Tuesday, January 11, 2011

Digital Distribution overtakes Retail

EA CEO John Riccitiello, one of the biggest advocates for the rising dominance of digitally distributed games, told IndustryGamers that he expects digital sales to exceed sales made in the retail space this year -- he predicted digital distribution would account for half of all game sales in 2010 earlier last year. "Then, you know, I think that we'll find ways to even sell our packaged goods content in chunks and in pieces and subscriptions and micro-transactions," he added.

As Riccitiello points out the gaming industry is moving in the direction of digital distribution with many retailers reluctant to give in. This new way of approaching selling games is a huge benefit for publishers such as Electronic Arts, who view the digital marketplace as the future of the industry. Putting a game out via download cuts costs for the publisher significantly, however retailers would be cut entirely out of the equation if this were to happen. Texas based Gamestop is one such retailer that would be devastated if the digital marketplace were to become the new way to buy games. If publishers were to put out full retail titles on the digital marketplace they would cut costs in land, labor, capital, and entrepreneurship thus maximizing their profits. Retailers like Gamestop would not survive in the digital age of video games. Just as Netflix overpowered Blockbuster with its instant to watch online service and low monthly cost, digital distribution will spell disaster for Gamestop. So will digital distribution become the new "norm" of the gaming industry, or will Gamestop continue to retail games as always? Its up to the publishers to decide, and the decision seems clear.

10 comments:

kern said...

I love how you point out that going digital adjusts the traditional four factors of production.

Does the massive savings in packaging and distribution translate to a lower price of games or does it translate solely into larger profits for the publishers?

Why would digital gaming distribution be different than eBooks? Couldn't a Gamestop have an online presence similar to Barnes and Noble?

Alissa said...

The idea of being able to simply download a video game instead of having to go out and buy it satisfies people's opportunity cost dilemma. It also appeals to those gamers who are looking to not have to leave their "gamer's chair" to go and buy the latest games. However, I do agree with Easton that many stores like Gamestop will see a decrease in revenue as a result of digital distribution. The act of going to the game store, standing in a long line, then buying the video game won't appeal to video game consumers. They can now spend that time actually playing the game, as it would already be downloaded in that time. This would allow people to spend their time doing other things. While the digital distribution does take the fun out of standing in a line awaiting the release of your favorite game, it offers a new convenient way of completing the same task, in less time.

James said...

As I was reading the beginning of this article, the Blockbuster/Netflix comparison came immediately to mind. It is definitely a great analogy to the digital gaming trend.

With the increase of on-line purchases of goods and services of all types, what are the potential ramifications for commercial real estate? Is this the beginning of the end of the strip mall? What types of problems/opportunities arise if there is less of a demand for commercial real estate?

Smith said...

I think this is a great example of the consumer's value of time. Why would I go to Gamestop to purchase a game? When I could sit on my couch and watch tv while it downloads.

Matthew said...

I find that digital downloads will have a major effect but stores such as GameStop will still exist. Yes, it will be more cost effective for the publisher; yes it will be easier to get games and movies over the internet. However even with these internet based digital download there are a large number of people that do not have internet. Then we have the consumers who use things such as gaming consoles, with each of these consoles the digital download of small games or a movie is still cost effective yet when you are going for a full game you have to have a system with a larger hard drive. With each hard drive it increases the cost of playing that game, with this increased cost you would expect a drop in the price of games yet there isn't one. Even with the digital download companies such as STEAM which has been hosting digital downloads for years still charges the same price as buying the version with a disk. In effect you are getting fewer products for you money; you are not getting the case, the disk, or the manual. This is a reason there will always be people who will buy the physical copy rather than the digital. Lastly there is the paranoid person, the one who is always fearful of being hacked or having their identity stolen. If you look at this from the point of view of this type of individual you see one side being safe and secure and one being a major risk. Such people do not buy items over the internet because they are worried of cyber predators and do not wish to take the risk and will always want that hard copy. In addition to a potential rise in stolen credit cards via the internet there is the chance more online accounts will be stolen, for example with steam all the games you download are directly a STEAM account and will not work unless you are logged into the program. If someone was to hack your STEAM account every game you own will all stop working at the same time. If this happens all that time and money you saved is lost. The resulting point is that with this potential for an economic boom for publishers, store that sell hard copies will still exist for years being that parts of the population will always prefer the hard copy over the digital, and there are always people whom are resistant to trade.

Garrett T. said...

Honestly, I'd rather go to a store to go buy a game or movie that is right by my house rather than wait for a movie to stream and buffer or for servers for a game slow down because millions of people are buying the game online.It msy be easier and less work to click a button to download or stream the product, but you waste a lot of time sitting there waiting. I'd rather save my time than waste it. Some people would rather go and buy something in person to make sure it's top quality rather than go online and buy a product with possibly lower quality. It all depends really how much time you have and what you want to do.

Easton said...
This comment has been removed by the author.
Easton said...

Garrett: Recently John Riccitiello recanted his earlier statement by saying that there will always be a place for physical media in gaming. He went on to state that people will always have more of a feeling of ownership of a gaming disc physically being much more satisfying than a digital copy. He also said that gamers enjoy having a manual even if its not particularly important to the game. This coupled with your argument that you would rather take a trip to the store and buy the game as opposed to waiting is a strong argument to keep gaming retail going.

Curt said...

I definitely agree with Garrett on this one. I would much rather be able to go and pick up a game and than be able to play it right when I get home. A lot of the really popular games we play would take a ridiculous amount of time to download, and there's always the chance that something would go wrong with the download. I also don't like the idea of not being able to loan my friends video games. A very large chunk of the video games I've played in my life were borrowed from a friend. I would just much rather go pick the game up and play it without having to wait for a download.

Easton said...

Curt: You make a great point about borrowing games from friends. I have borrowed many a game from a friend that I did not intend to buy myself. Your concerns with the download operation are also a huge factor for many people who may feel that their connection might give out on them in the middle of a download. How would you get a return on an investment you made online if the transaction abruptly failed? These are concerns many gamers share. I think that physical media does have a future, just a smaller one.