Shift Towards Digital Game Downloads Continues
From video games to books, the continuing shift towards digital consumption raises questions about the future of packaged media products. In the games industry, there is a widely held belief that packaged video games sales reached their peak in 2008, and are now set to decline as digital downloads take a more dominant position.
While digital is not a new trend, remembering that Napster and peer-to-peer file sharing brought digital downloads more than a decade ago, it’s taken much longer to impact retail sales of video games. PC games first went digital thanks to Steam, with console games only following in the last 3 years. As a consequence the US$3.5 billion worth of video games purchased through digital distribution platforms in 2011 represented just 10% of all video game software sales, compared to 32% of digital revenues in the music industry. That said, it is still enough to push the likes of Game Group and HMW into troubled waters. A conservative scenario, on the basis of the current pace of growth, suggests digital game downloads will reach US$8.6 million globally by 2016. However, launches of next generation consoles are likely to accelerate that pace significantly.
The balance of power between manufacturer/publisher and retailer is also shifting in the process, spelling bad news for traditional retailers who do not respond. Microsoft and Sony have been actively promoting video game purchases directly through Xbox Live Arcade and PlayStation Network respectively, bypassing the need to visit a retailer entirely. Their next generation consoles are likely to push in this direction even more, potentially even removing the optical media functionality all together. As for PC games, publishers are also putting more emphasis on digital downloads, with Electronic Arts opening its Origin store in 2011 and Activision Blizzard selling more games through its Battle.net platform.
Looking forward, streaming services, such as Netflix or Onlive, are set to further revolutionize the way media is consumed. Right now such services are not yet available ‘out-of-the-box’ in the TVs, but they are certain to be integrated into televisions in the future. Sony has confirmed the acquisition of the cloud gaming firm Gaikai for US$380 million in July 2011, suggesting the possibility game streaming services may be integrated into future Sony televisions sooner than later. And Apple and Google are also looking to launch their TV ranges running on the iOS and Android operating systems, supporting a wide range of media content including games.
The potential of multi-functional entertainment TVs, with game streaming and multimedia, could pose a serious threat to consoles themselves in the long term as convergence gives pre-eminence to content and service over hardware.
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