The $10+ billion video game software industry loves a winner. Big-budget titles like Madden NFL Football and World of Warcraft get a red carpet when it comes to getting space on retail store shelves. However, for older games or those targeting a niche audience, getting onto retail store shelves can be tough.
The shortage of shelf space is good news for firms that sell games online. Although computer software has been a top e-commerce seller for years, the new wave in software sales is in downloading digital files without any physical media—like iTunes for video games. Online game downloads in the US are just beginning, with PC & console downloads combined totaling $43 million in 2005 according to JupiterResearch and Kagan Insights.
Worldwide, digital game download revenues will reach 22% of the total by 2010.
Aspyr Media, which publishes video game software for Apple computers, says that it will launch a digital game downloading service late this year for its own games. Company president Michael Rogers noted the advantages of digital downloading for this specialized market, in a MacWorld interview. "If you go into any Mac software retailer, there are only a few games available, and that space is limited. In order to get new games on store shelves, we often have to pull older ones out of circulation, even if they're still selling okay." Rogers added that they'd like to offer more choices than are possible in a retail environment.
Online software downloads are not limited to Macs. Xbox Live, which lets gamers connect for multiplayer sessions and download games, is used by 60% of Xbox 360 users, according to Jeff Sullivan, one of Microsoft's developer relations managers. Sullivan said that on Xbox Live Arcade, which features simple and classic games, over five million games have been downloaded. Conversion rates between free content and paid for downloads currently averages around 21 percent, with top games such as Geometry Wars and Uno up at 50 percent, while the lowest conversion rate is around 10 percent. For games which would never land on retail shelves to begin with, this is a great revenue stream.
One firm which has no trouble getting its games on shelves still offers direct downloading—in fact, it is required to play the games. Valve Software, which publishes the bestselling Half-Life, has a downloading and authentication system called Steam. The system is as much about preventing piracy as digital distribution, but still does away with the trip to the game store.
The bottom line is that digital media distribution is a growing market. Whether downloads come from a single publisher or from an aggregator like iTunes, legitimate digital downloading offers buyers immediate satisfaction that retail stores can't match. It also offers a catalog depth unhindered by physical media or a mandate to carry only the latest releases. Digital music downloads will form nearly a third of industry revenue by 2010, driven by aggregator sites like iTunes.
If a video game downloading site or two can line up multiple publishers in the same manner, the gaming industry could see similar success. This would offer a direct line to consumers for both current hits and older favorites, making winners out of former also-rans.