Video Game Downloads May Eclipse Physical Format Sales

Sales of video games via downloads may surpass physical copies for the first time this holiday season, The New York Times reported Sunday.

However, games in physical formats continue to dominate sales overall.

“While it is clear that digital downloading is growing, according to NPD’s quarterly Games Market Dynamics report, we see that within consoles and portables, new physical software represented 67 percent of spending for the 12 months ending September 2015, with digital downloads and DLC representing the remaining 33 percent,” Liam Callahan, games industry analyst at theNPD Group, told the E-Commerce Times.

Video game software sales experienced a 7 percent decline, from US$1.07 billion in November 2014 to $993.9 million this year, NPD said. However, hardware sales were up by 2 percent from 2014 to $2.47 billion, driven by bundles and price cuts in Sony’s PlayStation 4 and Microsoft’s Xbox One.

That decline in sales, coupled with an increase in downloads, has hurt traditional brick-and-mortar retailers such asGameStop, which is one of the industry’s top video game sellers. It faced a bleak holiday that included disappointing earnings, and as a result the company saw its stock decline in November.

On the Download

Game publishers largely have driven the shift to downloads by offering downloads via their own services or through third-party services such as Steam.

As for the boom in reports of downloads overtaking physical copies, that could be chalked up to better accounting practices.

“Until recently, online downloads were largely undercounted,” said independent video game analystBilly Pidgeon.

“Now we are seeing that the companies are trying to report those sales more,” he told the E-Commerce Times.

“The company’s financial reports are really calling out these sales a lot more, and the industry is doing a much better job of tracking these online sales,” added Pidgeon.

However, gamers may head to the stores, if not for the games themselves then to make other purchases.

“The retail of download codes via prepaid cards, both for personal use and for gifting, can persist,” said Steve Bailey, senior analyst for games atIHS Technology.

“Physical special editions, with higher recommended retail price aimed at high-end appreciators of any given game, can find presence at physical retail,” he told the E-Commerce Times.

PC and Console Downloads

High-speed broadband and gaming services have become game changers for industry as well.

“In many ways, downloads are easier for people,” noted Pidgeon.

The services allow users not only to buy games but to see what games their friends are playing, and even buy games so that their friends can join them.

“PC games are almost entirely sold via download, and this is an extension of the streaming media culture of the PC,” Pidgeon said.

“This is now translating to the consoles, where games and add-on content can be so easily bought, and this combined is keeping people out of stores,” he added.

Future of Brick and Mortar

Despite these changes, it’s unlikely that physical video game shops will disappear, even if the industry continues to move toward downloads.

“Specialist retailers can still have a place in the gaming landscape, if they focus on providing customers with an expertly curated experience,” said IHS’ Bailey. “A chance to try out games directly in store, say, accompanied by hands-on help and advice from staff, can still have a place.”

In addition, physical shops could have continued merchandising opportunities, which is something retail has long been exploring. That could grow as the sphere of gaming expands and includes areas such as social video and eSports.

“There’s also what we call the ‘connected toys’ segment, such as Skylanders and Disney Infinity, where physical items interact with digital content. Once more, this remains strong potential touchpoint for retailers,” said Bailey

The Hard Truth

While online sales likely will remain strong as the devices become more complex, some gamers want to go to the store to try them out in person.

“Virtual reality is still emerging but is a space where retail could play a significant role,” suggested Bailey.

“If VR is to be effectively commercialized from a gaming standpoint, there’s an enormous amount of demoing and education that has to be offered to consumers, and retailers could become effective showrooms,” he added. “Apart from that, certain other physical roles are unlikely to fade — hardware needs to be sold.”