Summary:

In the video game industry, power and money is moving away from high street retailers. But how will development studios adapt to an ecosystem of new platform power brokers?

FEZ

UK video games retailers made just £8.4 million ($13 million) from software sales last week – the lowest since records began, according to UKIE-GfK Chart-Track (via MCV).

Industry umbrella group TIGA is now warning its membership of games developers to be more proactive about digital distribution, seemingly in readiness for a total collapse in bricks-and-mortar sales of plastic discs.

The situation in which the video games industry finds itself will be familiar to anyone in the music and news publishing sectors before it – sales of physical games are lower than ever, and new online income streams, whilst booming, are not yet making up for the declines.

Reasons for physical’s drop-off are many:

  • Current consoles are at the end of their cycle.
  • Publishers pressed by spiralling budgets are reducing their release roster.
  • The economy is cutting discretionary spend.
  • Some of that spending is moving to online and mobile games.
  • Another local reason may be that Game Group, the UK’s leading games retailer, shut hundreds of stores this Spring to avoid meltdown.

“(We) believe that digital sales are having a major impact on physical sales and that developers can benefit hugely from the direct route to market,” TIGA says.

Xbox Live’s Arcade and Indie channels have pioneered online distribution for both independent and larger studios. Platforms like Xbox Live, PlayStation Network, Wii Store, iTunes Store, social networks Valve’s Steam and EA’s Origin threaten bricks-and-mortar stores, they appear to have little place left on-deck.

But that doesn’t mean games developers are totally free to push out through the new platforms. Just as with discs, studios still have gatekeepers to go through.TIGA board member Patrick O’Luanaigh says:

“Surely it is now time for retail publishers with their huge marketing experience to find a new way of working with independent studios with strong digital talent.

“The old model where publishers owned all the IP and offered ‘net of everything’ royalties can’t work anymore.”

For TIGA, a market to emulate may lay in the States. There, physical console and PC game sales fell to $1.5 billion in Q1 this year, according to NPD Group. But sales of used and rental games fell by only five percent to $525 million, whilst digital sales of games, add-on content, subscriptions, mobile and social games grew 10 percent to $1.38 billion.

That means digital game sales are 40 percent of the U.S. total.

The whole situation is ironically encapsulated in one of the most popular independent console games, Trials Evolution, in which a motocross rider negotiates swooping roller-coasters and often free-falls from cliffs to his death but who, when he executes successfully, manages to make the jump and ride on to the finish line.

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