The End is Nigh for Physical Retail Games

While I have fond memories as a child of scouring the Babbages at my local mall for the last remaining copy of Zelda, I much prefer the current method of pressing a few buttons on my keyboard or joystick to download a digital version of the game I’m purchasing. Sure, I don’t mind the occasional trip to GameStop to pick up say Mass Effect 3, but I’m going because I have to – if I could download the title straight to my Xbox I would. I mean, if you don’t mind the PC version you can go and download Mass Effect 3 from EA Origin right now. Console games, however, seem to be the last physical retail holdout. For a while digital distribution was just for expansions and DLC, but now full releases are becoming the norm. Each year the number of sales through digital downloads increase, but before I explain why I think this can be both good and bad for gaming as a whole, let’s take a look at some numbers first.

The ESA wasn’t even looking at digital distribution figures (page 10) until 2009. In the two years they have, digital distribution and other forms of downloads have been almost a third of all purchases, rising to $5.8 billion in 2010 from $5.4 billion in 2009, an increase of almost half a billion dollars. This rise in digital purchases coincides with a drop in physical purchases which are down from $9.9 billion in 2009 to $9.4 billion in 2010, a decrease of almost half a billion dollars. I’m no economist, and I know better than to say that Thing one causes Thing two with just one chart, but if I were bettin’ man, I would say that the sales lost by the physical retailers went directly into digital distribution. Keep in mind these are the numbers from 2010, they have most likely grown since. What’s important here is not that digital distribution is growing, no duh, but that it is doing so by devouring the old business model in the process. Because of large fundamental changes in the way business is conducted, companies are now spending an enormous amount of time and resources to adapt before they get boxed out.

Below is a quick look at some these very large adaptations in action, mostly due to the effects of digital distribution;

–          Valve has said to be working on some sort of “Steam Box” that would possibly allow for games, movies and TV shows to be streamed directly to a television. It looks like some sort of competitor to the Apple TV.

–          Zynga has decided to launch their own website that will allow their users to play games without having to log in to Facebook.

–          EA released Origin this year and between Mass Effect 3 and the upcoming SimCity reboot, Origin may be able to compete with Steam as a primary digital distribution service for gamers.

–          Google is stepping up their game by updating the Android Market, turning it in to Google Play.

–          Facebook announced at GDC that they invested over $1.4 billion to game developers in 2011.

–          Capcom is predicting that 50% of all their revenue will be digital by 2017.

I know this week is GDC and all, but these are just the stories from the last few days, and it has been this way for a while now. It is clear that the industry is expanding digitally in order to meet the ever changing needs of its users.

Ok then, it looks like the future is going to be all digital, how does this effect things? Well first it allows for more users to access the product, or at least for users to access the product more easily. Smaller developers weren’t able to make games because they couldn’t produce 500,000 disks or cartridges, ship them, and sell them in stores around the country, too much capital and infrastructure was required. But digital distribution doesn’t have the same restrictions, so whether you are Steam with an enormously popular digital platform or Mojang with a humble website and a PayPal button, getting your game into the hands of people who want to play it isn’t the problem anymore. The only thing that matters is whether or not your game is any good. Instead of only large companies deciding which games are available, now players and smaller developers will as well.

There are other smaller benefits as well. I was old enough to have an original NES with both Mario Brothers and Duck Hunt on the same cartridge. Unfortunately after a few years Duck Hunt stopped working altogether. No amount of MacGyver-like tricks would get the cartridge to work. I was heartbroken. These days as long as you aren’t hacked or banned, a digital copy of the game will almost certainly last longer than a physical copy in the long run.

This is also all really good because it is making games cheaper, not just to make but to buy as well. No longer being tied to any physical units has given developers the opportunity to experiment with different types of release schedules and monetization options. It also reduces the initial financial risk for creating a game in the first place, so new developers will have an easier time earning a profit on smaller games. As development costs go down things like Kickstarter evolve into viable startup options. It’s all interconnected.

It isn’t all good news though. Like everything else there are potential risks as well. We likely won’t be returning very many games to GameStop anymore. I managed to get through college without spending one cent on games, I paid only in returns.  It looks like big companies are the ones who dictate how much longer places like GameStop will stay open. I could say that the sooner they fully embrace digital distribution, the sooner physical retail stores will go out of business, but with the upcoming Xbox “720” reportedly not supporting used games at all, it may be even sooner than that.

Even though this method may be good for new developers and new titles, an increase in the ease of distributing games may lead to the creation of vast amounts of bad content. Anyone who was around when CDs became the new hip thing may remember those unofficial Doom map packs which held thousands and thousands of maps. You could buy them at your local game store for roughly $5 and bring them home to laugh and cry at how bad the majority of them were. Most wouldn’t load and some would be nothing more than a giant room full of Cyberdemons. It was so exciting to be able to offer players that many maps on one disc that no one bothered to check the quality. Just because something new is invented doesn’t mean everyone is going to use it properly.

Losing our physical retailers will also mean the end of free promotional content, or at least the version we are used to. Pre-order a game a GameStop? Here’s some exclusive sub-machine gun. Picked up at midnight release? Have this cool in-game skin to show off. Without other companies in the loop to promote there will be no more cross promotion. That doesn’t mean that bonus content is gone, but it does mean that they way in which we access it is going to change. Why give away for free what you can save for first day DLC.

Finally, the last big problem I see is that at the end of the day you really don’t own your games. You may think you are paying to own your games, but you are really only paying for the right to play through some online service, piece of hardware, or website. I know I said earlier it was safer than owning a physical copy and it can be, but that is only if everything goes according to plan. If it doesn’t, if I get banned accidentally or my account is hacked I might not just lose access to one game, I might lose access to all of them, at least for that specific service.

It is clear that we are in, or about to be in, a digital boom. There seems to be this mad dash by each company to take advantage of it in some way, to carve out their own piece of the market, like Steam has.  Not all of them are going to be automatically successful, just ask THQ and the uDraw. For those who innovate and communicate with their players however, there is a completely new way to compete in the 21st century.





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