Recent game industry trade articles have been bandying about the very real possibility that GameStop’s lucrative used game sales are going to begin to tank as the digital distribution model grows. Is all that yummy buy low/sell high action going to just fade away? GameStop doesn’t seem to be too concerned. IndustryGamers reports on a recent study by Sterne Agee analyst Arvind Bhatia that claims that digital download technology won’t reach a critical threshold of “addressable market” until 2014…five very long years from now. The study goes on to state that at that point in time 25% of gamers will have the technology to download complete games. The study also states, among other things, that gamers will have to deal with hefty $100 monthly subscription fees as well as the added expense of hard drive storage capacity. All this is apparently going to put sufficient drag on digital distribution’s rise to dominance to let GameStop execs sleep at night.
None of these claims seem particularly compelling to me. Does GameStop’s thinking take into account sudden advances in technology? And where are they coming up with hundred dollar monthly subscription fees and plagues of undersized hard drives? This seems like a lot of wishful thinking. In the article, Bhatia is quoted as saying “Overall, (GameStop’s) management did not seem at all concerned about the near-term threat but instead is looking at ways to potentially profit from digital.” Okay…
It will be fascinating to watch just what a brick & mortar, retail boxed game seller/reseller will come up with to shove aside the likes of Valve, Sony, and Microsoft from the profit trough.
I agree that it will be fascinating to watch. I think Gamestop should be fine for a few years, since I imagine the bulk of their used game sells are for consoles as opposed to PCs. While I think the PC crowd is slowly moving towards a sufficient comfort-level with buying games digitally, I think it may take a while before console jockeys (like Steerpike) are truly comfortable with it. (Is the membership fee referring to Xbox Live perhaps?)
For a number of years, I always preferred buying a hard copy of a game rather than downloading one. I’d even throw in a few extra bucks to get a CD when I could. It really wasn’t until the advent of Steam that I finally decided that not only was I comfortable with digital downloads, I actually preferred it. The biggest concern I always had was having to re-load a game if your PC crashed hard or you got a new PC, but with Steam you can just download and install it again. It’s great.
As for consoles, other than downloading map packs and small arcade-type games, I don’t think I know anyone who owns an Xbox 360 or PS3 who has downloaded an actual game. (Is that even an option at this point?) I certainly think things are trending in that direction, but they appear to be a year (maybe more) behind for consoles.
Thinking about this some more, there is another factor that weighs in GameStop’s favor: “network effects” or a “lock in” type of effect. People who have old games that they no longer play anymore will want to get something for them. The way they do that is by going to GameStop and trading those old games for new games. Granted this isn’t quite as self-perpetuating as it could be, since you often have to trade in multiple games to get one game, but even if you just wanted a discount off a new game by doing a one-for-one type swap, this would at least keep a consumer from going digital.
I AM NOT A “CONSOLE JOCKEY.”
I am an equal opportunity gamer.
But I must say, Scout, I agree with your views on this. While downloadable content purchases aren’t going to eclipse retail for some time, I think the study is overly pessimistic about broadband penetration and gamers’ willingness to slap down ducats for digital content, especially if it’s priced cheaper than its retail counterparts. Actually the one key challenge I see threatening the Steams and OnLives of the world (assuming the latter works at all) is the aggressive size capping that most major broadband ISPs are adopting. Comcast’s 250GB/month limit seems positively generous compared to what some others are doing.
Ultimately these caps will not succeed, as the world moves into a state of ever greater data and pipe-width hunger. If GameStop hopes to survive, it will have to review its business model.
I have a fast, big-ass computer with lots of memory, huge HD, cable internet, and all the other goodies that make downloading and playing even large games a snap. And I’ve bought a few this way, but while downloading might be the wave of the future, I will still want physical games. For 3.5 years I have been a member of GTZ, but it wasn’t until last summer that I began trading more often than a couple a year. As the larger economy slowed, so did my own, and I found that I just couldn’t justify spending $20-30-40 for a game that I would play once, then put in a cabinet. With GTZ I spend $2.50 or so to give my used game a new home, and in return I get one that is new to me. A good deal, I think. With downoaded games I have no commodity that I can sell or trade, or even give away to a friend. As much as I love progress in so many areas, game downloading would be a step back for me if it was my only option.
An aside: I love the photo accompanying this article, Scout. Put that sucker in a game, or in my living room for that matter, and I’ll get it going. The photo and the title of this article remind me of a discussion of book genres I had with my son earlier this year when I was telling him about some of the books I’ve been reading. But that’s another story….
P.S. On the other hand, it might become possible, if it isn’t already, to trade digital versions of media much in the same way that we do at GTZ and others. Legally. Easily. That I might go for.
