Game: How Not to Survive a Digital Transition

It has been an eventful week for the UK Games industry with leading national retailer Game first suspending trading in its shares and then calling in the administrators.  Yet this morning the Electronic Retailers Association announced that Games have just become the largest UK entertainment sales category.  So how can these apparently contradictory dynamics co-exist?  The answer lies in the success of Games as a digital product, or rather series of digital products.

It is Gaming Channel Strategy that Is Undergoing the Digital Transition

The modern day games industry has always effectively been a digital, or at least electronic, business, selling software than exists only in digital contexts.  What has changed since the first Magnavox Odyssey video game console in 1972 is that the channel strategy has become ‘digitized’.  In the console arena, online marketplaces allow gamers to download directly to their consoles, in the PC space retailers such as Steam enable games to download directly to their computers and in the mobile and tablet space, well they’ve been digital from the start.  Thus we have the global Games market with the largest digital transition of any entertainments sector: 39% compared to 29% for music and 4% for newspapers according to PWC.

The more digital the UK Games market became, the more exposed Game became.  With 300 stores across the UK, Game is to UK Games sales what HMV is to UK music sales, in more ways than one:

  • It has a dominant high street footprint
  • Its core market of physical buyers is shrinking
  • It faces fierce digital competition on multiple fronts
  • It lacks the device ecosystem of many of those new competitors
  • It hasn’t translated its physical dominance digitally

The Games Industry is a Digital Transition Best Practice

There are also some telling differences between games and music:

  • Unlike music, the game industry’s physical customers are not analaogue hold outs. A large portion of physical music buyers, the Digital Refusniks are often older and do not tend to be very technology minded or web-literate.  Physical games buyers however are quite the opposite.  Gaming is a technology centred activity and many of those gamers who still buy physically are younger, pre-credit card age Gamers.  Thus while the music industry frets about how to persuade the Digital Refusniks to embrace something alien to them, the physical games buyers will naturally transition to digital.
  • Digital opens up new gaming audiences in a manner music companies would dream of. Whereas digital has largely transitioned the music industry’s most valuable existing customers, digital is opening up new markets and customers for games.  The average profile of an online social gamer is an early 40’s woman.  Not exactly your core xBoxer.  Similarly mobile app stores are bringing whole new swathes of consumers into the gaming market.

Digital is a success story for the Games Industry.  The struggles of Game are a reflection of the company’s inability to construct a long term and effective digital strategy, not of the state of the games industry.  The future is bright, the future is digital, for the industry if not the high street retailers.

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4 thoughts on “Game: How Not to Survive a Digital Transition

  1. Interesting piece Mark.

    If this turns out to be true then that axe is going to swing even faster….

    http://www.techradar.com/news/gaming/consoles/next-xbox-could-come-without-a-disc-drive-1069865

    I personally doubt many gamers will mourn the death of retail in the gaming space and its likely that the developers, many of whom are known to dislike the ‘pre-owned’ service many stores offer (and Game excelled at) will champion this transition to digital.

    Combine that with the fact that download speeds are increasing as fibre optic is being rolled out nationwide and its hard to see retail games sales lasting much longer.

  2. Good analogy…

    The thing is, as much as these two industries are facing similar challenges and going down similar gateways (digital replacing analog), at the end of the day, those are completely different products. Console makes all the difference with gaming, whereas with music, you can listen to that anywhere. Gaming is a full sensory stimulation experience and requires your entire focus, while music for many is something you multi-task along to.

    Further, games take too long to download and files are too large. You will have to pay for physical space for you game anyway, especially if you are looking to play on your favorite console. With digital music, it makes no difference what device you are listening to the track on, its gonna be the same track, which is mere megabytes compared to fully developed xbox style games.

    That being said, your point “Digital opens up new gaming audiences in a manner music companies would dream of.” makes perfect sense. The industry has such a solid base though, that anything you add to that will be extra and not a replacement. With music, almost everyone listens to music so there is no “untapped” market to speak of here, just untapped mediums maybe.

  3. Pingback: Game: How Not to Survive a Digital Transition

  4. No doubt, gaming is tailor made for the digital age. The gamin experience depends upon the functionality of the device. As technology evolves so does the gaming experience e.g touch screen smartphone gaming, motion sensing console gaming. As you rightly pointed out, music doesn’t evolve as technology evolves, except in the delivery mechanism e.g. downloads, streams, cached streams, remote lockers. The actual music experience has remained static. Music needs to heed lessons from games and look at how it can leverage new technology enabled usage paradigms to create new products (as I laid out in my music format bill of rights here http://musicindustryblog.wordpress.com/2012/01/23/the-music-format-bill-of-rights/ ).

    As for the disc drive disappearing on the xBox, that is of course an inevitability as a market level trend. There is strong incentive for Msft to accelerate the trend as it will result in forcing more of the xBox users’ behaviour within the xBox Live environment.

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