Friday, October 7, 2011

Physical distributors of new video games are beginning to feel some major heat

The gaming industry is truly changing, and we are in the midst of a major transformation. Revenues from last quarter from digital distribution (the combination of digital purchases, subscriptions, downloadable content, social network and mobile games) surpassed those of physical distributors for the first time, to the tune of $1.74bn vs. $1.44bn. And this is only the tip of the iceberg. Digital distribution, serving information goods, all have less variable costs and thus higher margins.

Gaming might be the second canary in the brick & mortar coal mine -- after music. Soon we will see digital distribution overtaking retail in many other areas as well: movies, books, and online shopping in general seem ripe to have their digital distributions overtake the analog counterparts.


1 comment:

  1. This is an interesting trend that I'm also tracking. Brick and mortar stores are also becoming really successful with used games sales and as I mentioned in our other post, developers and console manufacturers are not receiving any of this revenue. One example is the PS3 exclusive Heavy Rain, a widely acclaimed title from the development studio Quantic Dream. They estimated that they lost nearly $13 million in revenue when consumers bought a used copy of the game from brick and mortar retailers.

    Looking forward, what incentive do publishers and developers have to continue to make disc-based games?