I would think that if everyone were moving towards digital distribution, then the question that begs to be asked is why is Wal-mart and Best Buy suddenly jumping into the used game market? This wouldn’t make financial sense if everything points to download only.
Spike, I was wondering about trading digital games too but while researching this piece I came upon a really good counterargument I unfortunately can’t claim credit for. Since a digital copy has nothing physical to degrade, why pay full price to Steam if I can buy the exact same thing half price from another gamer? Allowing gamers to trade downloads would eat into profits so I don’t think we’ll see that anytime soon. I agree with you about the value of a physical copy by the way but, if, as Steerpike says, digital distributors drops their price that should become less and less of a problem.
Here’s a couple of links to articles on used games:
http://www.designer-notes.com/?p=111
http://www.mania.com/new-games-vs-used-games_article_113151.html
Toger, I think Wal-mart and Best Buy are thinking that even if profits are falling in this area, there are still profits to be had. Nothing warms the cold heart of a Wal-mart exec more than stealing market share.
ajax, thanks for the console pov. I tend to be pc oriented though I think the arguments still hold up.
I am PC oriented as well. I don’t even own a console (though I am the caretaker for someone’s second/back-up Xbox 360 that was purchased as insurance during the whole Red Ring of Death epidemic). I just bring up consoles because based on the view times I’ve popped into GameStop while Mrs. Ajax was shopping for spices next door or because I was meandering my way though town, I’ve always noticed that the store is about 90% console games and 10% PC. I would imagine the used selection skews even more heavily towards console games.
So, I don’t think GameStop will have to worry too much about digital cutting into their bottom line until it becomes prevalent for console gaming. I have no idea where things stand there.
That said, they should take heed from what happened to many brick and mortar music stores (e.g., Tower Records) that crumbled when digital music came to the forefront. These things can gain momentum very easily and cut deep into one’s profits very suddenly.
Remember the salt petre man, the feather wife, the nightman, and the bit brow lass. Change will come, and for awhile we’ll grumble about the lost of the old and familiar. Eventurally we’ll wonder how we ever did without this new stuff.
I just reread Scout’s article in light of my recent experience with GFWL (Games For Windows Live).
Last Friday, April 30th, I finished the last quest in the last Fallout 3 add-on that I have. That day marked exactly 5 months since I entered the Wasteland for the first time. Had I known then what I know now, I would have bought the GOTY edition and gotten all 5 of the add-ons and saved myself about $20 in the process. But I didn’t know I’d like F3, so I went for the base game. About a month later I knew that I’d be buying the add-ons, having fallen in love with the game. I bought Broken Steel/Point Lookout and Operation Anchorage/The Pitt. I wasn’t sure about Mothership Zeta, but last week I decided that I’d get that one too so that I’d have accomplished all in F3 that I could before I moved on to other games.
Since MZ is only available as a download from GFWL, I signed up for an account and downloaded and installed the client. Oops. Up pops a box telling me that I need to download the Hot Fix. Ok. I do that. Now I am ready to sign in and buy the game. Not so fast. GFWL won’t let me sign in (Error Code *******, Authentication Failed.) Off to GFWL support for me. 5 hours later I had done every damned thing that they suggested I do. Still couldn’t sign in (I could sign in on other MS sites, so there was no problem with my ID & PW. Saturday morning I call GFWL phone support. Nice tech was curious that the things I’d tried didn’t work. He spent an hour with me having me try other things, even going off to talk to other support folks who suggested yet other things. NONE OF WHICH WORKED.
By the time I got off the phone with support I had changed many of my security settings, opened 8 new ports, tweaked my formerly-tight firewall, disconnected my wireless network and turned off my anti-virus and anti-spyware programs. There were a few other things, too, I just don’t want to remember them now. It was as if I not only left the front door of my home unlocked, but also opened the door wide and taped a sign on it that said “Come on in and just take all my stuff.”
In the end, the only thing the techs could come up with was that the problem might be in a disconnect of some kind between my Mac hardware and Windows XP Pro. They might be right. I do sometimes have minor problems playing PC games on my machine. I cancelled my GFWL account and uninstalled the client, but only after returning all my settings to their previous state. I’ve given up on Mothership Zeta, which isn’t such a bad thing since I was lukewarm about it in the first place.
I’ve downloaded games from a couple of sites and was about to register with Steam when the news of a Mac client hit the news. By the end of the month I might just register and buy a few of what at first might be a limited catalog of games.
I don’t mind adapting to new ways of doing things or new technology, but gee whiz. Some companies don’t make it very easy. And with GFWL it apparently isn’t just a Mac problem because I read in their forums that many PC-ers also have trouble. So, at the risk of being labeled an old grouch, give me a hard copy any day. Maybe I’ll be dead before all-download-all-the-time and only-download become reality, but I doubt it. It’s too lucrative a business model for publishers.