Friday, August 27, 2010

The Digital Future is Near

Game Disc Supporters Still Clinging to False Hope

I recently read an article online that demonstrates how those who believe that that the main method of distribution of games will be on a disc that is sold in retail store, may just not be making a sound evaluation of the facts.

Article Summary
The headline on this article reads …Report debunks “disc is dead”. This conclusion is drawn because of results of a study. The article also claims that “80 to 90 percent of videogames bought in 2009 were on physical media” The key statement that everything in this article appears to be centered around is “According to the Entertainment Merchants Association, combined DVD and Blu-ray disc sales totalled $17.9 billion in 2009, nine times the revenue generated by digital distribution.”

Future not the Past
My first question is has anyone ever claimed that the disc is already dead? My belief is that digital distribution will overtake disc distribution soon. The disc won't even “die” soon it will just be overshadowed by digital. This report covers 2009 and not it’s about this year, or even more important, it has little to do with the next couple of years. Even more interesting is that the decision to put effort and money into the digital games released in 2009 most likely was made in 2008 and in some cases in 2007. I’m more interested in how much effort is going into digital games now and next year than I am about decision made two years ago.

Number of Games VS. Gross Revenue
It also appears that the study results didn’t compare the number of games purchased but instead compared gross revenue. This actually makes the claim that 80% to 90% of the video games purchased were bought on physical media inaccurate. Instead the real fact is that 80% to 90% of the gross revenue came from retail games. If only 90% of the revenue came from retail games that can cost 6 times as much as a $10 downloadable game, the actual percentage of digital games purchased would be much higher than this article suggests. A real percentage of digital games sold might paint a very different picture of the state of the industry.

Profitability is the Key
Of course revenue is important and in some ways reveals more important information than the number of games sold. But again, I also wonder how this article would change if the study revealed profitability instead of just gross revenue. Some important questions need to be answered to give a clear picture. How much more money was spent on the retail titles compared to digital in 2009? How much smaller is the percentage, of that gross number, that publisher earns on a retail game compared to a digital game? How much of the money included in gross earnings for a retail game goes to the retail stores, making the disc, shipping, returns, etc.? Profitability is what will really drive the market not gross revenue.

Missing Information
I’m also not sure what they included in the research study. Did they count all of the iPhone games, Facebook games, MMo subscription fees or money earned from in-game advertising of digital games? Did the study only count full game sales or did they also count DLC and all of the other extras that often accompany a digitally distributed game?

Current Example
I read the other day that over 20 million copies of DLC have been sold for the latest Call of Duty game alone. At an average of $10-$15 that provides some huge numbers. This fact alone makes it appear that digital game downloads are a lot bigger right now than this article implies. What does this mean for the next couple of years?

More Evidence
This article has a link to another article that seems to discredit the assumption made in the title. The second article claims “US PC game digital downloads are reaching parity with in-store purchases”. The study that the second article focuses on seems to count the number of games sold and not necessarily the gross revenue. However, no matter how you look at those numbers, it seems like digital distribution in the PC market is huge. Did the author just ignore this information or does the new research study somehow cancel out this previous information.

Don’t be fooled by the unbelievers. The digital gaming future is very close.


Alymon said...

I think it will be a while before digital truly takes over, but with more and more publishers offering pieces of their games as DLC as a way to discourage used sales, it's definitely coming. It may never reach 100%, but I wouldn't be surprised to see a 100% digital option for the next console generation.

Brent Fox said...

I will post more on my theory about the future of digital distribution. My main idea is that very soon everyone will figure out you can make more money selling digital games and digital will become dominate. Discs won't completely die for a while.

Anonymous said...

One concern I have is the power retailers have over console companies. To sell XBox 360 hardware, Microsoft needs Best Buy, GameStop, etc. Without software sales the retailers would likely dump whichever platform went purely digital first, giving dominant market share to the other player.

stay said...

Very astute! I have seen this unholy power in action more than once, where a digital product should have been available (in addition to a traditional retail product) but was aggressively suppressed by the power of retailers.

Here's my theory about that: Any time you see a physical product surviving where digital distribution ought to be winning, somebody somewhere is effectively subsidizing the physical solution (through deals, promises, actual payment of cash, whatever). As digital distribution becomes more popular, effective, easy, and powerful, that subsidy will have to be more and more expensive, and eventually won't be worth it, and the natural superiority of digital distribution will win out in the end.

Or in simpler words, retailers will lose power over time and be less capable of abusing game makers.

Also note that we predict the imminent death of game-only retail stores, but generic retailers who offer games among other things will be around a lot longer.

Tesh said...

I'd suggest that the price point will be a considerable factor. There's a psychological barrier to be crossed when spending $50+, and having a *thing* to show for it helps mitigate the purchase decision... especially since you can resell it. At least, most of the time.

Digital purchases are far more ephemeral, and rarely resellable. A lower price point helps soften those blows, and also pushes purchases closer to impulse buys. Steam has shown that deep sales tend to be productive, too.

Charity said...

I have mixed feelings about hard copies & soft copies.

I like the ease of interface with soft copies, but I have personally been burned by the hardware getting fried out, and then having to pay for my software again because it was licensed for the first download only.

I don't see how developers can find a way around that. Because to allow multiple downloads would soon be mis-truthfully taken advantage of.

I might pay more for a hard copy, and though it can still get damaged, I feel more secure that I have it in hand, and should I have to replace my hardware, I can still use what I've paid for.

stay said...

Boy, I hope that's a rare case. You should always be able to re-download digital purchases. I know it's hard for developers, but that's their problem. Most Indie game developers will happily send you new info if you need it, and the big digital download guys (Apple, Amazon, Microsoft) let you re-download purchased stuff, including if you move to a new computer, with a few restrictions and exceptions.

This is a more complicated problem than I'm making it out to be, I know.

I guess I'm saying whoever sold you a license for one download only is a jerk!