On the night of the November 14 2002, the video game world changed forever. This single night was responsible for leading a new generation of video game players into a dimension rarely seen in the past. The concept of online gaming through in home video game consoles had been used for several years but never assimilated into the everyday minds of the general video gaming audience. The select gamers who took a chance on the wild card game console by Microsoft, called The Xbox, began shaping the new future of the video game industry for years to come. That night Microsoft launched Xbox Live. In his historical review of the launch of the Xbox Live services for Polygon, Russ Pitts explained that Bill Gates (then CEO of Microsoft), “loved the concept” of an internet-connected game console. He completely understood what taking a box online would mean for gamers and for the future of Microsoft. In 2002, taking a chance with online gaming was a huge risk for Microsoft, but would pay off huge; not only for the company, but for the video game industry.
Early Online Gaming Through Consoles
Since 1982, online gaming has been a part of home consoles, with the launch of CVC GameLine on the Atari 2600. However, it wasn’t until 2002 that this game format was able to connect to the mainstream audience. The first console with online services to come closest to reaching the mainstream audience was the Sega Dreamcast. The Dreamcast which is still looked fondly upon by gamers, connected to a dial-up internet service operated by Sega. All Dreamcast game servers then connected directly into SegaNet’s network.
Before the launch of Xbox Live in 2002, the majority of console, gamers played either alone in their homes or in multiplayer matches against friends or family sitting in the room with them. Other gamers sitting next to you was the reality of playing any game with others The concept of someone playing along side you sitting in another living room on the other side of the world, would have just not have occurred to gamers. Along with Xbox Live, Microsoft also provided gamers with Xbox Live Arcade. The Live Arcade allowed developers to create and sell video games to the general market by providing them a digital copy downloaded to their gaming console. The early years of Xbox Live would again open the doors for other consoles to start selling digital content to their fans through their Internet connection. Fast-forward to today and the digital version of video games have firmly established themselves in the gaming world by increasing their share of the video game sales market.
The Rise of the Digital Age
In 1991, Philips released the CD-i which WAS the first home gaming console to offer a CD-ROM drive. Since then, all major console manufacturers have switched to CD-ROM, DVD-ROM, or BD-ROM because of the ability to store larger file sizes and the ease of reproduction. The last main console to offer a cartridge was the Nintendo N64. The N64 saw some of the highest prices for games ever listed in the industry. On average the cartridges cost $70 when first released. If you take into account inflation, these games would cost on average $100 today.
Over the last six years the digital sales of video games have increased from 20% of all sales to 52% of all game sales. This increase in digital sales led Activision CEO Bobby Kotick to inform his investors that “Digital Revenues at All-Time High, Representing 46% of Full Year Non-GAAP Revenues.” This growth of video game sales has led many of the individuals running the independent used video game market to ask the question “is there room for us?”
The majority of stock supplied to the independent market is obtained by customers selling pre-owned games to a business so the customer may purchase additional titles. In 2009, only 20% of revenue made from video games came from digital sales. These numbers didn’t threaten the independent game store market. However, today, with over 50% of video game sales being dominated by the digital game form, retailers who bring billions of dollars in each year from used video games have become scared of the continuing growth of digital games. Reviewing GameStop’s revenue breakdown in 2014 only 2.3% of all sales came from digital content.
To combat the loss of used titles in the marketplace, GameStop has started taking a proactive approach to increasing their digital content sales by making partnerships with the major console companies to provide GameStop specific digital content to their customers who purchase season passes for specific games or pre-order upcoming games through their stores. GameStop is also looking for ways to create a used digital game marketplace. GameStop first mentioned in 2012 a desire to look for ways to sell used digital video game codes and it again has made it into the news recently.
As of now, GameStop is still discussing this concept but to make it a reality it would have to form a partnership with all of the digital store fronts. This may be a big pipe dream for them unless they can form a happy digital family online between rival companies. Even with the inability to sell used digital video games to their customers right now, GameStop is aggressively searching for a bigger footprint in the digital marketplace. The future of the digital sales for the business looks so promising to the company that the CEO, Paul Raines, stated that digital games will be a “$1 billion dollar business” for GameStop in 2015.
An Audience divided
Not all video game retailers fear the increase of digital sales in the video game world. According to a survey conducted by GameStop and Survata, close to 92% of people have physical games that they own that they do not play. In an interview with several video game players, the overall consonance is currently digital games do not offer the same incentives as owning a physical copy of a game. Long time video gamer Lincoln Stanley, of Columbus, Ohio, believes that physical games are still a better value because of the trade in value. Another long time gamer Jim Smith, of Bowling Green, Kentucky, believes that physical games are still the way to go unless they create creative marketing deals on the newest released games. Jim believes that we would need to see early access deals along with large discounts to keep himself and other gamers from moving completely to the digital games. Lincoln doesn’t agree completely with this, but instead believes that if a game offers “Replay ability plus a lower price and it might be different.”
Caleb Sanders, local independent video game retailer in Hopkinsville, Kentucky, feels that people are making the switch to digital copies slowly because of how easy it is to acquire digital games and how it removes clutter from their lives. Mother of four video gamers, Crystal Richards also loves the idea of digital video games. “I’m not a gamer,” Crystal stated, “and I don’t enjoy cleaning up video game disc all over my house. We almost always have lost the disc to whatever game my son wants to play during his weekly playtime.” She would continue, “Having the games saved on the Xbox, we don’t lose the disc any longer and don’t have to replace it.” Megan Bomba, of Blacklick, Ohio, agreed with Crystal’s thoughts on the digital games and believes that “(as) a parent who buys this…digital for sure. Cheap, fast (and) available.”
The strength of the used video game market continued to grow based on new systems released in the past. With each new generation of video game console released to the general public another “classic” system goes into high demand because of the inability to play the games any longer. This same resurgence has allowed music stores to survive after vinyl records once again became trendy in different parts of the music community. These seasons of resurgence will allow video game stores that are able to keep vintage consoles in stock to survive long into the digital age, while those that are unable to meet the supply needs of the community will see their doors slowly close over time.
Digital Content is Here Now not in the Future
When you review the industry numbers for 2014, it is impossible for local independent video game retailers to think that digital game sales is a fad that will go away after a few years. The video game industry has finally taken the turn that the music industry started when Apple launched the iTunes store, and the retail movie industry felt when Netflix and Amazon started their streaming services.
This Independent Video game retailers have to review options for them to reach into the digital marketplace like GameStop is currently researching. GameStop doesn’t have a solid foot in the digital gaming industry, but if video game retailers do not follow similar business models as GameStop is putting into place, they will quickly find themselves closing their doors permanently.