So as you know, Desert Sky Games sold off our operations to Amazing Discoveries back in December 2023 in a blockbuster deal. What many people don’t realize is that the business entity, Desert Sky Games LLC, still exists, as a mostly empty vessel. We sold our operations to AD, but they took all those assets and contracts and staff and clientele and ingested it all into their business structure, rather than taking our company and just bolting it onto the side of their rig.
As managing partner, I am the custodian of the DSG LLC business entity and will continue to be until it finally winds up and terminates, which will happen no later than sometime in 2025. This spring I had to file 2023’s taxes for the LLC, and we’ll have to do that once or twice more before the end because there is still transactional activity taking place as we collect and disburse various payables and receivables.
One of my major duties as DSG LLC managing partner is getting all the books and records in order and ready to be archived permanently. This has to be done accurately and correctly because it creates the audit trail that has to withstand any future financial scrutiny. We have had two all-star CPA accountants filing for us over the years, so I sleep very comfortably at night expecting no particular problems with future audits (and we’ve never been flagged for one yet), but it’s still my responsibility to do the administrative work to finalize it all.
In that process, I get to sift through the entire archive of DSG’s documentary business: paper and digital, written and photographic and everything in between. And I’m discovering a wealth of material that I can use for future articles here on LGS Net Income, some of which you’ve probably already noticed lately! Today’s article is one such, but it’s a very lightweight one.
As I sift and sort everything, similar topics start to bunch together. And I realized that I had a collection of observations about the everyday Video Game Retail lifestyle that would make a bangin’ series of articles here on LGSNI! It’s not quite Acts of Gord — for one thing, a lot more of my stuff is factual — but I hope you all will find it similarly entertaining and that it will tickle some of your curiosity antennae.
It’s fitting that I notice this today, the final day of the Xbox 360 digital platform. You can still play 360-locked media if you already own it, but otherwise that’s all she wrote. Thankfully most relevant content has already been ported forward under backcompat or straight-up subsequent issue (and in some cases on other systems or PC), but it’s still thousands of titles being delisted, potentially permanently. Wow.
Anyway, LGS Net Income Video Game Retail Memories, part 1, which mostly reprises portions of articles from The Backstage Pass, rather than a single long article, is up and flying: Here we go!
[As always, original article text in normal type, my present-day annotations in italics.]
“Time Bombs” - April 10, 2017
I set up a time bomb of missed revenue opportunity in 2014 that I regret to this day. DSG carried video games since the beginning. Early on, we didn't do much in the category. It was healthy on low volume. Former partner and original manager Mike Girard simply wasn't deeply interested in the category, so we didn't really put a lot of focus on it, but it never lost money. In summer 2014, Girard and DSG parted ways, and when I took over main operations, I hurried to narrow the category spread in an effort to conserve resources and overcome a moribund June. I moved away from vintage toys, non-sport trading cards, and the vintage arcade, none of which were substantial in the revenue mix at the time. But I also made a big mistake, which was to drop video games and sell our inventory for a pittance to the good guys at Tempe's The Gaming Zone. TGZ is a quality outfit and I've said so before in this space. Video games as a category were a very healthy thing and not something I ought to have dropped, never mind that I was worried about saving the rest. Video games returned in early 2016 and as of last month have climbed back into the top 5 categories for gross and are the #1 category pound-for-pound. Had I stuck with video games and dropped board games and comics instead, focusing only on core competencies, I could have bought back into board games and comics later with ease off a far larger bankroll. Video games aren't right for every store, but they may be a good option to consider for many stores, and they especially are worth keeping around if your store already carries them! [Today the market landscape is a little different. Casual buy-play-complete-sell customers, the bread and butter of the used video game aftermarket, are largely satisfied by the subscription services. Not all, but many. This leaves video game stores today serving collectors first and foremost, a more difficult and less profitable customer cohort. Still a viable market to serve, but if you don’t already have the inventory hoard moat built up, it’s less obvious whether it would be worthwhile to start building one now.]
