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Xbox One, PS4 mark a "watershed event" for digital

Longbow Research discusses the acceleration of digital fueled by the new consoles; day one downloads "becoming the norm"

With the PS4 on the market now for a few days and the Xbox One about to launch, the console industry is entering a new era, one that is more and more aligned with a digital marketplace, according to Longbow Research analyst James Hardiman. In Longbow's latest note, Hardiman labeled the launches of the two new consoles a "watershed event" for digital distribution.

Hardiman made the comments in relation to leading games retailer GameStop, whose business could be strongly impacted by the digital movement over the long-term of this new console cycle. Digital availability of AAA games on day one should not be underestimated, he noted.

"Most notably, in stark contrast to the agreements made during the current generation to limit the availability of digital downloads at or near the retail launch of games, every single launch title for both the PS4 and the XB1 are also available as digital downloads immediately. Moving forward, we believe that day one digital availability will fast become the norm rather than the exception, which we believe could result in 20-25 percent of gamers opting for the digital download option to start, with this number only growing over time," Hardiman said.

He continued, "Other factors that we believe will accelerate the adoption toward digital include (1) the 'Play as you Download' option being made available for both the PS4 and the XB1, which allows gamers to start playing games within minutes rather than hours (2) the remote download functionality, allowing users to start a download while they are away from their consoles, (3) the recent creation of an Amazon digital store for Playstation, which adds comfort and competition (i.e. better pricing) to the digital download landscape, (4) increased comfort and patience on the part of consumers (according to our consumer survey) with full-game digital downloads, and (5) vastly increased broadband speeds, up 32 percent y/y and 123 percent since 4Q08."

It's not all smooth sailing for the rise of digital sales on consoles, however. Hardiman referenced that next-gen file sizes are looking to be on average more than double those of the current-gen titles, there are increasing attempts by ISPs to cap broadband usage, and he said there's "a general weariness with regard to DRM restrictions on digital content."

Right now it can still take a long time to download a huge AAA game, but as Americans' broadband speeds continue to improve in the coming years, we can expect more consumers to switch to digital, rather than purchasing a retail disk. 73 percent of consumers would be willing to download a full-sized video game if they could do so in under an hour, according to Longbow's survey.

Ultimately, for GameStop, the future is blurry. Hardiman called GME the "most controversial stock we cover" and while the next couple years are likely to be good for the retailer, longer-term Longbow recommends "shareholders stay on the sidelines until we can get a better view."

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James Brightman avatar
James Brightman: James Brightman has been covering the games industry since 2003 and has been an avid gamer since the days of Atari and Intellivision. He was previously EIC and co-founder of IndustryGamers and spent several years leading GameDaily Biz at AOL prior to that.
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