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Video Games - Beneath The Numbers...

In articles regarding the health of the video game industry during the downturn, one thing becomes clear: People understand that retail is no longer the only benchmarker, and they want to know more. I'll try to shed some light on what's really happening.

Edward Hunter, Blogger

September 15, 2009

6 Min Read

 I predicted that the erosion and perhaps the death of retail sales of video games would happen, in fact if you caught my GDC lecture in San Francisco early this year you may have even been one of the scoffers who approached me afterwards to rebuke my bold, nay, swaggering remarks.

 I made the suggestion that the first to fall off of retail would be PC games, followed by console, followed by hardware & accessories.

 It only makes sense based on several key factors, the least of which is not the economy. Digital downloads, free to play in its various incarnations, low cost (e.g. iPhone) and subscription based games are all less than 5 years old, but the impact on retail sales isn't going to just magically appear with a sticker that reads: 'Hi, my name is:  Death of Retail'.

In a world where the numbers in retail seem to govern people's perception of the health of our industry it doesn't take long for the pundits to point at slumping retail figures and espouse - 'See!?  See?!  Video games are just as prone as any other consumer market to economy!'

 But not so fast.  Perhaps it's not the yard that's shrinking, but simply the yardstick.

(Note:  All of my data is from comScore where I run video game research.)

 Case in point:  Conservatively, the Steam interface, by the venerable folks at Valve has grown by a million users in just a year.  I say conservatively because my numbers are panel projected from a consumer base of just over 2 million people, but 18-24 Male's are not as well represented in this panel as well as say 35+ folks so I hedge a little.   This is also reflecting United States data only.  I'm not givin the whole cow away folks..;)

 Steam Unique Users (Projected US YtY)

Steam Unique Users (Projected US YtY)

Still, a 58% uptake in digital downloaders of video games is impressive.   It speaks though, to a larger overarching point;  people are adopting digital delivery, now, not in 2014 or whenever it was predicted by other experts within the last 12 months.

 That's just digital delivery, but it cannot be ignored.  Digital deliverly of a multi-gig install means; no box, no disc, no Target, no Gamestop.  It also means it's invisible to retail sales figures.  

Secondly, there is the ad sponsorship of free to play games.  Just 24 months ago, only POGO, AOL and Microsoft wouldn't have lol'd at the notion that video gamers would be a viable target for ads, but times change - and they change fast.

 A caveat for this next bit of data is that it doesn't reflect *all* of the ads served to video gamers and is also only United States, but it's nonetheless compelling (these numbers are billions of impressions):

Ads served to video gamers US July 08 to July 09

Ads served to video gamers US July 08 to July 09


 That increase in impressions, 3.5 billion in the US, exceeds growth in ads served versus many other digital categories (many are actually down) and indicates that the tradeoff of gamer eyeballs in exchange for free to play alternatives to purchased games is serious business.

[Clarification:  These numbers do *not* include house ads or small ads. The measure was incorrectly stated as "millions of impressions" but is "billions of impressions"]

 Now - eCommerce.  Theres a few ways to look at online spending, which for many many categories (more are down than up) , the news isn't great.  Apparel is down 2% year to year, flowers, gifts & greetings is down 9%.  There is worse news for furniture, office supplies, etc.

 So how about some good news, take a look.

 ecomdetail, partial, comScore 2009

ecomdetail, partial, comScore 2009

 Aha, so, here we see an increase year to year, not a decrease.  And if you look at the % change in buyers for Video, console, accessories you can see that the number of people purchasing has increased by 107%.

 I always say the devil is in the details and it's true here for certain.  Yes, the amount spent is up, the number of people spending - up.  But based on average dollars per buyer, it's clear that people are looking for lower cost alternatives, something video games are positioned better than most spending categories to provide to consumers.

 This last part, reduced dollars per buyer, makes a great segue.  What else is eroding the retail model?  Why, it's microtransacations & mixed monetization model games.  

 I like to  point out marketplace agility where I see it, and by way of an example of exemplary mixed model implementations and 'make it go right' attitude, I'll give a shout out to Turbine and the recently reintroduced Dungeons & Dragon's Online.

I played it in it's original beta, it was 'good'.  I was an old table top D&D player do the notion of the game coming to MMO is something I think many of us saw as an inevitability.  Was the orginal DDO 14 or 15 bucks a month good? 

Maybe, but we all know where the hype was focused when DDO came out.  Plus, the audience for MMO's was still emerging. 

By adapting this model to leverage microtransaction as well as subscription, Turbine is showing the sort of moxy that we can all learn from in our industry.  I've been in since the free to play beta and now that it is released I can tell you by measure of number of players running around and number of instances that are running the main areas - watch out for DDO.

 They are by no means the only one doing things right in the free to play and/or mixed model space.  They just happen to have adapted away from the straight retail model and appear to be making all the right moves.  We all know that Freerealms is going strong as well.

We also know that MMO's that are free <> MMO's that are good in every case - production values, asthetics and old fashioned good game design:  still required. Right now there is a lot of chaff out there and sometimes I wonder how some of the MMO's I see that are free to play make any money at all.  Like, I can't find monetization models at work in them and I know how to find where the money is coming from when it exists.

 I guess ultimately it comes down to a simple fact.  Like any entertainment medium, video games are here to stay and also like other forms of entertainment, when things get rough people will try to spend less money while still needing to take thier minds off of tough times

If we're smart, we'll all figure out ways to make it through regardless and I hope I've given some signals of hope for us all.

 Until next time and, as always, I'm interested in your thoughts.

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