The NPD Group's retail sales reports for the US gaming industry have been beyond grim this year, with software sales down by double digits every month. From January through September, US software sales were down 26 percent year-over-year. However, one might be hard-pressed to find game publishers whose revenues actually reflected such a malaise, because there are two big asterisks next to those dire sales figures. First, the growth of digital distribution in gaming means the industry is in better shape than those numbers would indicate. Second, it's unclear just how much better the industry is, because the people who know the numbers on downloaded games are keeping that information to themselves.
It's an issue that draws strong reactions from industry watchers. Wedbush analyst Michael Pachter doesn't waste words when the subject of digital sales transparency comes up.
"Oh my god, that's horrible," Pachter told GamesIndustry International. "There is none. We have no idea what anything does."
While publishers will routinely announce shipment numbers for big releases, Pachter has said virtually nobody gives details on sales of specific digital offerings. He recalled Activision once attaching a specific sales figure to a Call of Duty map pack, and credited EA as providing comparatively detailed sales figures like digital revenues from the FIFA and Battlefield franchises.
If publishers are no help in discerning digital sales, the platform holders are little better. Valve's Steam website has a page devoted to statistics, but the only visibility on how individual games are performing is a ranked list of top games by their current player count, not sales or revenue generated. Over on the consoles, Sony provides a monthly ranking of its most purchased downloadable offerings, but offers no information on units sold or revenue generated. Microsoft takes a similar approach for its weekly Xbox Live activity updates, but it provides those through sporadic posts on its Major Nelson blog. Nintendo isn't exactly an advocate of transparency, either. The company made headlines earlier this year for prohibiting a WiiWare developer from revealing sales figures for its own games.
The approach might not seem that much different from the transparency surrounding packaged retail game sales, where consumers see nothing but weekly or monthly top 10 rankings from outfits like the NPD Group in the US or GfK Chart-Track in Europe. (Japanese firm Media Create is a paragon of visibility by comparison, as the company provides unit sales figures for the top 20 games and all hardware on a weekly basis, and publishes a list of the 50 best-selling titles.) The difference is NPD and GfK track sales at retailers and report specific numbers for paying clients; any outfit with some money to burn can get access to physical sales data on a title-by-title basis. So proven visibility into the retail sector can be had for a price, but there are no such options when it comes to finding out what's selling online.
That has created a demand for data in the marketplace, according to NPD Games president David McQuillan.
"Most publishers want the same type of insight into digital format sales that they now get from traditional retail sales," McQuillan said. "Today, they can't properly forecast, assess performance in order to effectively allocate resources, or back up their performance with objective third party validation to affect their evaluation with analysts or the media. They are flying blind, and the lack of transparency leaves them and the financial community guessing as to whose strategy is right, and whose is wrong."
"[Publishers] are flying blind, and the lack of transparency leaves them and the financial community guessing as to whose strategy is right, and whose is wrong."
He added, "While digital retailers provide information back to publishers on the performance of their own titles, the publishers don't see competitive title performance. They can't benchmark as a result. What is good velocity? What is a good price point? What is the right discount to spur sales without leaving money on the table? What is the revenue mix for a given title between physical and digital and how does that compare to the competition?"
That inability to see how other companies' games are selling on a platform is a particularly significant problem for developers, according to Stardock CEO Brad Wardell. The executive has seen the issue from multiple sides. The company sells the games it develops through outlets like Steam, but it also founded its own digital storefront, Impulse, which it sold to GameStop early last year.
"It's very destructive," Wardell said, stressing that the damage isn't confined to the console and PC space. "We've interviewed people who were developing for Android and iOS who thought that there was a gold rush. And they make their game or their app, and it's pretty good, but it sells dozens of copies. No one realizes that a lot of these apps that come out sell tiny numbers of copies… So they just put a year of their life into something that sold basically nothing."
"No one realizes that a lot of these apps that come out sell tiny numbers of copies."
Transparency can help a developer determine if a platform's success stories are just lottery winning anomalies or evidence of a sound place to do business. From his own experience, Wardell points to a pair of Stardock's games on different platforms: Elf Squad 7 for Xbox Live Indie Games, and Galactic Civilizations II on Steam. Elf Squad 7 spent about two weeks on XBLIG's top seller chart, where the $1 title managed to move about 400 copies. As for his Steam game, Galactic Civilizations II came out in 2006 and Wardell said it isn't likely to show up in Steam's top 100 best-sellers of the year. Despite that, Wardell was happy to say that Stardock has made over $1 million selling the game on Steam this year.
"No one will come out and tell their stats," Wardell said. "I'm not interested in how well Angry Birds or a number one game is doing. What I want to know is what the 100th top seller in a given genre on a given platform is doing, and that tells me whether I can live on it."
As for who actually benefits from the lack of wide-ranging insight into online revenues, Wardell pointed to the publishers who have already discovered what sells and where. "If I'm a publicly traded company, I don't want people to know," Wardell said. "I don't want people to make competing games for the platforms I'm on. I don't want the world to know how successful Steam and Impulse and these other platforms have been on the PC."
When Stardock ran Impulse, Wardell recalled there was one feature of the service that publishers "weren't terribly happy with." That was a relative sales meter on each game's product page that let users see how a title was selling relative to comparable offerings on the site. (That feature was removed at some point after GameStop acquired Impulse.)
