If Microsoft Bans Used Games, The Industry Will Die

It's the topic that won't die. But if Sony and Microsoft ban used games, the industry will.

In January, I outlined five key reasons why the next Xbox will absolutely play used games. Since that time, a new report has come to light that claims Sony (NYSE: SNE) is working hard to eliminate our ability to play used games on PlayStation 4. One week later, another report came out. This one claimed that Microsoft (NASDAQ: MSFT) is planning to require all next-gen Xbox users to maintain a constant Internet connection. In the name of fighting piracy, of course. And if that happens to kill off the used games market as well, what's the harm?

To be clear, these are only rumors. Sony and Microsoft may not actually attempt to ban used games with their new game machines. But there are some publishers -- such as Electronic Arts (NASDAQ: EA) and Ubisoft -- that have been very vocal in their disdain for the used games market. They don't understand the value that used games bring to the market.

Brian Sozzi, the Chief Equities Analyst for Nothing But Gold Productions, told Benzinga that he isn't sure if console manufacturers should follow through with any of these rumored plans.

"That's been a big discussion -- to ban used games," he said. "I understand where they're coming from. But I think they drive continued awareness to potential future hit franchises, too."

Sozzi said that with the used games market, there could be an under-the-radar hit title that nobody knew about when it was first released, but then all of a sudden people started buying it used. (This could build awareness for a possible sequel, which consumers would then be likely to support at launch by purchasing new copies.)

"I think you're limiting yourself if you try to remove that part of the industry," Sozzi added. "If Microsoft bans used games, then maybe I don't go to GameStop (NYSE: GME) and buy a new game. So it could have a cascading effect where you cut your nose off to spite your face."

GameStop Dies First

Before the game industry is hit hard by the loss of used games (which currently provides consumers with more than $800 million in merchandise credit, most of which goes toward the purchase of new games), one major retailer will fall: GameStop.

"I think GameStop is going to have to link [packaged games] with digital to drive huge game sales," said Sozzi, adding that if consumers have been selling used items to acquire new games, it could be a problem. "The whole productivity model of GameStop essentially grinds to a halt. If you look at that cycle, then it is a bit of a concern."

That said, GameStop is trying to adapt.

"GameStop bought a couple companies to tap into digital," Sozzi added. "So they are relatively positioned. And they've also started to put digital offerings within certain games. So when you buy a game from them you get special codes and that enhances the gameplay experience."

Further, the retailer now carries used iPods and iPads through the acquisition of a used hardware company.

"Now the upshot to all this is that GameStop stores are small," said Sozzi. "So it's not like you're Best Buy (NYSE: BBY) and you're going to lose a whole portion of your [company] that for years has been a key revenue-driver. You can probably close some of these stores aggressively, if you're GameStop, if you had to. Will they be impacted? Sure. But maybe not disastrously."

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