“Melodies of 1983 (I Said I’m Full)” - June 13, 2017
So, there has been a glut like this in games before, and the result wasn't pretty. The 1983 video game crash brought down once-mammoth companies Atari and Coleco, sent Mattel packing out of the category, and obliterated everyone smaller from publisher to retailer. For a few years, home computers like the Commodore 64 were the only bastion of video games until Nintendo brought the Famicom westward and launched the Nintendo Entertainment System, with careful control of title counts authorized to market.
Video games were big business in 1982, breaking records upon records, and everybody wanted in on the action. By 1983, companies like Quaker Oats and Purina that had no business publishing video games took any code they could come up with and blasted it into a ROM cartridge headed for store shelves. The quality of titles fell off a cliff and the public was quickly turned off to console video games. As garbageware titles failed to sell, toy stores and other retailers sought to return the merchandise, only to find that smaller publishers like Games By Apollo and U.S. Games didn't have any cash to pay back. They and other publishers folded, and retailers had no choice but to dump that product, which in the pre-Amazon pre-eBay era of the early 1980s meant bargain bins so aggressive you'd think the prices had to be a mistake. Forty-dollar titles were marked down to five bucks. It was a bloodbath. I was there. This wasn't just a history article research discovery for me. I remember being in grade school and buying up $5 carts by the bucketload, willing to take my chances on game quality. Anyway, once much of the product base was discounted into oblivion, it became essentially impossible to release new product at full price onto those same store shelves, so the flow of product trickled to a halt.
[Yeah, I am pretty old. I am almost exactly in the middle of Generation X age-wise. During the crash of 1983, I was a grade-schooler. In that era before the Information Age, it took years for us to learn about the Nintendo NES. I got mine in 1988.]
“Hiroshi Yamauchi Was Right” - July 18, 2017
However, I believe Hiroshi Yamauchi's approach holds true. As chronicled by David Sheff in his excellent book "Game Over," Yamauchi, president of Nintendo of Japan, delegated to his son-in-law Minoru Arakawa the task of launching the Famicom in the United States. The console would become known to us as the Nintendo Entertainment System. And Nintendo sought to implement control over manufacturing, to prevent the glut of bad software that had caused the 1983 video game industry crash, and control over security, to prevent what had happened in Asia when cheap Taiwanese knock-offs of Famicom cartridges proliferated and led to margin erosion for everyone. In essence, ensuring great content and keeping bad actors out of the production and distribution channel would be Nintendo's two-pronged strategy for the NES in North America. Yamauchi would build the infrastructure for it and Arakawa would manage American distribution and keep client vendors in line. How did they do? The NES had a peak market share of 97%. Seems okay. [We will never see market dominance like this again, although we did see it one more time in an adjacent industry: Windows had about a 97% market share right around 1997 (lots of ninety-sevens in that statistic) and now has less than 50% of the market, with the mobile space dominating user count.]
Applying Yamauchi's principles to the comic and hobby game industry, we are already seeing that whatever else is going on in a category, if the content is great and there are enough ground rules being enforced in the market to ward off the worst of the worst, good things can happen.
“Always Be Crystallizing” - September 4, 2018
I recently shared an incident in which my return policy on used video games was abused by a customer who took home some Playstation 3 discs, played them, and changed his mind about keeping them. Since you can't readily scratch blu-rays due to their excellent laminate coating, this customer took some kind of sharp implement and actually cut big divots in the disc surfaces. He then returned claiming that the scratches had always been there and the discs wouldn't play.
So, obviously we knew from the first moment that it was a filthy lie. We look at every disc when we get it and we reject anything with damage to the data substrate, and we accept at a lower rate anything that can be resurfaced to ~99% likely playability with our commercial-grade disc surfacing machine, an RTI Eco Auto Smart. Before any scratched software is entered into inventory, we will have resurfaced it, cleaned it, and fully prepped it. There was zero chance that the discs were scratched up when taken by the customer, especially in a haphazard way not suggestive of normal handling or mechanical device failure. Moreover, due to the extensive error correction built into the blu-ray media format encoding, these discs did in fact still play just fine. Even chopping them up for warranty fraud wasn't enough to prevent that. Yeah. [Not even joking, the discs did still work.]
