The Digital Revolution: How Consumers Are Driving the Future of Games Retail

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September 20, 2012 by zack373

“What’s going to happen to brick-and-mortar game retailers as the industry grows more and more digital?” (Parker 1) Similar to the film industry, the videogame industry business model is changing and brick and mortar retailers are facing tough times due to digital distribution. The article, “The Digital Revolution: How Consumers Are Driving the Future of Games Retail” appeared on Gamespot.com and was written by Laura Parker, associate editor. The article focuses on new means of digital distribution and foreshadows the extension of popular brick and mortar retail stores in both the Unites States and globally. The article is divided up into three sub sections which are: Slowing Physical Sales, Case Study: The Collapse of Game, and The Physical Future.

According to the article, the videogames market hit its peak in 2008 due to, “the arrival of the casual consumer, an influx of new software, increased audience size, and the growing popularity of rhythm games in the West.” (Parker 1) Since then the profit from physical software, hardware, and accessories has become lesser each year in all 4 major game markets (US, Australia, Europe, and Japan). Consumer market research group NPD reported, June (2012) hardware sales down by 45 percent and software sales down by 29 percent. Wedbush Securities analyst Michael Pachter claims that, “Consumers have been offered a never-ending series of sequels, and have been offered fewer choices each year for the last several years” and he blames the three big players in the videogame market: Activision, Electronic Arts (EA), and THQ. But there is still hope, according to a Q1 2012 NPD report digital format content sales in the US increased by 10 percent.

The second part of the article focuses on the collapse of GAME which is the UK equivalent of GameStop. In March of this year GAME asked to be removed from the London Stock Exchange and filed for administration (equivalent of bankruptcy in the US). Prior to the company filling for administration, major publishers such as Microsoft and Electronic Arts stopped supplying the company with new products in fear that the company was no longer profitable. Furthermore, the business was forced to shut down 277 stores and lay off in excess of 2,100 staff members. One of the biggest blows to the company though was when EA refused to allow GAME to stock Mass Effect 3. Ironically, our class discussed Mass Effect 3 and problems with the game angering its fan base due to poor content decisions by the developer. Former Managing Director at GAME, Tom Devine, when asked about the Mass Effect 3 situation, said, “As a specialist retailer dedicated to games and gaming, it is never easy to make a decision not to stock a title, particularly one with such a strong fan base… we don’t sign up to payment terms that will hamper us further in the future.”(Parker 3) But according the article GAME was in financial trouble before 2012.

GAME, “underwent a hurried international expansion without considering the long-term effects of such a costly business decision.” (Parker 4) The company decided to aggressively win over the Australian market by opening 70-80 stores in a two year period. By May 2012, the company decided to close all of its Australian stores and lay off over 280 employees. An anonymous employee for GAME claimed the company was having trouble reaching its target due to high rent, employee expenses, and an increasingly unprofitable local market. To make matters worse with credit terms and day to day business expenses the stores made a measly $5 profit per game. An anonymous employee for GAME claimed, “What happened to GAME is a sign that the global video game retail market is struggling. With more and more consumers shopping online, and more and more publishers adopting digital distribution measures, retailers everywhere are under pressure to find new ways to survive.” (Parker 4)

The third part of the article focuses on the physical future of games. Ironically, the article points out that GameStop has learned from GAME’s business mistakes. GameStop has been involved in the mobile gaming market and digital distribution and has seen a one year 23% growth in this market. But even with GameStop diving into the digital market, “The retailer expects its store sales to fall 11 percent to 5 percent in the current fiscal quarter.” (Parker 5) An interesting point that the Parker makes is that the collapse of brick and mortar retail stores has created an industry advantage for game publishers such as EA. Digital distribution allows for game companies to sell their own games without a need of a brick and mortar store. This allows greater profitability for the game company and could even potentially lower prices for consumers. Both EA and Ubisoft have reported profit increases in sales due to digital distribution in their last financial quarters. Codemasters cofounder David Darling boldly claimed, “The next-generation of consoles must embrace a digital-only future or face extinction.” (Parker 5) The article concludes by making a point that consumers may still want a physical packaging for a game and that digital distribution may not be the simple solution.

This article relates to our Film 373 class because it deals with the changing of distribution of games which relates to the Situationist approach to video games on the “culture” level. Consumers are downloading games from their own homes; therefore, there is a loss of culture and interaction which was evident in stores such as GameStop. It can be argued that retailers created a social aspect of gaming whether it was through hosting gaming events or just employee recommended games. One aspect I felt that would have been a good addition would be the Blockbuster bankruptcy and its relation to the videogame industry. Blockbuster filled bankruptcy this year and had been a household name for physical copies of films. The closing of Blockbuster created a culture change for movie renters and the demise of brick and mortar stores such as GameStop could have a similar or greater impact.

 

 

Citations

“The Digital Revolution: How Consumers Are Driving the Future of Games Retail.” Gamespot. N.p., n.d. Web. 19 Sept. 2012. <http://www.gamespot.com/features/the-digital-revolution-how-consumers-are-driving-the-future-of-games-retail-6396713/&gt;.

 

 

 

 

 

 

 

 

 

 

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2 thoughts on “The Digital Revolution: How Consumers Are Driving the Future of Games Retail

  1. johnroberts373 says:

    Two things struck me as interesting about the article and the topic of the declining brick and mortal market generally. First, you compared the turmoils of the videogame industry to the film industry, which has had tremendous success in online distribution through streaming platforms like Netflix. I know Gamefly is analogous to Netflix’s disc service, but I wonder if game publishers will explore (or perhaps alleady are exploring) digital subscriptions that provide access to wide swaths of content. Secondly, I can’t help but wonder if the closing of brick and mortal stores is being quietly cheered by game publishers who might see less future competition with the sales of used games. Perhaps the most important service Gamestop provides is a convenient hub for the secondary games market. Sales of used games have cut into profits on new games for years, and with the push into digital sales it seems unlikely that the used games market will continue to be so robust. Without physical stores providing that service, won’t consumers be more or less forced into the purchase of new, full-price digital games?

  2. axelordz says:

    Oh, wow, we did the same exact articles! Nonetheless, I completely agree with your assertions made. I also agreed in my article over the dramatic change in the way the situationalist approach would be carried.
    I especially like the tie to Blockbuster and how it recently (as in a couple of years ago) sudden died because of easier, more accessible mediums of movie renting (like Redbox, Netflix, etc). Even Blockbuster carried videogames that one could rent, but that obviously didn’t help.

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