By Steve Rowen, Partner
4/8/2008
Last week, Apple announced that its ITunes service has become a larger source of music sales than the long-time retail music king, Wal-Mart.
At the same time, amid swirling economic doubt, there is one segment of retail that has been virtually unaffected by any type of sales slowdown: Video gamers spent more money than book buyers last year. And regardless of economies, they are reluctant to put down their controllers – whether they play console-based (Xbox, Playstation, Nintendo) or the waning-in-popularity PC-based versions of today’s hottest releases.
In fact, the world’s largest video game retailer, GameStop, has boasted impressive figures recently. Operating more than 4,400 stores, GameStop announced a 46% increase in quarterly sales last month. The retailer is also forecasting another great quarter in Q1 2008, and plans to open 575 stores worldwide this year. Currently, GameStop predicts its 2.9 billion annual sales will climb $ 2.34 per share in 2008 and $3.00 into 2009: if achieved, this equates to 25% annual earning growth.
Much of the chain’s success is attributable to sales of one game in particular, the cross-platform phenomenon of Infinity Ward Software’s Call of Duty 4. Yet another cross platform game (available for consoles and Microsoft and Linux-based PCs) is due out in a few weeks. Grand Theft Auto IV will be released on April 29, and is predicted to ignite a strong summer of sales for game retailers. GameStop alone is eyeing $100 million in sales of the game in its first week of release.
But what effect, if any, does the digital downloading of PC-based video games - still a significant component of any game sellers’ bread-and-butter – pose to such retailers?
Steam is the best known of such service providers. Steam users pay no monthly fee, but purchase the same games they would at a retail location for a slightly higher cost. Once registered, users have access to the full catalog of games, automatic patch updates for those games, a “Friends Service” for communication with their online friends while playing and the ability to try games out for “Free-Play” weekends. Unlike ITunes, the account is not associated with any one piece of hardware, but rather the account holder, enabling sign-in from any PC.
Technical requirements for users are not as significant as one might think, requiring users to have at least one gig of hard drive space available, 256 MB or RAM and a broadband connection. For many gamers worldwide, this is a highly attractive alternative to a purchasing a $500+ game-specific console. As of today, the service has 15 million users.
Now I’ll admit, I’m not much of a video-gamer. So to find out more about how the gamer community feels about download service vs. retail sales, I ventured out into the slightly frightening (but uncannily well-written and grammatically correct) world of video-game community sites.
One writer at videogamer.com notes “I love the idea of digital downloads. I'm lazy at the best of times, but if it's either raining or cold, or worse still both, chances are that I'm not leaving the house. Digital delivery services like Steam offer a way to get hold of the latest releases without leaving my PC chair, but I'm a little confused as to why we're paying more money for a digital version of a game that we'd get in a nice case with a printed manual if bought from a real store?”
For those of use who remember a world in which music came packaged in a jewel case (or previously a CD long-box, or previous to that… you get the point), this seems and all-to-familiar sentiment that subsided fairly quickly.
He continues: “On one hand these services are very convenient, allowing you to barely move a muscle and get hold of the latest (most anyway) PC releases and a pretty large back catalogue. Steam, the service that has gained the most press, also acts as a hub for all your PC gaming… It's certainly a decent package, and Valve is at least trying to give PC gamers the kind of service that's been lacking for years”
Yet this author also goes on to say “At the moment, if faced between paying more for a download or buying from a retailer, I'm always going to buy from a retailer. In the beginning there was talk of downloadable games being made available cheaper as the cost to get the game to retail would be reduced, but currently services like Steam seem designed to make money from lazy purchasers rather than open up the PC as a viable gaming platform again. Just as PC gaming once pinned its hope on in-game advertising and episodic content, it seems digital downloads aren't going to make the platform as enticing as it should be.”
From this, video game subscription services clearly have some work cut out for them. If PC-based gamers see the provider of digital-delivery models as not “caring” about them, the model will require some finesse. Apple certainly put in the effort to reform this attitude through extensive community building, but it also navigated its price point to make the process/product attractive to everyone – not just the “lazy” who were willing to finance a “ripped off” transaction.
However, while physical retailers continue to flourish for the near term, console-based software in a refined digital delivery model may soon have any retailer caught late to the digital download party singing the Wal-Mart (and Blockbuster) blues.
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