Sunday, September 14, 2008

The delayed fate of retail stores

In that vast topic of what retailers are supposed to do to survive against the ever growing online distribution model, we first had Bob McKenzie, SVP of merchandising at Grapevine, Tex.-based GameStop, defending his business model over Edge Online.
Then David Perry reacted at Game Daily.

Perry makes good points, but we need to understand that people think of digital distribution here. Sometimes falsely named online distribution model, it deals with the system wherein you actually download the game you buy.
To this day, many transactions made online still end with physical supports being shipped to your mailbox.
It still works a lot for the moment.
That said, the attachment to physical supports, or more precisely, one independent physical support unit per purchased copy of a product (pff!) is probably just a hard habit to shake off.

Perry cites the numbers iTunes and App store, but that's rather absurd. We're speaking of small packages here, a few megabytes at best. Not multiGb heavy applications, and as long as peer bandwidth doesn't catch up with increasing application sizes, it's still going to be a problem for most people, especially in countries where internet is not so well accessible (yes, try to think globally for once).

Now, having a game on a disc means that its price will be higher than a packaging-free and shipping-free game. Perry is right on this, and there are many other aspects of this which pump prices up.

In situ retailers don't have many advantages left as far as first hand sales are concerned. A sort of "what you play is what you'll get" is achieved through demos which are easier to get on internet.
However, you have to download them.
The trouble is, there are not enough demo machines in shops. The staff in shops should be able to switch games according to the customer’s whims like it was done with arcades. There should be at least one machine for each hardware platform still scoring relevant sales, from the DS to the PS2, from the PC to the Xbox360, all mounted with the necessary peripherals.

The pseudo experience of local staff is nearly a myth. If anything, they'll only be useful to fool ignorant customers and be known to work for the good of sale numbers for many other players.
Many people think online reviews are more reliable and informative, which is not exactly true, but they still get the feeling that it’s the plebe’s voice reaching them through the web, so it’s better.

Retailers have also failed to treat games seriously, eventually shaping their stores according to genres or ratings (like the ESRB's).
I won't say it would be easier to change the way a website sells games than changing the layout of a store, since the former requires time and qualified people to achieve, and requires more database managing, while it's easier to apply on the terrain.

Retailers have both an advantage and disadvantage in terms of geography and the strategies to apply there.
If properly placed, notably next to stores where people will still go for the decades to come, people will walk before the game stores, and if the local manager isn't a twat, there will be enough teasing stuff, flashing screens and appetizing signs to have people think it's still worth getting a look inside.
Unfortunately, most stores just look like cleaned up geek hives.

The counterbalance to this being that you have to get there: if the shop is misplaced, it won't get enough notice, and people still have to know where it is and move there, while the internet doesn't care where the center of commercial activity is located, nor if customer live near it, as having a connection and a web browser is all enough to make monetary transactions.

There’s a very good reason why publishers and many studios keep advocating for the download business model, because they dislike the used game market as they still fail to exploit it in a way or another, especially when the law isn't helping them.

The absolute victory of the download business makes it conceptually useless to even attempt thinking about selling your copy.

Your copy is virtual, it doesn’t wear off. It’s just an amount of bits. A clone.

In theory, the used game market doesn’t concern the game, but all the physical elements related to it, from the support disc to the box, the guide and such other goodies (shipping and plastic wrapping are all irrelevant).
These elements become irrelevant with digital distribution.

Don’t even think about selling your downloaded copy back to Steam, because it’s a nonsense. You buy a copy, you (barely) own it. All you could hope for, eventually, is being reimbursed, by retracting within a week after buying your game.
But your game will never get used, so it won’t make sense to sell it to someone else, because it won’t be any different than the game you can get from Steam.
The only difference which could exist with your game is the content you created, from the save file to other more creatively elaborate elements, if the game permits it. But those elements have no value. How could they? Anytime a controversial content is created by an user, the studio or publisher bears the responsibility of its existence.

The digital core of a game is always pristine by definition. It’s a perfect copy of the original gold model.