It was all I could do not to call them on it. They knew. Their furtive manner said it all. I kept it simple. "Here's your refund. We won't sell you any more games from now on." The response was "OK" and one of the two guys actually went and bought some comics at that point. That's some audacity. I guess if he charges back the purchase I'll have to take further steps but other than that, it amounted to a finish of the situation.
The way I crystallize that encounter is by knowingly changing nothing at all in my return policy, and counting on most people to be decent folk and not lying dirtbags, and allowing the instances of fraudulent returns to wash out in the law of large numbers of overall sales. Indeed, virtually every day we have new customers buying video game gear and asking what the return policy is. It's a question that sets my teeth on edge for various reasons, but with a clear warranty offered (30 days against defect, three Rs process, and a one-time satisfaction swap within 3 days on software) they end up sufficiently confident to buy. And if there were a lot of abuse happening, more stuff would come back to us. In practice, almost nothing comes back. This also encourages us to be on our game when it comes to testing and prepping the goods. [In the rare instances when we did get a return, though, a bad review often followed. Just goes to show you that no good deed goes unpunished.]
Doing the right thing by thinking the best of our clients and playing it straight up has significant positive side-effects as well. Recently we had a genuine situation where a console had a defect we missed in our prep. I apologized and offered the customer a full refund, but he wanted to keep the item and asked only for us to cover the difference between that and a cheaper system that would have been comparably functional to the one he has after accounting for the defect. More than reasonable. He was well within his rights to bring back and expect full compensation. I was more than happy to provide an outcome that didn't cost as much, and resulted in a satisfied keep. [If memory serves, it was a PS3 that had been hardware-banned from PSN and we hadn’t yet implemented the test for that on purchase.]
The positive outcome I want is for people to buy lots of video games and gear from me and be happy doing it. Acting toward that positive outcome, I crafted a warranty structure that should safety-net the buyer from authentic problems pretty well. It errs on the side of safety-netting some inauthentic problems, and in the end that's OK. I'd rather be wrong in that direction than wrong where a buyer is stuck with something that doesn't work because of our negligence. And even when a corner case arises out of real abuse, I know in the long run the system is producing the right results in the overwhelming majority of cases.
“Chaos and Capacitors” - October 20, 2019
In the video game world, I'm approaching 20 or so Sega Game Gears sitting in back storage because none of them work, because all Game Gears are broken now. They are all recoverable, however. They do power up, but they need their capacitors replaced in order to have video and sound.
The Game Gear was an underappreciated system that lately is starting to stoke interest in retro circles, because its catalog was thick with rare Japanese-style RPGs and other genres favored by otaku more than mainstream gamers. Moreover, it uses a common Genesis v2 AC adapter, so we don't have to chew through untold quantities of AA batteries or chase down a rare power cable, assuming we can get a working system in the first place.
Unfortunately, the necessary capacitor replacement, at least on a unit-by-unit basis, projects to a lot of labor time, and with parts and troubleshooting could add around $60-$70 to the cost sunk into one system, that would then be able to sell for, at most, $80-$100. Thooooough... now some enterprising folks have been developing drop-in LCD replacement screens and other quality-of-life mods that push the viable resale price of a "maxed out" Game Gear to $250 and up, though with parts and labor sunk in of at least $150.
There has to be a way to assembly-line this and use some economy of scale to bring a bunch of these back to life cost-effectively, and looking around at eBay listings, there are already some guys doing this, so proof-of-concept passes muster. I just need to do some diligence on that process, and until then, I'll keep buying the broken ones at $2 to $5 each depending on condition and stowing them for later. [As it happens, I found a vendor who did LCD upgrades and re-shells on Game Gears, and sent them my entire stockpile of like a dozen units and paid for the upgrades. We had a few sales but they were slow movers overall; most people didn’t know to look for them at an LGS like ours. I had a system in the glass case powered on (with AC adapter obviously) with Golden Axe Warrior on demo, and it looked brilliant and caught eyes. Every Game Gear Redux system we sold, happened after someone noticed that demo unit.]
That’s all for today, we’ll be back with more articles in this series as I break down old Backstage Pass articles and other notes, documents, photos, and more from the DSG LLC archives! Have a decent Monday!