Tobold's Blog
Thursday, August 25, 2011
Video game stores are dying

It is surprising easy to spot dying industries: There appears to be an universal law that forces them to get increasingly nasty in their fight for survival on their way down. Thus this week's news that Gamestop is stealing OnLive coupons from boxes of Deus Ex: Human Revolution to "not promote the competition" isn't all that surprising.

Like everybody else I used to buy my video games in stores like Gamestop. Over the years that experience turned worse and worse: The selection of PC games available got worse every year, and it was rare to meet an employee who could give you better advice on what game to buy than what you could have learned from 5 minutes with Google. Boxed games further suffered from the interaction between game companies and pirates, both of which I hold responsible for the evolution of DRM systems which mainly inconvenience legal buyers. These days I buy nearly all my games on Steam.

The only reason video games stores aren't dead yet is that consoles are lagging the PC in digital distribution. But that is really just a question of time. There are already handheld consoles which can't use any physical media at all any more, and services like XBox Live and Playstation Network are growing, despite this year's problems with hackers.

As gamers are getting older and richer, being able to resell a game or copy it for your friends is becoming less of a priority when deciding what game to buy and how. There was always a large group of gamers which just bought games for themselves, without ever making them available to other people through reselling or piracy. In many markets broadband internet is so widespread now that digital distribution simply has more advantages than disadvantages for the majority of possible customers. So why bother leaving the house, going to a shop that might not have a copy of the game you want to buy, and being limited to a selection of the latest best-sellers?

Apart from digital distribution being more practical for many consumers, there are also financial aspects. Digital distribution is clearly cheaper than retail distribution. Thus either more money goes to the game developers, or games become cheaper, or a mix of both. Actually games already ARE cheaper, by a significant amount, if you look at all games, and not just the best-selling games' prices on release day. Good prices come to people who wait, either for Steam sales or permanent price reductions. Rift now is available for $4.99 (albeit without the usual 30 free days, thus effectively the price is $19.99). And unlike video game stores, these lower prices for older games have unlimited availability, no more searching of bargain bins in vain for a cheap game. Furthermore digital distribution platforms have more indie and low-budget games than video game stores, there are a lot of excellent games under $20 on Steam.

Gamestop opening boxes of games to remove coupons for online services isn't going to change all this. The business model of selling video games in a box is clearly on its way out.
One of the more underrated aspects of buying boxed games too is that more and more often, the experience of buying that box and what you get for it sucks. Not just the "I gotta stand in line aspect of it, but what you actually get in the box.

For example, I still have my manuals for Diablo I, II, LoD, Starcraft, and Warcraft I, II, ToD, and War3. Those manuals were works of art, man. The Diablo manuals came with some very dark poetry by Metzen, tons of detail, ominous quotes in the margins of various pages, full descriptions of the fiends of the Three Prime Evils, they were an absolute wealth of information, put together in a very cool package. Same with the old Warcraft manuals, or the first Starcraft.

Now, these things don't exist. When I bought SC2, I intellectually doubted that it would be in there, but I was still hoping to get a manual just as cool as the one I still had from the original Starcraft. When there wasn't a manual in there, I was pretty damned disappointed. As special little pieces like that disappear, its just one more reason not to bother with buying a box.
With Cata I looked at the option of the digital download version (if I remember correctly it was at least £25 if not £30 for the digital version) against the £18 I paid to get the boxed version from Amazon.

Call me tight, but I bought the box - if Amazon can sell it for less than the Blizzard online version, then they will continue to receive my business.

To be honest, the online price smacks of blatant profiteering
That's one reason why i love CD Project, and why i preordered The Witcher 2 pretty much as soon as possible: They actually make the box an experience again!

Just look at what you get in the NORMAL edition:
(*)Manual (and as you said yourself, even that isn't a given anymore)
(*)Strategy guide (You know, one of those huge books they normally sell for half the price of a normal game? +this one was wellwritten, had a nice layout, and was actually useful!)
(*)"Swag" (Paper map, RL version of the ingame coins, RL version of an ingame Pamphlet and 2 papercraft figures to pass the installation time)
(*) And last but not least, a "making off" double dvd, with dev. interviews and what have you

That list seem familiar? thats what most companies sell as a "collectors edition" nowadays...

Ugh, at least someone still knows how to please the customers.
I have bought several games via digital download over the years but sadly on our wireless high speed connection 10 minutes out of town the download time is not measured in minutes or a few hours but rather several hours. If I start the download in the morning I might be able to play the game that night. Maybe.
"... it was rare to meet an employee who could give you better advice on what game to buy than what you could have learned from 5 minutes with Google."

This is one of the biggest challenges facing ALL of retail, not just games, and one of the things the retail establishment is at once most capable of fixing and yet least likely to resolve.

6 years ago, Circuit City fired 3500 of their oldest, most long-term (and consequently, best-paid) employees. The negative impacts were felt almost immediately:

Of course, we all know where CC is today.