So you’ll always buy them at full price, but the full price that seems right for a digital game. What should be investigated is if the purely digital copies, stripped off their physical burdens, are sold to a reasonable and right price.
Obviously, the prices found on online portals are somehow inferior, but are you sure they are that inferior according to what they could, or should be?

Don’t get your hopes too high though, because the system is not as honest as you thought it would be, and that’s quite logical, for 90% of the game remains within the publishers’ hands (this doesn’t include later sharing).
There have been unacceptable cases, notably on Steam, of software way more expensive on download than if you picked a physical copy of it at a retail store.

The thing is that the online publishers cannot lower their prices, without stirring trouble with global retailers, who could literally boycott legions of games without a second thought, or would sell them at such stupidly lower prices that they'd be beyond loss leaders, and represent no acceptable revenue for publishers. They still have that power at the moment, and we don't know how it's going to last.
Therefore, online publishers will either wait until the digital distribution model has become more important, which will take time, or eventually start to strike a deal by sharing revenues.

A most saddening aspect of this is how gullible people try to rationalize the high prices by telling those who complain that digital retail prices are still too high because the publisher frees you from the hassle of moving your butt to said stores to buy a disc.

  1. This "hand" publishers supposedly give you has a name, and it’s called shipping, and you know what? Shipping a game box to your home hardly costs the ludicrous price differences (or lack of thereof) reported across the internet.

  2. It’s a digital copy, son. There’s no more shipping going on, so there are even less excuses to warrant such high prices for downloading games. Oh but what about maintaining servers and getting the appropriate bandwidth? Not much of a problem, as you can see in the following point.

  3. The publisher is not doing you a favour as much as YOU are doing the publisher one. Actually two: First by preventing the retailers from gaining money from used games, which means that in a way or another, players will buy more full price games, and therefore, as a chain reaction, lead more players towards downloading portals, notably because they’ll believe that you get cheaper games on internet, and secondly because publishers gain faaaar more money on $30 spent to buy a game from their portal, than on the same game bought at the stores for the same price. You're saving some joules and publishers are saving a lot of money.

Yes, your gain weighs very little in comparison to their gain, and all it contributes to is keeping you isolated at home, fragmenting the society even more.

There’s also the problem of currency exchange rates playing us games there, making the system even more absurd and unstable at the moment.

The only response to this, as far as consumers who wish to sell their digital limited licenses are concerned, is selling out accounts, generally as a whole (would you make one account per game?), independently of the digital portals, via shitty systems like Paypal. A business practice which Steam does not tolerate.
From their point of view, forbidding account sales means players need to buy games at prices defined by Steam. But while doing so, they clearly loose money on the deals made in the backyard (account sales). The only thing they could do is allow these sales and tax them. However, the question is about balance. Do they make more money only selling games at full price, while knowing there are accounts sold outside of their sphere of influence… or would they get bigger revenues by allowing such transfers between customers, taxing them, and hoping to recover as many “used accounts” as possible, knowing that this means these customers won’t buy the games full price anyway. The question would be: would have they bought the game from Steam at all?
Which option is better?

That’s reminiscent of mechanic driving one of the aspects of piracy.

What we can safely guess is that in the end, it would seriously weaken the retailers who so rely on used game profitability.

I'm quite afraid that if anything remains of retail shops, they’ll be reduced to machines not bigger than dusty coin-ups, where you'll (re)charge your memory card with new games, which will also host videos, e-books and music.

Truth is, they are very well aware of this, and have already moved on to the digital distribution front, as shown with GameStop's downloadable Spore. (Viral marketing ahoy!)

The real debate is not if this is going to happen, because it has already started, but when the digital distribution model will outweigh the classical one. GameStop’s McKenzie doesn’t see downloadable games becoming a threat until 2020, as revealed here.

Somehow, I actually don’t find that figure over the top. For example, the digital music market was estimated to catch up the physical market by 2011-2012, and that’s for rather small packets of data (iSuppli, September 2006).

Making the decision to download a game a thousand times heavier requires more patience, and would logically work against compulsive behaviours. So the situation should evolve at a slower pace.

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