Game Change: From Retail to Digital Distribution - Why, How and When

A catch-22 situation is holding up what could be a massive move to the digital distribution of games, which are still primarily bought at retail in hard copy. Unlike downloaded titles, store-bought versions can be traded in later on for credit on newer games.

Is the distribution of physical products through chains like GameStop why game prices seem to be – and stay – so high over time? The answer seems to be yes, as game makers could slash costs by moving to digital distribution only. That represents a huge work in progress, though the industry is hardly staying the same.

“We are in a period of unprecedented change,” says NPD Industry Analyst, Anita Frazier, citing the increase in casual gaming and the expansion of the once core-only gamer demographic. A drop in retail game sales is being offset by growth in digital downloads, she adds.


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While some reports suggest digital distribution will spread like wildfire, unless the practice is accepted by those paying for the games – typically parents – these forecasts appear overaggressive. Something has to give to fuel the fundamental change in acquisition/distribution methods.

Making digital downloads cheaper to lure those that buy retail would help drive the practice. The game makers clearly need to decide how much of a price cut makes sense to move the fundamental change. Given the trade-in value of used games, this undertaking seems daunting, but alluring.

Reality Bites

But the change may already be underway, say some longtime gamers.

At trade-in time, you’re likely not getting as good a deal as you had hoped, an anticipation which covers other industries such as the auto sales business. And if the trade doesn’t happen at all, the retail game edge vanishes. Or does trade generate customer angst with game makers?

“They low-ball the hell out of you and tell you all the reasons why the game you paid $60 for is only worth a fraction of that,” said one 17 year-old life-long gamer who’s frustrated with the process. “If they are only going to give me $5 or so toward a new and over-priced game, I’d rather just walk away and keep the used game. It’s not worth it to me.”

But as long as his parents are doing most of the buying, and until digital distribution becomes a household-understood practice spanning age groups, the move away from retail will clearly not happen rapidly.

If the low-balling practice is widespread, all age groups will become aware of the reality of retail game ROI. It’s not crazy to think that the retail gaming industry segment could go the way of Blockbuster and friends with the end result being more of a Netflix digital distribution model.

Consider that retail chains, like GameStop, lean on the brick-and-mortar stores that ended up outlasting what was rented in the Blockbuster locations.

Snack Break

Beyond digital distribution to gaming consoles, game maker’s need to nail getting games to an expanded sea of devices. NPD calls it game “snacking,” whereby users play for shorter periods of time and on platforms, such as wireless devices, that don’t require gaming consoles and all the accessories/trimmings. That’s an element of the unprecedented change of which she spoke.

And when you consider the fast-forwarded spread of wireless devices with bigger, higher-resolution and more feature-rich devices, Frazier nailed it. Consider this: the Consumer Electronics Association (News - Alert) (CEA) released its annual holiday spending survey which had tablets tabbed as the most desired gift. In fact, tablets beat out money and peace on the general (non-CE-specific) gift wish list. Wow!

Payback or Pay Forward?

So what of the high prices that kids, their parents and other adults consistently bemoan?

When someone pays $65 for any product, most want ownership of that ware, and a download of a game that can’t be traded in later doesn’t count, according to gamers. So for now, we have something of a stalemate in the gaming business. But, for how long?

Worldwide revenue from online games is set to reach $35 billion by 2017, up from $19 billion in 2011, estimates DFC Intelligence. The research firm says it believes that the next generation of console systems will allow for substantially more online distribution. “By 2017 we forecast 39 percent of console game revenue will be via online distribution and online revenue sources,” says analyst David Cole.

Five years seems like an awfully long time for a game change.

But then it’s more than the games that need to change.