Digital distribution could eclipse retail channels

The digital distribution of games could redefi ne the retail market, upending traditional channels as software developers increasingly adopt a direct-to-consumer model, several industry representatives claim.

The digital distribution of games could redefine the retail market, upending traditional channels as software developers increasingly adopt a direct-to-consumer model, several industry representatives claim.

The comments follow the recent Digital Distribution Summit in Victoria, where Film Victoria announced it would provide $75,000 towards producing a game for digital downloading.

Games Developer Association of Australia (GDAA) president, Tom Crago, praised the initiative, but admitted it was another example of how software developers could bypass retail distribution. Although traditional retail is by far the most dominant sales method, Crago warned new gaming hardware units like the PSPGo, along with disruptive technology like the iPhone, allowed developers and publishers to access their target markets directly. Both the PSPGo and iPhone are download-only game consoles. Other significant consoles, such as the Nintendo Wii and DSi, the Xbox 360 and the PlayStation 3, also feature robust game download services. The ability to avoid retail, and its associated production costs, was an incentive for developers to take their products directly to download services, Crago claimed.

“Sometimes developers will partner with publishers to release a downloadable game,” he said. “This would typically happen where the publisher is funding development, and often where the game is based on a publisher-owned or licensed property. Of course, it is more likely that the developer will go straight to market, through something like Apple’s App Store.”

Consumer software distributor, Mindscape, which represents a number of vendors in the retail market including PopCap, Hoyle Games and Broderbund, is also expecting retail sales to be replaced by downloadable content. The company has noticed a small drop in packaged sales.

“It is expected in the long term that downloadable content will replace retail sales,” a Mindscape spokesperson said. However, retail was still robust, fuelled by casual game products, and online purchasing habits were propping up games sales in retail.

The spokesperson pointed to casual software vendor, PopCap, which moved into retail after starting as a digital direct developer, as an example. “People are also still buying the points credit to make online purchases through retail shops, rather than using their own credit cards online,” she claimed.

While agreeing a shift was on the horizon, Interactive Games and Entertainment Association (iGEA) CEO, Ron Curry, claimed the time when digital downloading would entirely replace retail purchases was a long way away.

“There’s a cultural resistance and lack of highspeed and reasonably priced broadband in Australia to contend with,” he said. “Something like the NBN will make digital distribution easier, but if you look at video and music – both are more available for digital download, and both do buoyant retail business.” ---P--- However, much like specialty music stores, which found it necessary to branch into other media such as DVDs, Curry warned games stores would need to redefine themselves as digital distribution became more prominent.

CEO for developer, Firemint, and Film Victoria board member, Rob Murray, said few of its games were available as boxed products, but claimed to still see viability in the business model.

“Both downloadable games and being able to purchase boxed products over the Internet are competing with bricks-and-mortar retail stores, but I think there are always opportunities for smart retailers and new models and approaches may emerge that support a balanced co-existence,” Murray said. He added the Victorian Government’s latest funding proposal was a reflection of the new opportunities opening up to developers, as well as the changing market.

“The role of publisher and developer will need to evolve a little to work effectively in the new downloadable ecosystem,” he claimed. “There is certainly a trend around the world for developers to self-publish, but it does mean that they need to take on new challenges, particularly in marketing their games.”

Recent statistics from GfK for the year to date showed growth in retail box sales across the video games category.

The analyst group doesn’t collect data on downloadable game sales.

“Retail sales are up eight per cent in value for the year to date in Australia, and up 12 per cent in New Zealand,” a GfK spokesperson said. “In a difficult economic environment, it’s a good sign.” Australia’s video games development industry is a significant one, employing around 2000 people and generating nearly $200 million in annual revenue.

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