Are downloads destroying the boxed game market?

While there is still a market for physical PC games, retail margins can be extremely tight, and digital download platforms like Steam are continuing to grow. So how can today’s PC retailer make money from selling digital games, and will the physical boxes disappear in time? Dominic Sacco investigates and offers his opinion…

Around 92 per cent of PC game revenues come from digital sales globally, according to analyst DFC Intelligence.

In the UK specifically, download game sales generated £1.18 billion in 2013 across mobile, console and PC – a 16.4 per cent rise year-on-year. Physical game sales meanwhile dropped 2.9 per cent to £1.015 billion, according to the Entertainment Retailer’s Association using data from GfK Chart-Track and IHS. 

While downloads have increased, so too has the demand for online shopping and cheaper prices – for both digital and physical games – from the likes of Amazon. Grocers including Tesco and Asda also sell new releases at lower prices in a bid to entice customers into their supermarkets.

This is all well and good for the end consumer of course, but it has made conditions extremely challenging for retailers, etailers and independents selling games. 

Publishers usually suggest that console games have an RRP of around £49.99, PC titles £39.99 and budget games around £9.99 to £29.99. More popular console games like FIFA and Call of Duty often have higher RRPs of around £54.99, while big PC titles like Football Manager may cost £44.99. New games for fresh consoles PS4 and Xbox One can feature RRPs as great as £59.99 – even higher for special collector editions.

Unfortunately for the industry, consumers rarely pay these prices. New titles will often have their RRPs slashed by about £10, while smaller paid-for mobile games can cost as little as 69p, giving consumers a distorted or confusing view of how much games should cost.

This means retailers may only make a few pounds per full boxed game. After a few weeks or months, game RRPs may also dip as publishers hope to stem flagging sales, leaving retailers stung with expensive stock. It’s no surprise PC World rarely stocks new titles in its stores.

But it’s not all doom and gloom. There are independents and chains like GAME who have adapted and are doing well. They now buy and sell second-hand tech, gadgets, tablets and smartphones to supplement boxed sales. 

There are arguably even more opportunities for computer retailers, who can also recommend, build and repair gaming systems for their customers, with good margins to be had in sourcing separate parts and putting them together.

Digital game cards also offer a small margin-making opportunity and are ideal gifts for gamers. For example, retailers can stock World of Warcraft time cards, League of Legends top-up cards, Steam wallet cards, as well as individual games like Minecraft. These cards contain a code that, once inputted online, will download content onto a player’s system.

Stores can also print out digital codes onto customer receipts – removing the need to stock physical cards. And of course, retailers can sell games digitally on their website. Distributor Tech Data added more than 3,000 PC games to its electronic software distribution (ESD) service back in July.

But we shouldn’t dismiss physical stock. A stack of boxes behind the counter will catch the eye of any discerning gamer, and big releases like World of Warcraft still sell well at retail.

MCV and GfK Chart-Track data shows that £626 million was spent on consoles in 2013 in the UK, and £424 million was spent on accessories and points cards. So while digital games may be on the up, it’s worth remembering physical gaming goods remain just as valuable.