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I predicted that the erosion and perhaps the death of retail sales of video games would happen, in fact if you caught my GDC lecture in San Francisco early this year you may have even been one of the scoffers who approached me afterwards to rebuke my bold, nay, swaggering remarks.
I made the suggestion that the first to fall off of retail would be PC games, followed by console, followed by hardware & accessories.
It only makes sense based on several key factors, the least of which is not the economy. Digital downloads, free to play in its various incarnations, low cost (e.g. iPhone) and subscription based games are all less than 5 years old, but the impact on retail sales isn't going to just magically appear with a sticker that reads: 'Hi, my name is: Death of Retail'.
In a world where the numbers in retail seem to govern people's perception of the health of our industry it doesn't take long for the pundits to point at slumping retail figures and espouse - 'See!? See?! Video games are just as prone as any other consumer market to economy!'
But not so fast. Perhaps it's not the yard that's shrinking, but simply the yardstick.
(Note: All of my data is from comScore where I run video game research.)
Case in point: Conservatively, the Steam interface, by the venerable folks at Valve has grown by a million users in just a year. I say conservatively because my numbers are panel projected from a consumer base of just over 2 million people, but 18-24 Male's are not as well represented in this panel as well as say 35+ folks so I hedge a little. This is also reflecting United States data only. I'm not givin the whole cow away folks..;)
Still, a 58% uptake in digital downloaders of video games is impressive. It speaks though, to a larger overarching point; people are adopting digital delivery, now, not in 2014 or whenever it was predicted by other experts within the last 12 months.
That's just digital delivery, but it cannot be ignored. Digital deliverly of a multi-gig install means; no box, no disc, no Target, no Gamestop. It also means it's invisible to retail sales figures.
Secondly, there is the ad sponsorship of free to play games. Just 24 months ago, only POGO, AOL and Microsoft wouldn't have lol'd at the notion that video gamers would be a viable target for ads, but times change - and they change fast.
A caveat for this next bit of data is that it doesn't reflect *all* of the ads served to video gamers and is also only United States, but it's nonetheless compelling (these numbers are billions of impressions):
That increase in impressions, 3.5 billion in the US, exceeds growth in ads served versus many other digital categories (many are actually down) and indicates that the tradeoff of gamer eyeballs in exchange for free to play alternatives to purchased games is serious business.
[Clarification: These numbers do *not* include house ads or small ads. The measure was incorrectly stated as "millions of impressions" but is "billions of impressions"]
Now - eCommerce. Theres a few ways to look at online spending, which for many many categories (more are down than up) , the news isn't great. Apparel is down 2% year to year, flowers, gifts & greetings is down 9%. There is worse news for furniture, office supplies, etc.
So how about some good news, take a look.
Aha, so, here we see an increase year to year, not a decrease. And if you look at the % change in buyers for Video, console, accessories you can see that the number of people purchasing has increased by 107%.
I always say the devil is in the details and it's true here for certain. Yes, the amount spent is up, the number of people spending - up. But based on average dollars per buyer, it's clear that people are looking for lower cost alternatives, something video games are positioned better than most spending categories to provide to consumers.
This last part, reduced dollars per buyer, makes a great segue. What else is eroding the retail model? Why, it's microtransacations & mixed monetization model games.
I like to point out marketplace agility where I see it, and by way of an example of exemplary mixed model implementations and 'make it go right' attitude, I'll give a shout out to Turbine and the recently reintroduced Dungeons & Dragon's Online.
I played it in it's original beta, it was 'good'. I was an old table top D&D player do the notion of the game coming to MMO is something I think many of us saw as an inevitability. Was the orginal DDO 14 or 15 bucks a month good?
Maybe, but we all know where the hype was focused when DDO came out. Plus, the audience for MMO's was still emerging.
By adapting this model to leverage microtransaction as well as subscription, Turbine is showing the sort of moxy that we can all learn from in our industry. I've been in since the free to play beta and now that it is released I can tell you by measure of number of players running around and number of instances that are running the main areas - watch out for DDO.
They are by no means the only one doing things right in the free to play and/or mixed model space. They just happen to have adapted away from the straight retail model and appear to be making all the right moves. We all know that Freerealms is going strong as well.
