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Retail

Digital Survival

Thu 22 Oct 2009 1:30pm GMT / 9:30am EDT / 6:30am PDT
BusinessRetail

Expect top games retailers to scramble for a foothold in digital distribution in the coming months

Metaboli

Metaboli is the European leader in the digital distribution of PC video Games.
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metaboli.com

Without the benefit of hindsight, itís tough to say where, exactly, a tipping point occurs. In years to come, weíll undoubtedly look back at this period in the games industryís history and confidently pinpoint the year, or perhaps even the quarter, when the transition became a landslide. Today, however, all we can say with any certainty is that itís either happened already, or will happen in the next 18 months to two years. Freed from the realms of theory and speculation by dropping storage costs, rising broadband speeds and changing consumer attitudes, digital distribution is reaching a point of no return.

There are, of course, plenty of questions which still need to be answered - both from consumer and industry perspectives - before the digital takeover can truly get underway. Pricing, for example, remains a thorny problem, and thereís a strong possibility that right of first sale issues will face not only robust challenges from consumers, but also serious questions at a legal and even governmental level.

For one industry grouping, however, thereís a single question which dwarfs all of those concerns. If youíre a retailer, your only real question about digital distribution is straightforward - where the hell does this leave me?

The examples from other industries undergoing this transition are not promising, since they tend largely to focus on metaphors involving creeks and a distinct lack of paddles. Bricks and mortar retailers of music and movies have largely sat back and grumbled while their businesses were hijacked, first by online retailers of physical product and then by digital distribution services. Music is much further down this path than movies are, but thereís no question that theyíre both headed for broadly the same destination.

Specialist games retailers who follow that model face little more than a decline into insolvency in their medium-term futures. Worse again, they face competing with far bigger companies to retain their slice of an already shrinking pie - as boxed game retail sales fall off in favour of digital distribution (not to mention the downward price pressures I discussed last week putting the thumbscrews on margins), supermarket chains are increasingly seeing high profile games as a worthwhile loss leaders.

Given that prospect, itís hard to foresee any kind of future for the specialist game retailer. Their figures are presently propped up by second hand sales, on which they make huge margins (a fact which doesnít endear them to the industry at all, of course, although industry figures have an unfortunate tendency to damage their own case by attacking the second hand market in general rather than specifically targeting the enormous margins and rather sharp business practices of the specialist retail chains). Initiatives like Sonyís decision to create retail boxes for PSP games which merely contain a download code are little more than a sop to the retail sector - it wonít delay the fate of game stores by much.

Yet not all media retailers are content to go quietly into the night. Where online retail was once a rival of bricks and mortar business, they are now kindred spirits - both selling physical products in an age when consumers increasingly think of media as intangible bits and bytes rather than a lump of plastic. So retailers should consider carefully the importance of Amazonís recent launch of an extensive download store for music MP3s, a direct (and thus far rather successful) challenge to the dominance of Appleís iTunes, and the Kindle, an e-book reader designed to keep the firm on top of the book selling game even among customers who donít want paper any more.

Even more interesting is this weekís move by top US bookstore Barnes & Noble, who have joined Amazon in the e-book race with a fantastic looking combined hardware and digital retail offering. This is what retailers should really be looking most closely at. Barnes & Noble is not a technology company, or it least, it wasnít until this week. Its core competence is running a vast network of retail locations, which has pretty much zero relevance to this new business venture. Yet the move into digital distribution makes perfect sense for one simple reason - brand.

In the minds of countless Americans, Barnes & Nobleís brand is deeply associated with bookselling. Itís probably a slightly painful realisation for a company which operates so many stores and warehouses, employing so many retail and distribution staff in the process, but in the digital world, thatís the only asset it has thatís worth just about anything - and for its survival in a new world where it will compete not only with Amazon but with Sony, and quite possibly with Google, Apple and Microsoft as well, it needs to pump that brand for everything itís worth.

The same is true of top games retail brands, and some of them, at least, know it. GameStop, probably the biggest games retail brand on earth, is presently in the market for a digital distribution acquisition. Despite the powerful positioning of brands like IGNís Direct2Drive and Valveís Steam, digital distribution is still an open market - a solid service carrying the GameStop brand could take a major foothold.

The companyís acquisition options, however, arenít quite as extensive as one might expect. In fact, there arenít that many major players in the digital distribution space - not least because at present, itís limited to the PC, with other platforms catered for by first-party stores. Direct2Drive is part of IGN, and as such, belongs to media conglomerate News Corp and is not for sale. Smaller players like Stardockís Impulse could be of interest, but would require that GameStop effectively build a large part of the content catalogue from scratch - I suspect that theyíd rather hit the ground running.

That effectively leaves two contenders - Valveís Steam and Metaboli, a French service which bought GameTap from TBS last year and operates a variety of branded outlets on the web.

If you wanted to place a bet, my tip would be that weíll see an acquisition deal between GameStop and Metaboli in the coming months, which will finally give the retail chain a major footprint in the digital distribution market. Itíll also serve as a boost to GameStopís European ambitions, which have plodded along at a rather slower pace than everyone expected when they first set sights on these shores a few years ago.

However, itís also worth watching closely what happens to Steam in the coming months. Unconfirmed industry scuttlebutt suggests that Zenimax - the parent company of Bethesda, which made headlines back in June when it acquired legendary PC studio id Software - is still on the acquisition trail, and has been making eyes at Half-Life creators Valve across the bar.

Whether Bethesda, a hybrid developer / publisher itself, would want to keep Steam on board, or spin it out to a third party, is unclear - as are many other aspects of a potential deal which would once again raise the awkward question of who, exactly, owns which parts of the Half-Life and Counter-Strike IPs.

Either way, however, it suggests that both Metaboli and Steam - two of the three biggest names in digital distribution - are potentially going to change hands in the coming months. How the landscape looks after those changes could have a powerful impact on which games retail brands survive the coming changes in the industry.

2 Comments

Dan Griliopoulos Journalism

45 16 0.4
I don't think Valve will let Steam go, if only because it's their primary route to market these days and gives them a lot more weight than any other developer. However, Metaboli could go for $$$.

Posted:5 years ago

#1

Victor Perez CEO, Games GI

64 0 0.0

Posted:4 years ago

#2

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