Digital Survival

Expect top games retailers to scramble for a foothold in digital distribution in the coming months.

Published as part of our sister-site GamesIndustry.biz' widely-read weekly newsletter, the GamesIndustry.biz Editorial is a weekly dissection of one of the issues weighing on the minds of the people at the top of the games business. It appears on Eurogamer after it goes out to GI.biz newsletter subscribers.

Without the benefit of hindsight, it's tough to say where, exactly, a tipping point occurs. In years to come, we'll undoubtedly look back at this period in the games industry's history and confidently pinpoint the year, or perhaps even the quarter, when the transition became a landslide. Today, however, all we can say with any certainty is that it's either happened already, or will happen in the next two years. Freed from the realms of theory and speculation by dropping storage costs, rising broadband speeds and changing consumer attitudes, digital distribution is reaching a point of no return.

There are, of course, plenty of questions which still need to be answered - both from consumer and industry perspectives - before the digital takeover can truly get underway. Pricing, for example, remains a thorny problem, and there's a strong possibility that right-of-first-sale issues will face not only robust challenges from consumers, but also serious questions at a legal and even governmental level.

For one industry grouping, however, there's a single question which dwarfs all of those concerns. If you're a retailer, your only real question about digital distribution is straightforward - where the hell does this leave me?

The examples from other industries undergoing this transition are not promising, since they tend largely to focus on metaphors involving creeks and a distinct lack of paddles. Bricks-and-mortar retailers of music and movies have largely sat back and grumbled while their businesses were hijacked, first by online retailers of physical product and then by digital distribution services. Music is much further down this path than movies are, but there's no question that they're both headed for broadly the same destination.

Specialist games retailers who follow that model face little more than a decline into insolvency in their medium-term futures. Worse again, they face competing with far bigger companies to retain their slice of an already shrinking pie - as boxed game retail sales fall off in favour of digital distribution (not to mention the downward price pressures I discussed last week putting the thumbscrews on margins), supermarket chains are increasingly seeing high profile games as a worthwhile loss-leaders.

Given that prospect, it's hard to foresee any kind of future for the specialist game retailer. Their figures are presently propped up by second-hand sales, on which they make huge margins (a fact which doesn't endear them to the industry at all, of course, although industry figures have an unfortunate tendency to damage their own case by attacking the second-hand market in general rather than specifically targeting the enormous margins and rather sharp business practices of the specialist retail chains). Initiatives like Sony's decision to create retail boxes for PSP games which merely contain a download code are little more than a sop to the retail sector - it won't delay the fate of game stores by much.

Yet not all media retailers are content to go quietly into the night. Where online retail was once a rival of bricks-and-mortar business, they are now kindred spirits - both selling physical products in an age when consumers increasingly think of media as intangible bits and bytes rather than a lump of plastic. So retailers should consider carefully the importance of Amazon's recent launch of an extensive download store for music MP3s, a direct (and thus far rather successful) challenge to the dominance of Apple's iTunes, and the Kindle, an e-book reader designed to keep the firm on top of the book-selling game even among customers who don't want paper any more.

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