PSP World

Digital Distribution, Episodic Content Hurting Retailers

The party may soon be over for video game retailers, who have enjoyed a long run of profitability spurred by the growing popularity of gaming and second-hand game sales. In March, retail chain Blockbuster announced that it would be looking into restructuring options after posting a dismal quarter amid an economic recession. Other retailers have reported similar declines in revenue. But it isn’t just hard economic times that are eating away at video game retail profits. Changes in technology and distribution mean that there will soon be less opportunities for shops to turn over used games – long the bread and butter of the retail business in the United States.

Firstly, many publishers are looking at ways to reduce the incentive for gamers to sell their copy on once they’ve finished with it. Every used copy sold on ebay or through a retail store like Gamestop is a sale that the publisher never sees. The same goes for rentals, which are apparently so harmful to the games industry that some countries have outlawed the practice altogether. Rather than seeking to change the laws in the United States, many Western game developers have found a new tactic to cut down on used games and rental copies: downloadable content. Whether paid for or not, downloadable content ensures that game publishers will earn money for their work, while second-hand retailers are left out in the cold. If gamers know that their recent purchase is going to get new online content over the next six months, they are far less likely to sell the game on to someone else.

DLC is not the final nail in the coffin for video game retailers, however, since not all titles take advantage of online connectivity and episodic content. There is a much bigger storm brewing for retailers: the digital distribution business model.

Digital distribution may still be a ways off, but it strikes fear into the hearts of Gamestop managers and executives. Services like Xbox Live and the Playstation Network have already proven to be popular methods of downloading and paying for small, independently developed games. Every digital download that takes place over Xbox Marketplace is a potential sale that is lost to brick and mortar retail shops. What’s worse, these downloaded titles cannot be resold, further cutting into the lucrative second-hand game market. It’s not just the Xbox 360 and PS3 that are exploring digital distribution, either: the PSP can now access the Playstation Store directly, while the upcoming Nintendo DSi will offer a wireless download service as well.

Sony and Microsoft have tried to placate brick and mortar retailers by arguing that points cards can be sold for a profit in their stores. But their promises ring hollow, because these same points cards can be had online at places like Amazon, or even purchased directly through the online service of the console manufacturer. Soon, video game retailers might begin to resemble old record shops – kind of sad, tinged with nostalgia, and utterly deserted.