Will Physical Game stores follow the route of Blockbuster? (Part 1)

Hello everyone!  I read a pretty cool article about an interview with GameStop CEO, Paul Raines. It made me think of physical game stores and how they surviving or going to survive in a market where people buy games from online retailers and download them straight to their computers. If anyone bought the physical disk of Metal Gear Solid V, the disk only had an install for the steam download client. No actual game.

I wanted to talk about this article on the show, however it is quite a bit to digest. So I thought I would break it down in a blog post to help understand it myself and to talk about some of the things I found interesting.

So lets begin:

“We’re trying to drive an internal rate change that’s faster than the world around us,” says CEO Paul Raines. “We have a pretty healthy digital business, which includes downloadable content (DLC) for PC and console games, full game downloads, Steam points cards and currencies, and casual games site Kongregate’s online and mobile games sales. We see that as a $1 billion business this year.”

My first question is about downloading from the GameStop website to a gaming console. I did some digging, put the shovel away, and then started googling how this worked. After looking a few forums I found some interesting tidbits. When you purchase a game for a console from GameStop online they just give you a code to redeem on your consoles market place. It makes me wonder why people even go through the middle man in the first place? After some more snooping around I found out that PC downloads work the same way. You purchase the game through the GameStop market place and they email you a code for popular download clients. (Steam, Origin, etc.). Which is weird. It seems they are making themselves a middle man. Including game currencies, which anyone can buy from their preferred market place. Ill I can conclude from this paragraph is that GameStop is making money from being a middle man.

Digital sales accounted for $948 million of GameStop’s $9.3 billion in revenue in 2014. The retailer owned an estimated 42% share of the downloadable games market last year.

 First of all, $948 million from digital sales does sound pretty impressive but I did the math. With a total revenue of $9.3 billion in 2014 that means digital sales only took up 9.8% of total revenue. That means that GameStop still  relies on physical sales for about 90% of their sales. Assuming of course that “digital sales” includes all digital sales and not just game sales. With 90% of sales still requiring physical sales i’d say that GameStop is still very reliant on physical stores.

The video game industry is relying more on digital sales with $11.1 billion of the global video game business’s estimated 2015 revenues of $82.5 billion coming from that market, according to SuperData Research CEO Joost van Dreunen. But Raines says one of GameStop’s old sales standbys isn’t going anywhere.

Ok, this article kind of surprised me. With more consoles pushing digital downloads it surprises me that digital sales make up only 13.5% of gaming sales. I can think that some people just prefer doing to stores. They have a gaming atmosphere, people you can talk to, or even browsing. Another reason I can think of is people may not have the internet speeds required for this, or may be held back by bandwidth caps. Hold up… just got an idea. Bare with me.

Most people who play video games are probably young. Most young people probably don’t have access to a steady supply of income. So when they want to buy a game, they have to go with their parents. Who then take them to a physical store. Unless the parent play’s games or has experience with games the most likely stop for them is a physical store.

“Disc-based games will be around forever,” he says. “The market has seen physical music sales down 50% from its peak and physical movie sales down 60% from its peak, but even in a doomsday scenario, disc-based games will be around for a long time. I see a complimentary business where we sell discs plus download like the current console mode. Virtual reality games will also likely follow this model.”

Ok, I have to agree with him. Physical disks will be around forever. However, I probably don’t mean in the same way. There will always be people out there or want the physical collectors copy of a game. But why go to a physical game store? Just order it from game developers website? Heck, even Amazon. He seems pretty optimistic. If two other mediums followed that path why wouldn’t games go the same way?

~Mike

The interview article: here

Forum on how Digital GameStop download works: here

Article on how PC downloads work: here

One response to “Will Physical Game stores follow the route of Blockbuster? (Part 1)

  1. Pingback: Will Physical Game stores follow the route of Blockbuster? (Part 2) | Bluecow Radio

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