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The future of games retail is a digital one

RetailThe future of games

One day, we’ll wake up to find that console manufacturers are the sole point of distribution for the games on their systems. The only way to buy a game for your Xbox will be from Microsoft; the only store for PlayStation games will be a Sony one. It won’t simply be that every game can be downloaded or accessed digitally, but that it’ll be the only way to buy games. This has wide-ranging consequences and raises a number of interesting questions for the industry in the years ahead.

The benefits of control

It would be folly to ship a console without an optical drive in the next five years, but the march towards a day when videogames retail is entirely digital has already begun. Platforms already exist where no physical software is involved: Apple’s App Store, Steam and OnLive are a few examples. Hybrid platforms are closer to home. All three of the current consoles feature games and add-ons which are only available digitally through a single, centrally-controlled store.

Making game distribution entirely digital is an attractive proposition for console manufacturers like Sony and Microsoft. The entire retail process can be controlled, allowing middle-men like Amazon, GameStop and HMV to be cut out of the equation. This has obvious financial benefits, but also allows manufacturers to dictate exactly how the retail experience works for customers.

For publishers, the financial and environmental costs of producing and transporting millions of plastic boxes around the world completely disappears. They would gain greater control over prices and the likely disappearance of the pre-owned market would increase revenues further. Centrally controlled prices and distribution allow publishers to create innovative ways to sell games, from the temporary sales and group discounts (as seen on Steam) to remote purchasing (currently available in some form on Xbox Live).

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The consequences

But while digital distribution benefits some, it’s bad news for others. The main casualty of this change will be third-party game retailers; with fewer products to sell, specialist retailers like Game and GameStop will struggle to survive. Digital stores are already squeezing them out of the market for smaller games and add-ons, and this looks set to continue. Of course, it’ll be years until the majority of console games are purchased digitally (only 1% of full games are now), so there will still be plenty of physical games to sell for a while. But a future where game stores are reduced to independent, niche enterprises is not difficult to foresee.

Unless manufacturers take the unlikely step of allowing games to be sold on to other customers, the second-hand market will slowly disappear. Pre-owned games make up a significant proportion of physical game retailers’ revenues (30% of Game’s) and have much higher margins than new games.

The impact on customers is less straightforward. While pre-owned games offer a way to recoup money and buy games for less, low prices also exist on digital stores. Both Steam and the App Store offer great value and the former has frequent sales, keeping prices affordable. There will always be a demand for cheaper games, regardless of whether they’re new or used.

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Are they ready yet?

What would happen if console stores like Xbox Live Marketplace were the only way to buy games today? Are Sony, Microsoft and Nintendo ready yet? On current form, absolutely not.

Discovering and buying games on all three consoles is a poor experience. Issues abound, from terrible search and confusing categories to inadequate product information and sloppy language localisation. Using these stores is not an enjoyable experience; they’re just a means to an end. Time consuming and frustrating to use, they discourage people from spending money.

Others show how it can be done; both the App Store and Steam do a much better job of selling games. Apple in particular demonstrate that when you’re the only retailer, you need to get it right. Digital stores must make it as easy to discover and buy games as physical stores, if not better. Are console manufacturers up to the challenge? They’ll have to be.

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Brakes on the trend

There are two obvious limiting factors on this trend: file sizes and internet speeds. Having to wait for hours for a game to download is a frustrating experience, even if it would be quicker than waiting to buy a physical copy in person or have one delivered.

Console games currently sit at around the 7GB mark, but this is likely to increase with the next generation of systems. While internet speeds have increased steadily in the last few decades, whether they can outpace game file sizes is unknown.

There’s also the issue of access in areas with poor internet connections. Rural areas in developed countries are an obvious example, but the main concern is in emerging markets. In countries like China and India, the middle class will grow significantly over the next decade and they’ll have the time and money to spend on entertainment. This could be the largest influx of revenue into the games industry in history and manufacturers must be ready for it.

Consumers in these markets will be able to afford a console well before infrastructure in their region will allow for sufficient broadband speeds to download multi-gigabyte files. This leaves the possibility that they could be isolated from digital marketplaces or suffer a poor experience, both of which are unacceptable risks.

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An inevitable but distant future

The simple matter of file sizes will mean that it’s unlikely that we’ll see a console without an optical drive any time soon. Disks and drives are inexpensive, while the costs of excluding customers in emerging markets is great. The march towards digital-only distribution is inevitable though.

If games were 7MB instead of 7GB, such a change would be at a much more advanced stage. The music industry is the perfect example of this: iTunes has been the largest music retailer in the US for some time. While some may rue the loss of a physical product in their hands, it’s clear that the majority of consumers are more than willing to give up this privilege for other benefits.

What we’re likely to see in the coming decade is a slow increase in the proportion of sales through digital distribution. More and more games will be bought through console manufacturers’ stores and third-party retailers will naturally decline. New file compression or transfer technology could accelerate the trend, but that’s something that’s difficult to predict.

The way we buy and play games is undertaking an huge change. This shift in retail will have negative consequences in some areas of the industry, but opens up the potential for innovation in others. One thing is clear though: it’s consumers who will ultimately decide how they buy games and the quality of the retail experience will govern that. If console manufacturers get it right, games retail will go fully digital sooner that we think.

The author of this fine article

is the Editor at Thunderbolt, having joined in November 2000. Get in touch on Twitter @PhilipMorton.

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