We also know that MMO's that are free <> MMO's that are good in every case - production values, asthetics and old fashioned good game design: still required. Right now there is a lot of chaff out there and sometimes I wonder how some of the MMO's I see that are free to play make any money at all. Like, I can't find monetization models at work in them and I know how to find where the money is coming from when it exists.
I guess ultimately it comes down to a simple fact. Like any entertainment medium, video games are here to stay and also like other forms of entertainment, when things get rough people will try to spend less money while still needing to take thier minds off of tough times.
If we're smart, we'll all figure out ways to make it through regardless and I hope I've given some signals of hope for us all.
Until next time and, as always, I'm interested in your thoughts.
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And ad impressions 'served to video gamers' might just as well mean just more spam --- and as stated in this piece are from a date which arguably is the absolute depth of raw numbers. How do the increase in ads served to 'video gamers' compare to an increase in online ads served to anyone during the same period; and unless we also know how many new and active players joined Maple Story, Asada or whatever, does it really detail a global shift in how people are playing their games?
Ad impressions served into the online video game category definitely mean that our industry is monetizing via ads, and with that sort of growth and the revenues it provides it's pretty much proof positive that you can't look at the retail receipts any more for a true sense of our industries health.
And, like I said, many other categories of digital content are down in impressions. I can outline which ones, but it's not really in scope for my post beyond simply saying gaming is increasing impressions served, other categories are decreasing.
I'm not sure the number of new people playing one game or another is relevant here. The bottom line is, free to play games that attract eyeballs create ad inventory. You can't serve impressions to an audience that doesn't exist - so the increase in impressions alone is a good indicator of the revenue contribution to gaming that advertising is making.
Very good points.
In walks GameStop. Now, game companies are not only vying for shelf space, but also against a third party that will buy back a used game (at next to nothing), and then sell it for $5 cheaper then the new game. Now the game maker loses out on new revenue! It's sleazy business practices. It turns people off from wanting to buy new, and further turns them off knowing the game they buy today will be worth 80% less tomorrow. Forget Craig's list, forget E-Bay. The average gamer doesn't bother. They barter at GameStop and take it up the ass because it's the path of least resistance.
In walks downloads, new maps, add on content, patches, micro exchanges, free content (with adverts). Now the gamer has to keep track of what's on the HDD (let's face it, PS3 might have a bigger HDD out of the box, but XBOX live is blowing them out of the water online). So the player has to play accountant with each download, AND can't share anything with their friends.
There is a different future altogether that will arise from this, and the sooner the better. True gamer tags, with server space for all the player's games. You don't buy the physical disc. You don't get on a waiting list for new releases. You buy a copy that sits on a server. Your local box has a lighter local copy, but the game itself sits out there on some Microsoft or Sony Mega server for you to share with your friends. By share I mean one user locks it down at a time. Don't worry about the headache of going to play a game that your friend is using. The owner can boot them. If your friend likes the game, he'll buy the game.
Nothing has changed in the eyes of the game maker. Except now they DON'T have to vie for shelf space from a 3rd party, or worry about another 3rd party selling their game at a discount and not sharing any profits. The player now has the ability to go to a friend's house, log in, and play the game. If their HDD crashes, they are only a few downloads away from getting back up and running. Server goes down? Get another hobby, like knitting, until it comes back up. That's the trade off to not having a disc scratch on you. My main point is REMOVE THE MIDDLE MEN!!! I hate em.
Good article and a good start to connecting the sales dots.
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While I am very enthusiastic about digital distribution of games, I am quite wary of free-to-play mictrotransaction models. I think that many consumers would rather get a slightly downgraded experience for free than have to pay any money at all. While it has been proven time and time again that these types of games are incredibly popular in Eastern markets, I am still not convinced that they will be as effective at generating revenue in the West. I think a good analog for this is arcades. In Japan, arcades are incredibly popular, much more so than in-home gaming. Things are completely different in the US, with arcades mostly gone and in-home gaming much more popular. For a free-to-play game to be successful in the west, it will have to match the quality standards of pay-to-play games, which is obviously a huge gamble for developers to take – one that I don’t think many will be taking any time soon. We shall see, however, if games like Battlefield Heroes and Dungeons and Dragons Online provide successful models for Western developers to base new free-to-play games on.