The Declining Retail Market and why Digital is Superior

Stardock,  one of the longest running PC developers recently put out their annual revenue report. In it, they discussed something that has been brewing for several years now: The Retail Market is dead. 

Digital distribution continues to grow and understanding the benefits and why retail is no longer a needed goal is a big deal for major developers.

The Old Days:

Retail channels for the 80s through the 00s were considered the gatekeepers for the Game Industry. Because the Internet wasn't mainstream at that time, the only way someone would know about your game was either they already followed you or they saw it in a store.

This gave stores like Wal-Mart, Target, Electronic Boutique and so on a lot of power when it came to negotiating with developers and publishers. Finding exact numbers of contract negotiations is difficult, but it's safe to say that stores would make at least five to ten dollars per copy of a new game sold. And we're not going to talk about used games which in of itself were and still are a major market for stores like GameStop.

The point being was that as a developer, you had to deal with not only the cost of retail stores, but also the physical demands of making your game. All these costs equated to more money being spent on making a game and a lost of profit. And that brings us to why the digital market is killing retail and the advantages of it.

Digital Advantages:

Lower Cost:

Right off the bat, digital distribution is cheaper than retail by not having to deal with the cost per unit negotiation from retail markets. The amount Valve makes per game sold is a trade secret, but the fact that you do not have to print out physical copies is already a savings.

Many developers have been trying to get around this cost in retail for the last few years: Making cheaper boxes, smaller manuals and some just sell you a box with the game in it and have everything else online.

Availability:

Physical copies have the problem of being finite -- IE when a store runs out, no one can buy that game until more copies are shipped. For AAA developers like EA or Nintendo, you can be sure that stores will buy as many copies as they can of their latest title, but AA and Indies aren't as lucky.

Thanks to digital stores, the amount of copies of a game becomes infinite as it is all data which can be replicated on demand. For studios who don't have the funding for mass producing their games, digital distribution offers a far cheaper alternative and makes sure that someone can buy their game no matter what.

Sales and Accessibility:

A major concept that was given new life on the digital market would have to be sales. Being able to quickly change the price of games allowed stores to instantly update their prices with the latest bargains making it quicker and simpler compared to retail markets.

Sales have come a long way towards being accepted by consumers and are now a very popular sales tactic.

And being able to buy a game from the comfort of your own home also helps cut back on outside factors affecting someone not buying your game: Having to drive to the store, dealing with the store and of course the store not having any copies.

Impulse purchases are very popular among digital stores thanks to sales and the ease of which someone can spend money. One click features from stores like Amazon and Steam allow someone to spend a lot of money very quickly.

Developer Control:

Wrapping this post up we can tie all the advantages to one major concept: Giving the developer control over how their game is sold. While you are still dealing with a storefront like Steam, you have far greater control over your game compared to the retail space.

There is no worry about a store putting your game on the back aisle or maintaining inventory when it's all handled digitally. This has also made it a lot easier for developers to sell games on their own sites which weren’t possible or viable five+ years ago.

Digital stores are far more open to games that aren't aimed at the mainstream. Titles like Hotline Miami or Binding of Isaac would not have been accepted in retail stores due to their strong content but were welcomed on Steam.

In fact, it's becoming more and more critical to have some form of a digital storefront for your game. If you are not familiar with or understand how to set up a storefront,  third party companies can assist you with setting up and developing an attractive storefront for your site.

The rise of the digital market has been one of the biggest shifts in the Game Industry. And Stardock is correct about how it is taking over the retail market. It will be interesting to see just how far things go by the end of the decade and what capacity the retail market will be at that point.

(Reposted from the Xsolla Blog)