I don't have links to the studies on hand, but consumers are doing tons of research online before going in to shop, in part because retail establishments are hiring the lowest-skilled, lowest-paid, lowest-quality people they can to staff their stores. Sales staff budgets have been trimmed to boost the bottom line, at the expense of long-term viability for retail.

There's no interest in educating the consumer - and as a result, consumers are educating themselves and going in with more knowlege than the people they're buying from. This ultimately devalues the retail establishment, and leads to an attitude of "why make the trip down to Gamestop/Best Buy/Sears/wherever when I can buy it on Amazon for 15% less?"

Even large appliances are being bought online through discount outlets rather than in person at Sears or JC Penny or Home Depot or wherever, because the kids behind the counter have such limited knowlege about the products they're hawking.

Consumers have been FORCED to do more of their own research by companies that aren't willing to hire people who can educate their customers, which has contributed to falling revenues and profits, and sales lost to online retailers.

DISCLAIMER: I am a sales professional (formerly B2C retail, now B2B software), and I'm constantly disgusted by what passes for "sales" at a retail level.
Its no wonder brick and mortar stores are dying. While looking for a copy of Duse Ex I called around to 7 stores before I found a copy. This is in a capital city of over 1 million residents.

It turns out the copy I got had to be registered with Steam to unlock the bonus material. So why not buy it on Steam in the fist place and save the frustration of calling and driving around when I can sit and let it download.
I still have my Master of Magic game books. Those were the days. So I'll echo Joe and Jondare: If box sales were still like that, I'd probably buy more. As it is, I buy my PC games largely digitally these days, unless there's a better price elsewhere.

I'll miss the brick and mortar stores though... mostly because that's where I'd pick up games on sale or on clearance. I've nabbed a few gems that way that were past their "sell by" date. Steam sales almost echo that, and picks up a little bit of the slack... but I still miss hitting paydirt in a bargain bin.
Given the inevitability of the demise of physical game media along with the stores that used to sell them we veteran gamers now face the problem of what to do with our aging collection of boxes and CDs.

I still keep about a hundred games arranged on shelves around my gaming space to help set the atmosphere. I have several hundred more in crates in the attic.

Very few of those games are played regularly anymore but there are some evergreen classics that get re-installed every few years.
Yes I agree that retail video game game stores are going the way of video rental stores... to the dustbin of history.

And I know it's surprising Gamestop with how fast this is happening.

I personally am not an active technology first adopter. Typically I wait 1-2 years before buying a new technology or e-service.

I will buy SWTOR online at launch and download the game digitally and I will do this for one very important reason. Physical media is obsolete in a world of daily software updates. I would love NOT to have to buy broadband to play an MMO. But MMO companies (by design?) are updating huge multi-megabyte sections of their game EVERY DANG DAY. Gone are the days of buying Wrath of the Lich King and having to download only the "latest patches".

Today we install a game THEN RE-INSTALL the game with all the latest patches, updates, new content.

Frankly I am not sure this is a wise development from the industry. What could easily happen (again by design?) is the "ship and launch" of substandard low content games that either get a following and thus "deserve updating" or a quick death to the low population newly minted titles.

Humans have a short attention span as it is... catering to this problem with high financial cost software/content will lead to huge losses for software creators. Thus increasing perceived risk by investors... in turn cutting funding of new projects.

Will Platforms like Steam rule?
Will Facebook and the cheap - free games rule?
Will SWTOR mega projects be viable in the future?

Digital changes the bets on all of these... and if the Video Game industry is seeing this issue now... It won't be too long before the Motion Picture Theater industry and distribution industry suffers this too.
Ironically, the main opponents to digital distribution would be the console makers themselves.

Compare Grand Theft Auto 4:
$30 for Digital Download on Xbox
$20 buying from GameStop

They don't even bother matching in-store prices. Why? I don't understand. Not to mention that Microsoft/Sony probably gets a hefty cut off those digital sales on top of console licensing, it just boggles the mind why they wouldn't push for better digital sales.

Oh and no resale, so publishers and distributors get even more money. Only GameStop and the like lose, but that's ok, since the games industry has been actually sorta against them for the past several years (only relying on them because their distribution chain is already fully invested in).

Some people just can't take advantage of what's right before their eyes I guess.
Yes, they're dieing. 90% of all games I bought are through steam deals & The other 10% are games I want on release date. And these are bought from the huge retailer as they are by far cheaper than my local stores.

Only one thing still bothers me about online shop and that's their pricing. You're right: they are a lot cheaper to produce. Yet I end up paying a lot more than in my retail store. Plus seeing that UK'ers pay 40% less than me for their games screams extortion.
Console digital distribution is not just an issue of mechanism. Console makers not only need stores to distribute their consoles -- they need stores to sell their consoles with minuscule margins, especially at the launch. A store might pay $249 for a $250 console (what happened to some small stores at the Wii launch) if they can make money selling games and peripherals.

