Key Facts Behind Game Publishers’ Drive to Digital

The upcoming boxed Grand Theft Auto V will contain a collectible and a download code. No disc. That is what I think. Or will we need to wait until GTA VI? What does fresh market data tell us about the current publishers’ push to go digital? There are a lot of reasons why publishers are pushing towards digital distribution of triple A games.

Speaking out loud might harm the relationship with retail partners, but the benefits have become too large to remain silent about the desire to go completely digital. The ultimate objective being to launch games faster, create continuous revenues on a title and simply to make more money. Will retail disappear from the picture? Of course not. Retail will always remain an important channel to promote and distribute games. Retail has a strong hand to play when it comes to eyeballs and… boxes make a nice gift. Boxed games will not disappear, but what is in the box will. That is why the boxed GTA V version will contain a collectible piece of merchandise and a download code. No disc.

Three reasons why going digital will accelerate even more in the coming twelve months, including some key facts: (Full report can be downloaded here )

1.       Free-Riders: Only 44% of US console gamers ever spends money on Console Games.

What many publishers, and sales tracking research companies alike, do not talk about often is that consoles already show the same characteristic as free-to-play MMO, social and mobile games, when it comes to people actually spending money on games. Of the 82M Americans that state to play console games, only 36M spends money doing so. Even after the broad uptake of free-to-play MMOs, the share of 52 million American MMO gamers spending money is 43%, just slightly behind console gaming. Mobile and social gaming are lower  with 36% and 25% but still… the difference is not that big. Boxed games are often actively shared within families or groups of friends and “if you buy Battlefield 3, I will buy.

2.       Pre-owned: 23% of console and boxed PC/Mac games budget goes to pre-owned trading

85% of all American PC/Mac and console gamers in the US also buys games second-hand. 25% states to spend at least half of its budget on second-hand games. Only France scores higher. We estimate the total pre-owned market to be worth about $2.2bn in the US, including consumer-to-consumer trade. Publishers see no kickback for this. For retail, selling second-hand games can be more profitbale than selling new boxed games, putting even more pressure on the publisher-retail relationship. Digital distribution does away with all of this.

3.       DLC: Americans will spend $950 million in 2011 on game and add-on content downloads

A few months ago, Activision announced that they sold over $180 million worth of Map Packs for their Call of Duty franchise. Spending on downloaded PC/Mac games has already surpassed boxed sales end 2010 in the US. When it comes to consoles, DLC already accounts for 12% of total spending (including pre-owned and import) or an estimated $950 million this year for all consoles combined. Part of this goes to full game downloads but an increasing share goes to smaller games and add-on content exclusively available by download. And do not forget there are game developers out there making a living from selling virtual pets and other nifty items in PS Home’s virtual world. Publishers are growing in confidence because of this success and stand stronger in their negotiations with retail.

In the US, retailers have seen this coming and are dedicating more and more floorspace to digital content. Europe is way behind on this and might never go as far as the US for the same reason that the majority of wine bottles sold in Europe still have corks instead of a screw-top.

Of course there are many other topics that play a role. The fact that games are transforming from products to services being the overall driver of change.

We created a Topic Report on DLC, Pre-owned and digital distribution. Our Topic Reports take a trend as starting point and give insight across topics and countries. When it comes to a topic like Console DLC, we believe it is key to include Pre-Owned, PC/Mac digital distribution and Players vs Payers in the discussion.

This brief report aims to provide a comprehensive overview of the key factors behind the current drive of game publishers towards digital distribution of content and full games. As digital business models are per definition international, we will look at the US and key EU territories .

Download the full report (PDF) here: