Jan 17 2013

Gaming Retail May be Down 22%, but There’s Still Good News for Developers

Published by at 10:00 am under Editorials,Video Games

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Black Ops 2 is the biggest game of the year if you don’t count some games. 

Well it’s that time of year again, where the consumer marketing group NPD releases 2012’s retail sales figures for the game industry. It’s not that groups like these and their data isn’t important, it’s just that sales figures such as these have become an outdated method for measuring the general health and stability of the companies that develop our games. They say that revenue is down 22% over last year, and I believe them… when it comes to physical retail sales. By their own admission, however, they have only estimated the revenue generated by digital sources, including, digital sales, in-game add-ons, microtransactions, subscriptions, mobile apps, and any revenue generated by social games. It’s a lot like saying you’re going to figure out how much food the US consumes annually by only counting the food eaten at restaurants; what about take out, delivery, grocery stores, farmers markets, etc? While I’m sure physical retail is down, as it has been for years, the real story isn’t in whether or not revenue is up or down, it’s in the re-distribution of wealth in the game industry.

First things first, if they are only estimating digital sales and those numbers are wrong then their whole assessment is off. I’m not some marketing genius and I barely navigated my way through Econ 101, but isn’t the point of using numbers in the first place to be specific? How can you justify estimating an entire part of the market, especially the part that is in fact causing the destruction of the other part of the market? It doesn’t take an expert to realize that they’re not quite seeing the whole picture. With that being said there are a few other things that should be taken into account before you can call 2012 a bad year for the game industry.

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Al Lowe and Tim Schafer are what I mean when I say Game Developers. 

Funds raised through Kickstarter and other crowdfunding sources are almost certainly not being counted as they aren’t technically sales. Still, that’s roughly $50 million in revenue directly to the developers of these titles – It’s also $50 million that wasn’t counted in the year’s overall figures by NPD. By market standards $50 million might not be a lot, but considering the fact that it was cash given directly to the developer, without a middle man, it’s a pretty important $50 million. It’s too early to tell whether or not 2012 was a fluke year for gaming when it comes to crowdfunding or just the tip of the iceberg, either way they are important figures that should be counted.

In fact, almost all of the cash that’s not counted by these end-of-the-year figures is cash that is going directly to developers – sure, the pie may be smaller overall, but the piece that developers get is becoming bigger. To me this is the most important part of what digital sales have done to the industry; overall revenue may be down, but more of the revenue generated is going directly to the developer. When the NPD comes out to say that “Game revenue is down 22%,” what that really means is publisher revenue is down 22%.

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If you counted sales of Pulsefire Ezreal skins, 2012 might have been an up year. 

Also, think of some of the online sales that we as gamers have had in only the last couple of weeks. Titles that were only released a few months ago sold on Steam at 50% off. There were even a handful of flash sales offering top quality games at 10-15% of their original price. While traditionally selling four units at the price of one would be a bad thing, nowadays that’s four times the chance that someone buys DLC, makes a microtransaction, or forks over cash to the developer in some other way. Initial price per unit may be down and that makes it look like revenue is down, but more units in the hands of fans is the potential for more revenue down the road, revenue that goes directly to the developer.

How do you even count free to play titles? They don’t sell any initial units, and yet they are capable of gaining more revenue from a single user than even the most expensive of titles. How much money does a League of Legends player spend? Technically they could spend nothing, and yet everything I’ve seen from the game has told me that most people spend something on the game and the more they play, the more they spend. Valve’s TF2 and Dota 2 are no different, as are all of the other free-to-play titles that are slowly popping up everywhere. Obviously traditional sales tracking information doesn’t quite count games like these, and yet there’s more potential for revenue in them than in other games.

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People are already trading in-game treasure chest keys that cost $2.50 a pop, yet Dota 2 hasn’t even officially been released yet. 

I think what big companies, marketing teams, and publishers all need to realize is that gamers aren’t just consumers anymore, they’re clients. If you look at gaming sales as a one person = one game market, none of the data or figures you collect will make any sense. As clients, gamers are willing to invest time and money in the right titles and usually that doesn’t mean going to the store and buying something for $60. Sometimes it means spending $5 every couple of weeks or months on Dota 2 keys, LoL skins, DLC, and all of the other microtransactions that allow players to customize their individual experience.

Publishers are getting boxed out and while traditional methods of monitoring the industry may make it seem like gaming revenue is down, the fact is that we’re in the middle of a paradigm shift, one that puts more of the cash in the hands of those who make our games and less into the hands of those who only fund, promote, and distribute.

Overall I think this is good news for the industry, even if it’s true that revenue is down, that more money is going straight to the developers who generate good content. The digital distribution of content for players doesn’t just generate revenue; it generates revenue for games played the most people. Instead of spending $60 on a title that ends up bombing, you slowly invest $60 into a game that you’ve already decided you enjoy. Revenue may be down, but it’s only down for some people.





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One response so far

  • Draugr

    I must admit, I’m a bit surprised you adress this at all. NPD has been basically useless for a years now, for the same reasons you stated above.

    it’s the same problem neilsen has, where they used to be top dog when it came to these metrics, and just like with neilsen, it’s a matter of those metrics getting away from them. Obviously when one of the biggest digital platforms don’t give you numbers, it’s safe to assume that you’re not painting a whole picture, and more than likely just trying to make sure you stay relevant.

    According to the NPD to PC market has basically been ‘dead’ for half a decade…this should tell us everything we need to know when it comes to their accuracy. There are some titles that never come in a retail box.If we were to believe the NPD numbers then they never sell.
    The NPD should be taken as seriously as though they released a statement saying that from now on they are just going to measure sales on the wii, and then using that information they’ll determine sales on other platforms. This is what they are asking us to do with digital.

    At this point (imo) the all the NPD is good for telling us how Marginilized retail (and the NPD) is becoming. it doesn’t speak to the health of the industry at all.

    The sooner we all stop taking the NPD seriously when it comes to this stuff, the sooner they will get their act together or someone will come do the job they can’t, just like needs to happen with neilsen.

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