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The Economy May Not Kill Gaming, But a 5% Tax Could

By Louis Bedigian GameZone.com

Before the current generation began, publishers warned us that a price hike was coming. It sounded like a really bad move at the time; despite the claim (and reality) that development costs were skyrocketing, the idea of paying $10 more per game seemed crazy.

Things ultimately worked out – not because gamers are a rich bunch, but because the competition between retailers is stronger than ever. Prior to this generation, you’d rarely see a month-old game on sale at Target or Best Buy for $10 off, nor would you see either retailer offer a $10 gift card for buying the game at full price on the week it was released. But they do now.

Five years ago, you’d never be able to walk into a Blockbuster and buy new copies of six-month-old games on “clearance” for $35, but that’s exactly what happened with Grand Theft Auto IV and Metal Gear Solid 4 not long after they were released. This year, I’m already starting to see good deals on BioShock 2 and God of War III. What’s more, many publishers are officially reducing their MSRPs within six to 10 months of a game’s release.

All told, the numerous sales and price reductions make gaming more affordable for the gamer who couldn’t (or didn’t want to) pay the full $60 for a new game. As a result, the game industry hasn’t lost any customers this generation. In fact, sales have actually increased. All the news bits that focus on lower sales figures ignore the fact that a drop between 2008 – a record-breaking year – and 2009 is not something to complain about. The industry is still very healthy, but there are not (and never will be) enough must-have games, or enough customers, to ensure that game sales are equally high every single year.

Assuming that game prices stay the same throughout the current and the forthcoming generation, there’s no reason why the industry should suffer.

But what if I told you that games, game consoles, cell phones, and every consumer electronic sold in this country could soon retail for 5% more than the MSRP? What if I told you that you’d pay 5% more even if the item in question was on sale? Would you reconsider your purchases? What about your family and friends? Would they mind this irrevocable price increase? What about the guy down the street who doesn’t use his cell phone much and only plays video games on weekends? Will he think twice about buying the next iteration of Wii Sports if he has to pay more for it?

The answers could be horrifying not only for the multi-billion-dollar game industry, but for anyone who makes and sells consumer electronics in the United States. Sony, Nintendo, Microsoft and all of the third-party developers are just the tip of the iceberg; Apple, Dell, HP, Canon, Hitachi, Nikon, Samsung, Garmin, Motorola, Nokia, Panasonic, Bose, and virtually any electronics company you can think of would be hurt by the 5% increase.

Would be!?”

Yes, would be. This not a guesstimate; this is not simply my belief. The fine folks at the FTC are the brains behind this idea, noting that the new tax could generate $4 billion in revenue. Hmm, let’s think about that number for a minute. To arrive at that figure, the FTC must assume that we’ll spend $80 billion on consumer electronics.

If that’s what the market demands, everything is fine. But if that’s all the market demands, the whole industry is going to take a $4 billion hit. With the tax in place, $80 billion in revenue for consumer electronics companies translates to $84 in consumer expenditures. To compensate for that increase, consumers will buy $4 billion less – bringing consumer electronics revenue down to $76 billion.

That massive loss will cause irreparable damage to hundreds, possibly thousands, of companies who do business in the United States. It will kill off jobs, stifle company growth, hinder innovation, and encourage consumers to consider other options. Believe me when I say that “other options” is the last thing you want to happen, because that includes the most damaging thing of all: piracy. The primary way to eliminate piracy is to diminish its acceptance, and you don’t do that by increasing the expenses of those who wish to purchase your items legally. Eventually, even the most honest consumer might start to wonder about the wonder of file-sharing. And when that happens, you can forget about revenue and taxes* altogether because pirates aren’t paying customers.

(*As it stands now, the government already benefits from the industry via income tax – not just from consumer electronics companies but also from the people they employ. Many states also benefit from sales taxes, which consumers must pay every time we bring home a new video game.)

All this for a tax the FTC says it would use to help struggling newspapers.

The only bright side to this crazy proposal is that, as of this writing, it is only a proposal – not something the government is actually planning to implement. But the mere fact that the tax is being considered is scary. Consumers, along with every company lumped into the consumer electronics category, would be wise to stand up and make their voices heard before it’s too late.

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Louis Bedigian
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