Seriously, should we just keep our mouths shut about this? We love video games and are pissed at the video game manufacturers for removing our ability to provide good service. We felt we owed our customers an explanation; we did not intend to create a media frenzy.

[Tim Brooks]

What this says is true, to a point. The Walmarts and chain resellers control the market. He is blaming the manufacturers, but unfortunately it is the chains that control the price point. If you are a manufacturer and ship 5,000 units to EB and they don't fly off the shelf (two weeks is all they get to prove themselves), then EB says "take them back or reduce the price so we can move them." The manufacturers can't afford to pay to have them shipped back, inventoried, repackage and reship and make money. So the price is dropped to the big guys. Now the small shops are left holding product they paid for at full price and now have to sell at half that.

It is why we as a niche publisher don't do traditional retail. Niche games will never prove themselves in two weeks at retail. And we have proven that products have long shelf lifes if they are marketed and given the chance.

[Gandalf Parker]

Tim Brooks said:
It is why we as a niche publisher don't do traditional retail. Niche games will never prove themselves in two weeks at retail. And we have proven that products have long shelf lifes if they are marketed and given the chance.

Well you have proven that YOUR stuff has a long shelf life. But Ive considered the games that you choose to be unusual in that respect.

[Atrocities]

It is why we as a niche publisher don't do traditional retail. Niche games will never prove themselves in two weeks at retail. And we have proven that products have long shelf lifes if they are marketed and given the chance.

Your words are so right and you have earned the right to say "I told you all so." I wish I knew then what I know now.

[Tim Brooks]

Your words are so right and you have earned the right to say "I told you all so." I wish I knew then what I know now.