Black Friday: The Pros And Cons For Game Companies

As happens every year around this time, circulars advertising post-Thanksgiving "Black Friday" deals from major retailers are starting to leak online – and, as always, the gaming deals are pretty phenomenal. A Wii for $100? Batman: Arkham City and Gears of War 3 for $30? It's enough to tempt even the most cynical shoppers to bravely venture forth into the retail madness that is Black Friday. For consumers, there really isn't much of a downside. Whether you're shopping for yourself or for someone else, the deals are indisputable, but does Black Friday provide a notable boost for the gaming industry as a whole? I'm not convinced it does. A week ago, when looking at the overall outlook for the holiday season, R.W. Baird's Colin Sebastian told me "I don't think the overall demand for traditional video games is any different than it was 6 months ago. Seasonally it is, so you'll see a ramp up in sales, but it's still a sluggish market overall." That rang true to me – and October's NPD numbers seem to back up the statement. Assuming that is correct, Black Friday may actually hurt the industry more than it helps. Consumers instinctively jump at bargains, but if their overall purchasing intent is low, the doorbuster deals could train them to wait for those price cuts. And ultimately, that's something that hurts the entire gaming market. An example: Most developers and gamers know the Wii is essentially dead in the water these days. The Legend of Zelda: Skyward Sword is getting great reviews and will be a triumphant finale for the system that redefined a generation, but once that's done, there's not going to be too many new AAA games supporting the system. Still, with a $100 price tag, the console is going to be snapped up this Black Friday, perhaps to a point where it tops hardware sales for November. If so, does that make the console a real winner or one with an asterisk next to its bragging rights? Similarly, do deep price cuts on relatively new titles (Kmart, for example, will offer Battlefield 3 for $35 and Rage for $30) skew the month's sales figures, further obscuring visibility into which titles are resonating with consumers and which are simply being grabbed because they're new and cheap? I don't have any answers for this; it's more food for thought. But while we're chewing, let's also note that Black Friday is hardly a one-day event anymore. Amazon has been offering terrific deals on games for over a week now. And Wal-Mart tends to extend deep gaming discounts well into December. So whatever impact "Black Friday" has on the industry, it's one whose footprint is getting bigger. What's just as interesting to note about Black Friday – and all forms of holiday gaming discounts – is what isn't included. Very few games (or game machines) are immune from drastic cuts. Typically, new consoles don't see black Friday discounts for a year or two after their introduction, though they may be bundled with software around this time. The 3DS will hold the line this year, though that's not a notable achievement, given the rapid price cut for the system. And don't expect to see any $30 or $35 copies of Modern Warfare 3, no matter how hard you look. Here's why: When prices are dropped, it's generally done for one of three reasons. The most popular – and the heart of the Black Friday phenomenon -- is the loss leader, where retailers are willing to cut into their own percentage of the sale (or "margin") to drive traffic to their store. Another method retailers rely on is known as a markdown – an across-the-board price cut following a drop off in sales. It's usually done with the blessing of the publisher, who has sent a note out to its retail partners saying something along the lines of 'the new suggested retail price for the game is $X'. (The stores, incidentally, still make as much per copy as they would for a $60 sale.) Finally, if a game has been out for a while, and is losing momentum or not living up to expectations, retailers can request permission to sell it for whatever they can get – with the publisher once again guaranteeing that they'll still be paid their full share of the original retail price. To cover all of these inevitable requests, publishers keep a percentage of the wholesale cost (generally between 10 percent and 20 percent) of games in a reserve fund. This prevents them from having to take a hit to their earnings as demand evaporates. Retailers, in other words, generally get their full share regardless, as long as they follow the correct procedures. And publishers can hide a game's sales weakness, to a certain extent. Black Friday's "race to the bottom" might be a consumer bonanza, but it doesn't necessarily help titles hit their break-even point. And that doesn't make for a holly, jolly Christmas for anyone.