PSP World

Retailers Aren't Only Ones Hurting from Digital Downloads

The new PSP Go and Nintendo DSi both offer customers the ability to download retail games directly to the device, without ever having to go to a shop. Needless to say, many retailers have reacted with considerable caution to this new direction the video game industry will take in coming years. Manufacturers like Sony and Nintendo stand to make a lot of money through these payment systems (essentially recouping all of the profit that used to be lost to retail middlemen). At the moment, they are bending over backwards to extend an olive branch to worried retailers, since they must still sell their hardware in brick-and-mortar shops. A recent example is the news that Amazon will carry download "tokens" for PSN games the same way it does for Xbox Live Arcade points. Despite these awkward arrangements, some retail outlets have already begun to take offensive measures against digital downloads, with the noteworthy case of a Dutch shop that refuses to carry the PSP Go. Even if points cards continue to placate some shops in the short term, it is hard to imagine a world in which games are sold on physical media say, five years in the future.

But retailers aren't the only ones in peril from digital downloads. Many businesses from rental shops to the gaming press stand to lose from the advent of digital-only distribution. When games are sold directly through the console to the consumer, there is very little opportunity for people outside of that circuit to benefit from the transaction. Manufacturers like Microsoft and Sony can even advertise new downloadable games directly through the dashboard of their consoles, or through their corporate blogs. The question then becomes, how does the enthusiast press continue to make a living?

For an example of how digital downloads will hurt the gaming press, look no further than your current browser window. This website is part of a network of blogs called the Gameflavor Network. We currently earn a modest revenue that enables us to pay for site improvements, attend gaming events, and the like. Most of our income is generated by the banner ads you see sprinkled around the site. But a significant portion of our revenue (around 30%) comes from commissions we earn on video game sales with places like Best Buy and Amazon. In articles about particularly popular games, we will often place a 'buy it now' link to the order page on Amazon. If a reader buys the game, we earn a 6% commission on the sale. We also earn money from subscriptions to game trading services, rental outlets and disk-cleaning accessory shops, all of them revenue streams that will no longer exist if the console manufacturer dream of all-digital distribution comes to pass. In the past, game rental places like Gamefly have been consistent advertisers, because they make a good profit by offering a service customers appreciate. Word is that Sony is working on its own digital rental service for the PSP Go, and they won't need to advertise or pay commissions. A world in which there are literally no more physical game purchases is a scary one for us to contemplate.

Would the gaming 'press' exist if we couldn't get paid? Undoubtedly there would be many amateur blogs willing to spring into action and do our work for free. However, the recent demise of quality publications like EGM and the 1Up Podcast shows that professional game journalists are finding it hard to make a living in the current economic climate. Things will only get worse for press outlets and retailers in the future, with digital downloads pulling even more money out of circulation. What is the incentive for writing about an Xbox Live Arcade game, if you can recommend it to readers but not benefit from the sale? That could be the reason why there aren't many dedicated XBLA news sites. If every single video game was sold via download, what would happen to popular sites like N4G, Joystiq and Kotaku, who rely heavily on sales commission and retail advertising?

A reader might accuse us of being curmudgeons and suggest that our complaints are nothing more than sour grapes. After all, technology changes regularly, and there ain't much any of us can do about it. As publishers, we will have to adapt and change to meet the challenging new circumstances of digital downloads. However, we do so with eyes wide open, understanding that the current 'points card' compromise is nothing more than a temporary fix on a path to total retail obsolescence. Video game journalists and Gamestop managers might both find themselves in the same boat sooner than either would like to believe.

You can almost hear the sound of tumbleweeds.