Digital Downloads Threaten Video Game Store Biz

Discussion
Jun 12, 2009
George Anderson

By
George Anderson

Are
digital downloads about to do the same to video games as they’ve done to
music CDs and will it mean the end of video games sold in stores?

Today,
digital downloads remain a relatively small portion of the overall video
gaming market with roughly 17 percent of sales in 2008, based on research
from NPD Group. According to the research firm, about 18 percent of Xbox
360 users who have a "Gold" membership regularly download from
the Xbox Live Arcade. Around 10 percent of PlayStation 3 users buy downloads
from the Sony PlayStation Network.

Wedbush Morgan Securities analyst
Michael Pachter told Reuters, "Downloads
will become 20 percent of the market within five years, and probably peak
at around 50 percent of the overall market in 10 years."

Not
all are ready to hop on the digital download bandwagon and a number of
major chains, notably Wal-Mart Stores and Target, are not involved in game
downloads at this point.

One
of the major advantages of digital downloads is the ability to update and
upgrade games almost instantly.

Doug
Lombardi, VP of marketing at Valve Software, told Reuters, "Now
that games can be connected to their
audience, they will last and grow well beyond their traditional 6-month
to 1-year sales cycle."

Discussion Question:
Will downloads kill the video game store business? What should stores
be doing now to address the small but growing demand for digital downloads?

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11 Comments on "Digital Downloads Threaten Video Game Store Biz"


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Scott Knaul
Guest
Scott Knaul
11 years 10 months ago

I can’t say for certain that video games will follow the same pattern as music or movies but I would predict that digital downloads will increase significantly. The concept of downloaded add-ons for certain games is lengthening the life span of current titles. Rather than updated sequels every 6 months, developers can now get 12 months out of a tile by providing a downloaded add on for a price…and game players will buy them.

Nikki Baird
Guest
Nikki Baird
11 years 10 months ago

The gaming market lends itself more to a hybrid approach than other digital media. While you can download games to something like a PS3, it’s a hack to create a backup, so you’re basically betting your gaming investment on the strength of the hard drive. There are still some reasons why having the disc is better. However, add-ons, features, extensions, etc. as noted can extend the life of those discs significantly. As a result, I don’t think digital games will approach the level of digital music or even books, at least not until the bandwidth and storage is good enough to support digital movies. And while that’s getting closer every day, it’s still got a ways to go.

Steve Montgomery
Guest
11 years 10 months ago

The ability to download provides benefits to both the people buying/upgrading their game and the people writing the software. The gamers get faster access to the newer versions (not having to wait for all the issues the come along with marketing and distribution of a physical product). The software producers lower the cost of getting their new game into the markets and, as pointed out in the article, this provides the opportunity to extend the life cycle of the game. There is not doubt that this practice will continue to grow. The only question is the rate.

Jonathan Marek
Guest
11 years 10 months ago

I suspect this will take longer than analysts expect. After all, this trend has been declared inevitable in music and movies for well about 15 years now. While it finally did happen in music, it still hasn’t happened in movies (think about what has hurt Blockbuster–digital downloads aren’t in the top two reasons). In the end, of course, digital will dominate.

Joel Warady
Guest
Joel Warady
11 years 10 months ago

For the retail stores to survive, they need to recreate themselves to be more of a destination, and offer something that gamers can’t get online. They should host monthly tournaments for local players, with annual championships. Create more of a community around their stores as opposed to simply retailing. The stores need to work with the game developers and create exclusive offers that can only be obtained at store level. For example, the retailers can create a mash-up machine that would allow users to create their own games by utilizing characters from one game, and moving them to another.

The retailers need to get creative, and really look at how the shipping “experience” in a brick and mortar store can be significantly different and better than what a gamer might find online. The music business did not do this and it was a huge mistake in strategy. The game industry can’t and shouldn’t make the same mistake.

Bill Bittner
Guest
Bill Bittner
11 years 10 months ago

I wasn’t going to comment, but these responses seem to miss the key point of network-based game delivery: COMPETITION. By delivering a game over the network, the host can support multiple players in various geographic locations all competing against one another. Just as poker sites support remote users, virtual Wii competitions will develop over the Internet. Yes, this will take some time for the network to build out a little more, but with fiber replacing coax and the stimulus money being dedicated to broadband expansion, it will be coming sooner than many expect.

Al McClain
Guest
Al McClain
11 years 10 months ago

Downloads will be the vast majority of the business for all product categories where it is possible to do so, within ten years. If I’m wrong, feel free to mark your calendars for ten years from now and send me a letter via snail mail. (By which time most people under 25 may not even know what a stamp is.)

Jeff Weitzman
Guest
Jeff Weitzman
11 years 10 months ago

Bill, networked play is equally possible with a disc-based game as long as it is written properly and the console is connected to the network. I do think that unless there are tangible benefits to physical distribution, the road ahead leads inexorably toward online distribution of digital media. Music and games delivered online still provide lower quality (regardless of whether most people perceive a difference) than their disc-based counterparts, and it’s possible that the highest-res graphics will only be available on games delivered on physical media. But that advantage will be reduced if not eliminated over time.

Bryan Larkin
Guest
Bryan Larkin
11 years 10 months ago
Al, I agree with you 100%. I’ll go so far as to suggest that at least 75% of all PC games and well over 50% of all console games will be downloaded within 10 years. There are multiple drivers: 1. Over the next 10 years most new people gaming will have grown up with downloadable games. This will be seen as a normal channel, not just a a “new thing”. It will be the default way to acquire new games. 2. Content delivery solutions like Impulse have started to understand and trust gamers and revolutionized digital rights management in a new and good way. Being able to download a game and then play it on any computer you own without having to have the disk is a significant advancement from having to have a copy of the disk. And what if that disk gets scratched? 3. Digital downloads are more environmentally friendly. No printing of manuals, boxing of product and no shipping costs. 4. Through digital download you will be able to get almost any… Read more »
John Bajorek
Guest
John Bajorek
11 years 10 months ago

Digital downloads will threaten the video game store business and result in a change in business model as soon as consumers have greater confidence in their storage devices and publishers provide a digital receipt for re-installs in cases of hardware failure. We know that some of the largest publishers are already moving this direction–like Microsoft who has said in the next 12-18 months they will eliminate all CDs and printed materials. The role of the local video game store needs to transition to be more focused on service (knowledge of titles, peripherals…) community (events, forums…) and trends (new titles, comparisons) etc. the same fate may soon be on libraries and book stores as well.

Kai Clarke
Guest
11 years 10 months ago

Digital downloads are the wave of the future. Brick and mortar solutions, to retail digital content of any type (CDs, DVDs, Games, music, movies, etc.) is absurdly outdated considering the shift and support to do all of this online. Each year the online downloading community only gets larger. This is the precursor to the future. Either these retailers establish themselves as a strong online presence now, while phasing out their on-ground presence, or they will be phased out. Adapt or perish!

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