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SPECIAL REPORT: Retail revolt over PC code strippers

Christopher Dring
SPECIAL REPORT: Retail revolt over PC code strippers

Up to half of Eastern European boxed PC games are being stripped of their codes and sold across France, Germany and the UK at cut price, MCV can reveal.

It’s no secret – hundreds of ‘key code’ online retailers have set up business and are selling PC games for as much as £35 below the RRP.

But it means that stores such as GAME and Green Man Gaming are struggling to compete, while publishers are being misled about where their games are being sold.

Customers are also being stung by games that are region-locked and codes that don’t work.

Online retailers such as MMOGA and G2Play are buying boxed PC games from EU and non-EU countries (such as Russia), taking codes out of the boxes and emailing them to Western consumers.

These boxed games are available for a much lower price in these markets due to the economic situation in these territories (see Digital price check below).

The problem has existed for years, but has now escalated significantly – and retailers have called on publishers to stamp it out.

“Publishers and retailers are losing money and customers are getting a bad experience,” said Green Man Gaming trading director Martin Baxter. “That is not a good scenario; it is bad for the entire industry.”

The way these
online stores are operating involves setting up ‘code farms’ in these Eastern European markets (and some non-European sectors, too). These 'farms' consist of individuals buying physical PC games, harvesting them for codes within the box and throwing away the disc and packaging. They then send these codes in a spreadsheet back to the retailer.

"Publishers are manufacturing lots of boxed PC
games for a market that doesn’t exist."

Martin Baxter, Green Man Gaming

“It’s seriously hurting our business, and there are some great PC publishers out there trying to do what they can to hinder these unofficial stores,” said one leading anonymous games retailer.

“But other major publishers are apathetic. To them sales are sales. This needs to change.”

However, Simon Cowley, senior sales manager for Europe at PC MMO publisher NCSoft, believes that these publishers are starting to come round to the issue.

“People are in different places in terms of caring,” he said. “We, and other guys like Sega, are really hot on this. Last year we were sensing a bit of apathy. But they are starting to come around.”

“If I sell one copy of a game on our site, I have to sell three boxes shipped to a European country to make up the same revenue."

Martin Baxter, Green Man Gaming

Online retailer Green Man Gaming estimates that as many as 40 to 50 per cent of PC boxed games in Europe are being stripped of their codes and sold cheaply in the West.

“That’s a conservative estimate,” said GMG’s trading director Martin Baxter. “What publishers think are box sales are in fact digital as the key is being stripped out.

“The situation in Europe is rife.” Cowley adds: “If I sell one copy of a game on our site, I have to sell three boxes shipped to a European country to make up the same revenue. Depending on your game or business model, that may or may not matter to you.”

Reduced revenue for publishers and retailers may be the big issue here, but the sale of grey market codes on such a massive scale is causing issues for customers, too.

“We’ve had cases were people have bought codes online from third party vendors, not received the product they bought and they then turn to us,” said one major European PC games publisher. 

“Since they haven’t bought the codes from us we can’t trace where the codes came from - we are forced to offer free support to a person while someone else is making the revenue off our product. We could ask them to request a refund from their provider, but you cannot get hold of them, leaving the customer without a product and with an extremely bad experience with our name attached to it.”

Indeed, UK arms of publishers are forced to support those stung after buying a region locked game.

“We live in the open European market. And we’d never want to restrict a consumer,” adds Cowley. “If a consumer has bought a legitimate key, we would never want to penalise a customer.”

"Some people are apathetic. To them sales are sales.
This needs to change."

UK games retailer

Another issue is publishers being given incorrect data on how their games are being sold and where.

Baxter says: “Yes it affects us. But for publishers the bigger impact is how do you control your market in terms of where you distribute stock? How do you decide between selling a boxed or digital game? Publishers are selling boxed games in territories where they think they’re seeing a high sell-through in, but in fact that is being sold digitally in another country. You have no idea the real size of the market, where to push your stock or how to spend your marketing.

“Publishers are manufacturing lots of PC boxes for a market that doesn’t exist.”

So what is the solution?

UKIE’s new IP co-ordinator Mo Ali said: “There are many different ways to approach this issue. The easiest is to region lock the codes. But there are ways where publishers and developers could work with the distributors to tighten up the terms and conditions to ensure they are only selling stock onto official buyers. Other not so obvious routes can be explored, like using Trading Standards if their information is incorrect.”

Region locking, although solving the issue, carries its own headaches, says Baxter.

“A lot of publishers have wised up to it. They are controlling their physical distribution more and there are even those that have stopped making boxed PC. Some are moving to a download-only model as they realise a lot of their physical sales don’t really exist.

“Many are region locking certain games from certain territories to make sure they’re not accessing the wrong content. But although this is a good thing, publishers are getting a lot of customer kick-back, because they’re buying keys that don’t work.

“And customers having problems with their downloads is really bad for the reputation of the industry.

“There is still wariness around digital. The last thing you want is people having a bad experience early on in that digital switch.”

It’s not just Eastern European prices causing these issues. UK PC boxed games are also cheap compared to France and Germany. And a lot of the grey imported stock across mainland Europe has come from our shores. 

“We are indeed very impacted by this kind of operation,” said Léonard Mercier, games director at European digital distributor Nexway.

“It’s much more outside of UK, but UK is also part of our issue – prices are lower in the UK, so distributors buy cheaper from the UK and resell in the rest of Europe.”

There are other issues with such mass grey importing. Not all the codes are legitimate and some are being bought fraudulently. But Cowley feels not all of these websites will continue to sell grey stock, because eventually they’ll be forced to source proper codes.

“We’re in a bubble,” he says. “Admittedly a big bubble. It’s been created by this pricing disparity. But we are already seeing publishers pull away from boxed games. And once that disappears, it will reduce that business.

“Some of these key sellers will turn a corner and try and source proper digital keys, because they will be seeing where the market is heading and they do have a customer base.

“But it is a bit Wild West out there right now, and there’s a gold rush on this market at the moment.

Cowley concludes: “We have great relationships with the likes of Green Man Gaming, Nexway and Exertis Ztorm. They have been doing digital by the book. Ultimately they suffer by playing by the rules. They want a level playing field. With the crazy pricing that is flying around, it’s extremely difficult for those guys.

“And it’s just this ridiculousness of taking thousands of boxes and then breaking them up to get the keys. It is all very odd.” 

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Tags: pc , crisis , online retail , special report , pc codes

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