Not everyone agrees on which parties are most helped--or hurt--by the digital disclosure status quo.
"From my viewpoint, the heaviest level of pain is felt among the publishers and multi-channel retailers that are selling to their customers across all formats," McQuillan said. "Digital retailers, and others that control the sales data of digital content sales, see more benefit at this time in keeping that information close to the vest and out of a syndicated service. Do I think that is in the best interest of the industry stakeholders with a goal of growing the overall consumer spending pie? No. I believe the exact opposite. The longer there is a delay among the publishers and retailers in working toward greater visibility into industry performance overall, the greater the likelihood that the games industry will follow down the path of the overall music industry, which ended up providing an opportunity for new players to emerge and take their place."
"People have given up on the industry."
Electronic Entertainment Design and Research's Jesse Divnich said the lack of transparency impairs a company's ability to respond quickly to changing market trends. When looking at the bigger picture, a lack of meaningful data leaves the industry with a lack of meaningful milestones.
"We see it in mainstream news all the time when a movie, television show, or music album breaks records," Divnich said. "It would be incredibly beneficial for our industry to get more mainstream awareness by being able to tout our accolades."
Public perception of the industry is already dim, Pachter said, a status reflected in current prices of game publisher stocks.
"They're all trading at crazy low multiples. People have given up on the industry," Pachter said.
The analyst added that low share prices mean higher cost of raising capital, which means more pressure to boost profits, and more cautious decisions from publishers when it comes to spending money. And ultimately, that's bad for everybody. So why do shareholders put up with such little visibility into the businesses in which they invest? Pachter said some of them don't, but their disapproval could actually be aggravating the situation.
"A truth about the market is that shareholders who are not content vote by selling the stock," Pachter said, "and new shareholders have lower expectations because they're buying at lower prices. That's just how the market works. Very few companies have activist shareholders who would demand that the company disclose more."
Handwringing aside, the online world isn't a completely impenetrable veil of mystery. The NPD has covered digital revenues for several years, albeit without the benefit of point-of-sale data. Instead, it has relied on its own consumer research, as well as estimates provided by retail and publishing partners. McQuillan acknowledges it's not exactly the same, but says that "doesn't make it any less relevant from a strategic perspective," and can help track shifts in consumer buying habits, such as whether digital revenues are substituting for--or adding to--retail sales.
EEDAR is also looking to provide its clients with a better understanding of the digital landscape. Divnich said the firm's tools give customers ways to better understand its own numbers right now, and is working with partners to address the issue of digital transparency.
"Information is king," Divnich said. "This is true in all privatized business verticals. While there is a benefit we all can receive from sharing information, we've yet to really decide, collectively as an industry, what is the right amount of information to ensure everyone benefits without giving away too much of the 'secret sauce.' It's a careful balancing act. One that we support and hope the industry will solve shortly."
There a number of other non-trivial problems keeping a fog of war on digital gaming sales. For one, Divnich pointed to the difficulty in comprehensively corralling the ever-expanding array of digital revenue sources.
"It will require a trusted intermediary to ensure everyone is contributing their fair share, while at the same time ensuring those that contribute too little don't receive too much in return."
"With the new age of mobile and social games, new successful developers are popping up overnight," Divnich said. "Instead of there being a dozen companies representing the majority of our industry's revenue--much like in movies--there are hundreds and new ones keep emerging every week. It will require a trusted intermediary to ensure everyone is contributing their fair share, while at the same time ensuring those that contribute too little don't receive too much in return."
Pachter echoed the need for a single source to compile the data. That would require voluntary reporting on the part of the publishers, but it will take one company sharing its figures first before the rest will jump on board, he said. Pachter suggested EA could be the first to take that leap, given its comparatively robust digital disclosures today.
While Wardell agrees that one party can help push the rest of the industry toward greater transparency, he believes any change is more likely to come from the marketplaces themselves than those stocking the virtual shelves with content.
"There's potential for the industry to be smarter and more open, which will ultimately enhance value and generate more revenue."
"Platform holders have the power," Wardell said. "A platform holder who is successful like Steam or Xbox could actually say, 'The 100th best-selling game last year did this.' And that would be a signal for developers that there's a market here. And that would put pressure on the other guys to put out their numbers, because if they won't put out their numbers, there's probably a reason."
With digital revenues an increasingly fundamental aspect of the industry's well-being, the move to digital transparency may be inevitable, and perhaps even imminent. McQuillan said the industry is rapidly approaching a tipping point where the need for more transparency for all outweighs the benefits of publishers keeping their information proprietary, and where the relevant metrics of success go beyond revenues and copies sold, and toward the size of a user base and its degree of engagement.
"We are receiving guidance and are in active discussions with many of our clients and partners, so they are becoming more receptive to the idea," McQuillan said. "In fairness to key stakeholders in the industry, the market is changing at an unprecedented pace. There are many companies that believe that the lack of visibility into total content sales is to their benefit--but it is nothing more than a short-term benefit. Recent history has shown that manufacturers and retailers that do not embrace the power of industry-wide benchmarking information, while favoring a limited view of their own internal information, do not yield favorable results for their company or for their stockholders. There's potential for the industry to be smarter and more open, which will ultimately enhance value and generate more revenue."
[Update]: As a commenter noted, Google is at least taking a step in the right direction. The Google Play Store includes the approximate numbers on each application's product page, from "5+ downloads" to "1,000,000+ downloads."