Thursday, December 15, 2011

Digitized Future: How Digital Content is Helping and Hurting the Video Game Industry

By Ryan Fitzsimmons

In the past 10 years or so, physical media has been digitized at a rapid pace.

It started with the music industry, as downloadable music made the iPod a huge success, and made CDs increasingly irrelevant. In the past few years, devices like Amazon’s Kindle and Barnes and Noble’s Nook have freed literature from physical books, where it seemed forever bound. While digitalization has made distribution and availability of media easier and has updated antiquated mediums, it also has its share of problems, especially for small businesses trying to keep up with media devices increasingly digitized and sold online.

Video games, for instance, are an entertainment medium that has exploded in popularity over the last decade. While originally attracting underground followings, the third quarter of 2011 alone has seen several games sell over one million copies, which is a measure of success in the video game world. Despite these great successes, the debate over digital content is causing rifts over the future of the industry.

A large part of the growth of the video game industry is directly related to digital content. At the 2011 London Games Conference, 23 percent of game developers believed that by 2013, digital sales would surpass physical game sales. In this current generation of consoles (beginning in 2006 and including the Xbox 360 and Playstation 3), online functionality has blossomed thanks to services like Xbox Live (XBL) and the Playstation Network (PSN). Even on personal computers (PC), services like Steam, which offer a direct means of downloading games, have seen a surge in popularity, as sales have risen 200 percent between 2009 and 2010. These services not only connect players by offering online multiplayer and an easy means of communication, but also create an environment where it is easy for independent game developers to release low budget titles and for larger developers to release and expand their games in a cost effective way.

Games cost a fair amount of money to make. This, unfortunately, makes them a somewhat risky proposition for new developers. Before this most recent generation of games, new developers often put themselves on the line economically by making new games. The success (or lack thereof) of a game could lead to a boom or bust for a developer. One of the major costs of game development is having a set number of discs created. Since developers have to create a rough estimate of how well their game will sell, they must make a large number of game discs to ship to sales outlets. If a game doesn’t sell well, they are not being reimbursed for their extra product, resulting in financial losses.

Digital Games Cut Costs

With the success of XBL and PSN, however, developers can avoid this cost. By creating games for digital distribution only, developers get around paying for discs and don’t have to create an estimate on how well their game will sell. Also, since consumers don’t have to purchase a physical copy of a game, the cost to them is less as well, allowing for buyers to take a chance on a game they might not have bought if it had been full price.

The role of downloadable content (DLC) in this current console generation also can’t be understated. Just a few years ago, once a game was ready for retail, that was the final product. Only PC games received a possibility of getting an expansion pack, which would take time to be released and were oftentimes only slightly less expensive than the original games. Now however, a game can receive periodic updates through new content and patches that may fix any of the game’s issues. While DLC often costs consumers between five and fifteen dollars, it potentially increases the longevity of a game exponentially.

Digital distribution is not well received by everyone in the game community, however.

Among the biggest powers in the video gaming industry are the retailers who sell physical copies of games. Gamestop, the largest of these corporations, thrives from the release of bonus content for pre-ordering games and through the selling and trading of used games, the latter practice requiring a physical copy. Although used game sales have gone up 12 percent in the past year for Gamestop, the chain reports that its largest growth is in digital content sales, which increased 69 percent from last year. Because of this, Gamestop is finding more ways to thrust themselves into the digital market.

While Gamestop has managed to adapt its business model to the changing game market, many smaller stores cannot. Times are already tough for small businesses, and independent game stores are no different. Many small stores cannot compete with corporations like Gamestop in offering exclusive content for big games, so they frequently offer deals that reduce game prices. With digital media, however, games are already slightly less expensive and can be downloaded from the comfort of one’s home. Add to this the expanding availability of exclusive content on Steam, XBL and PSN, and brick and mortar stores seem to be facing a difficult road ahead of them.

Needless to say, the future of video gaming will be found in the digital realm. While physical media will in all likelihood continue to exist, it’s quickly becoming the minority to an ever-expanding digital market. While this may be for the best when it comes to lowering risk and raising profits for game developers, retailers have to evolve to meet this challenge. Corporations like Gamestop are showing that it is possible, but small businesses will ultimately take the hit. Already disadvantaged, this could be the end of independently owned brick and mortar stores in yet another modern industry.

For Further Information:
Cork, Jeff. "When Do You Think Digital Will Eclipse Retail Sales?" 07 Nov. 2011..
Sinclair, Brendan. "GameStop Sales, Profits Sink by Millions." Video Games, Video Game Reviews - GameSpot. 18 Aug. 2011..;title;4.
Magrino, Tom. "30 Million Steam-ed ." Video Games, Video Game Reviews - GameSpot. 18 Oct. 2010..;title;3.

Ryan Fitzsimmons is an Honors student at St. Thomas Aquinas College. He is currently a junior and is majoring in History. Ryan wishes to pursue a career in journalism upon his graduation.

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