Removing games from that equation gets you in trouble with retailers. As much as no console maker "needs" retailers, it'd be suicide to be the only console not sold at Walmart.
Gamestop opening boxes of games to remove coupons for online services isn't going to change all this. The business model of selling video games in a box is clearly on its way out.

The Future (capital F) hit me last year when I saw how ridiculous Steam deals for games could be. I think they had Fallout 3 + all DLCs for $9.99 last month for example. It suddenly dawned on me that even stores like Wal-Mart could not possibly justify selling full-feature games like that for $9.99 when the cardboard box, DVDs, and other materials would have had to be driven out from the manufacturer, stored in a warehouse, and then driven again out to the store to be placed out on shelves by employees. And that was just a single store! There are roughly seven Wal-Mart stores in a 20 mile radius where I live. Could you imagine having to coordinate that $9.99 price-point in stores across the country? It would likely cost thousands of dollars in the aggregate just paying employees to shoot every box with a price gun. And how many people really buy PC games from Wal-Mart?

I thought it was annoying having to download and register Steam when I bought Half-Life 2 all those years ago, but good god what a difference it has made in the resurgence of the PC gaming market. We laugh and deride EA for their Origin "service," but Valve did the exact same thing seven (7!) years ago with their guaranteed smash-hit (HL2) and now own damn near the entire market Google/eBay-style. It is probably too little, too late for EA but I don't think we can begrudge them for attempting to carve themselves a piece of that extremely lucrative digital product distribution pie.

I think that the console makers for the time being still have to tread lightly with the retailers. They need the physical stores for exposure of their products in malls etc. I suppose it's marketing. GameStop may sell fewer games today, but they still have huge advertising spaces right in the middle of shopping malls all over the place. The denizens of such places seeing (for example) a majority of PS3 products on display close to the store front may draw the conclusion that PS3 is the way to go.

Amazon and the others are similar, although there are fewer opportunities for display there.

So the console makers go easy on the retailers. They agree to charge the same or even higher prices on their download services (which, of course, also pockets them enhanced profits on each sale) and let the retailers get away with shenanigans like what Tobold describes.

Once sales run so low that the GameStops of the world no longer can afford to pay the rent on their shopping mall advertising windows? I think only then will we see the console makers abandon retail.
@Aaron - I think retail is being pinched in all directions. Their costs are going up on two fronts - rising gas prices hurt anyone who relies on a distribution chain, and labor costs, primarily due to ballooning health care prices, are both shrinking the margins of brick-and-mortar stores of all varieties. Online competition is also driving down prices while taking larger and larger market share. Many retailers are stuck in massive warehouse-style stores for which they signed longterm leases, leaving labor as the only place they can cut costs to stay afloat. I agree that the short term gains these companies see will have serious long term consequences, with CC being the best example of what can happen, but for many retailers, their choice boils down to hack and slash right now or close the doors. Personally I think a comprehensive health care overhaul is the only thing that will save the retail industry. Over the last 20 years labor costs have spiraled, and although productivity has consistently improved, wages (and by extension spending power) have been stagnant. The wage gains that should have been the result of improved productivity have been dumped into health care without any increase in the quality of care most people get. So if costs are going up but customers aren't getting a better product, where is the money going? Insurance companies, and the banks that, thanks to massive deregulation of the banking industry, own them, are making record profits year after year. It's a dirty game, but they've gotten very good at fragmenting the market so that what looks like competition just increases their profits.
The one real good thing about the demise of bricks and mortar stores:

1) No trucks driving from company A to company B for delivery of cardboard, plastic, etc. to produce the box.
2) No trucks driving from company B to store C in the center of town to deliver boxes, then driving back empty.
3) No consumer driving from home to store C to get the latest copy.

Today the biggest ecological impact is the air condition for the servers at Steam Serverpark.
Thanks goodness, the streets are getting emptier slowly.
The circulation of the largest SF magazines in the US, Analog and Asimov's, declined for years. This trend suddenly reversed three years ago, due entirely to distribution of an electronic form of the magazines. It's not unreasonable to expect them to become predominantly electronic in the next few years, particularly as outlets like Borders disappear.

I expect most magazines will be electronic within the decade, as will most books, and most newspapers (at least, the ones that survive), as well as most game downloads. At least we'll save a lot of paper.
When GameStop finally closes its doors, where will we duck into while our wives are shopping at 'Crate & Barrel'?!

I guess we can sit in the corner and order something from STEAM from our iPad, but it's not the same...
In the PC world everything is digital. There are publisher that they notice that they can make more money from digital than retail. Paradox is one that they switched to everything digital and EA with Origin. They know that there more money there. Steam is a great example. Gamestop is trying to secure that path when they bought Impulse (it sucks right now) and the service that it is similar to Onlive. but they did a huge mistake because PC gamers don't truth them and they own Impulse.
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