Does Gaming still need digital disruption to secure profits?
Earlier this year, the overall value of the UK games market ‘soared’ past £4.1bn for the first time – so we are overdue a look at how publishers and developers achieve growth in the face of a prosperous secondary games market.
For the uninitiated, the secondary market covers the resale of second-hand games and trade-in (often for store credit). Retailers including Amazon, GAME, and HMV re-sell and, historically, this has been considered to the detriment of developers and publishers.
In an earlier blog we looked at the affect Amazon has had on book publishing – and this is a not dissimilar situation, so let’s take a look at the industry’s response.
As we know, retailers receive the profit on a ‘trade-in’ once the value paid back to the consumer has been deducted. The consumer will, in effect, often take cash off a purchase of a new or previously traded-in game – meaning the cost is reduced, and the customer can afford more. The loop continues with retailers often reselling the same pre-owned copy multiple times. Everyone involved in the transaction wins – except the people who created and published the game in the first place.
Given this situation, developers and publishers have had to come up with ways to ensure they wring as much profit as possible from each copy of a game.
It’s the Holy Grail for ensuring developers continue to drive significant profits. Whether through selling a digital version of the game, or content extensions and add-ons, with digital distribution there is one buyer with no physical product to resell; so, the developers and publishers get a cut from every copy sold.
Digital sales are big business. They regularly account for more than 50% of sales of PC gaming titles via distribution channels such as Steam. They are also becoming increasingly popular for console games. Thanks to the simplicity and immediacy of XBOX Live and the PlayStation Store, brand new games can be downloaded before the launch date of the physical product.
There is an additional added bonus for consumers, rarely spoken about but one which changed my purchase behaviour from almost always physical, to almost always digital: my house was burgled. I lost my entire collection of well over 200 titles – and my insurers refused to cover them. My physical copies (most of my collection) were gone forever, but any digital purchases were quickly and easily downloaded again, for free. A watershed moment.
Of course, digital distribution brings its own set of complications. A single title may be on sale across 5-15 digital storefronts, all of which need to be monitored and managed by a game’s publishers.
Digital storefront page placement, storefront sales, deals, exclusives – they must continually be managed to ensure a product can be seen by consumers, and remain competitive. This is generating new roles within the industry, with publishers looking not only for people with the skillset to manage the storefronts, but also with the contacts within the channels to make sure their titles and pricing remain relevant and visible.
However, the market for physical copies shows little sign of going away soon. With digital prices equalling and often exceeding physical copies, as well as the sheer flexibility to the consumer of owning a physical copy, developers and publishers have to come up with increasingly inventive ways to keep the consumer engaged with a title long after their initial purchase – be that online or in a shop.
Nintendo has developed bonus content features that are built into games and unlocked with its ‘amiibo’ figurines, with the aim of keeping consumers engaged for longer; but, ultimately, the biggest and most successful approach is additional downloadable content.
One method is through offering free games updates. These often take the form of new maps, levels, or other in-game elements. These free updates are aimed at maintaining interest in the title beyond the natural life of a game. Crucially they also deter consumers from trading-in.
A highly successful example is Nintendo’s Splatoon where additional ‘free’ maps, weapons and clothing were made available for a considerable time after launch, keeping huge numbers of original purchasers playing and catapulting it into the most successful new Nintendo IP in years.
The publisher Respawn appear to believe Nintendo has – at least partially – found the answer. When recently launching the Titanfall 2 game, Respawn’s Co-founder Vince Zampella told GamesRadar that his company was going to give away additional maps and modes for free, but at the same time he acknowledged that continued support for a game post-publication would require a revenue-driving element.
So, what kind of post-publication revenue driving methods could he take advantage of? Beyond initial sale – and distribution of free downloadables to maintain interest – where else is the money going to come from?
Extra, paid-for content
Respawn, like many other publishers, appear to be securing further profit – and encouraging longer engagement with a game – by making optional, paid-for extras available to players. Polygon reported how paid-for extra elements in Titanfall 2 include ‘New skins, camo and Prime Titans’ and all for ‘a modest price’.
This mixed free and paid-for approach is an interesting one, but they are innovating further, promising that paid-for items will not directly affect the gameplay. This means gamers won’t be entering the virtual arena at a disadvantage to players who have paid for extras, putting players skill level above their pocket depths, uniting the community and, perhaps, ultimately preventing players giving up and trading the game in.
If they can get this approach right, the idea of selling extra content, in an inclusive rather than exclusive environment, opens a potentially untouchable revenue stream for developers and publishers.
The industry could now be at the point where the scales have tipped and the secondary market could start to benefit developers and publishers as much as it does players and physical retailers.