The gaming industry is moving online but consumer demand for second hand games will always remain strong
February 9, 2011 14:30 by Priyesh PatelExciting times lie ahead within the gaming industry and the buying options for new and used games have never been so wide. New game downloads are increasing at great speed and the used game market is strengthening, with Tesco, Asda and Argos all now offering a used game service. All this is great news for ‘gamers’ but the real opportunity is a platform which combines the two: trading online.
Electronic Arts CEO, John Riccitiello, recently claimed that 2011 will be the year revenues from downloadable games overtake the traditional out-of-box experience[i]. Being an avid gamer myself, a statement like this took me by surprise, especially coming from such a senior figure in the gaming industry. I have little doubt that this scenario will eventually happen, but this year?. There are two big reasons for my scepticism. First, the cost of new games – mixed with the widespread availability of cheap second hand games – and, second, limited storage space on consoles when used more widely in the ‘connected home’ rather than just for gaming.
To get a more rounded consumer perspective on this, GfK NOP carried out a study in January 2011 to ask gamers what they felt about downloadable games. 30% of gamers told us that they were looking forward to more games becoming available online because of the simplicity and convenience this would offer. However when questioned as to whether they will buy more video games via the console or PC rather than boxed versions sold in-store, one third of them said no. The main resistance by gamers to downloadable games is the clear threat it presents to the used games market, which in many ways provides an essential money-saving service to consumers.
The importance of second hand games
Gamers rely heavily on the availability of used games, and our study shows that out of all those who purchase new games each year, 86% have also purchased a used game. Indeed, to emphasise how valuable the market is for second hand games, our research shows that gamers purchase an average of three used games per year, whilst the yearly average for new games is two. Retailers such as ‘Computer Exchange’ and ‘Game’ buy used games and then resell them to make a profit. It is this trading process that puts money into the pockets of gamers, but also takes it back out. Of course, while the trading of second hand games can be profitable for retailers, game publishers are less enamoured and would prefer a much smaller second hand market, as these transactions offer them no revenue. However, maintaining a second hand marketplace keeps the relationship between publishers and retailers strong – which is critical, as it is the retailers who provide the direct route to the consumer.
If Riccitiello’s claim develops into a situation where games were only available to download then the second hand games market would cease, as gamers would end up downloading a game at full price and storing them on their hard drive until they were deleted. With no resale value it will be difficult to persuade gamers to part with their hard earned cash if the games were not reduced in price. In our study, 34% of game purchasers said that if games were only available to download and not in-store (at the same prices as the new boxed versions), it would significantly reduce the amount of games they could afford.
With the price of producing games going up, one solution could be to allow downloaded games to be traded online (as recommended by Techtalk back in 2010. Publishers can make the second-hand games market benefit them if they enable the sale of cheap games, traded online between users, and take a cut of every transaction. Used game trading platforms are starting to appear with the likes of Green Man Gaming which supports PC based games, inevitably more will follow.
Storage of downloaded games
Another barrier to the proliferation of downloadable games is storage space and download speeds. Downloading 20-30gb games will be reliant on the broadband speed and download limit of the end consumer. Downloading a game or an HD film is the norm in a country like South Korea, where the average broadband speed is 40Mbit/s[ii], but in the UK, with average speeds of 5.2Mbit/s[iii], you could wait around 2-3 days for the game to download. Essentially this makes it quicker to go to a shop.
And even when a game is downloaded there is another problem – where to store it. The latest edition of the PlayStation 3 currently has a maximum storage of 320gb, which will only hold around 10 games at 30gb each. This is very limited and will put gamers in the awkward position of having to delete old games (which they have spent money on) to make room for new ones. Why would any gamer risk being in this position when the traditional boxed version allows gamers to own an unlimited number of games? Unless of course a publisher or retailer is able to offer an external storage hard drive facility, similar to Apple’s Time Machine, or indeed a cloud-based solution.
The future of game purchasing
This inevitable growth of downloading poses a threat to retailers because game publishers will no longer be reliant on them as their only channel to the consumer. Retailers must therefore look at ways to innovate in their online presence and create new services, such as an online download store or a cloud game storage solution, to retain their position in the industry.
But they have to move quickly: PlayStation has just announced that it will be offering cloud storage of games, allowing users to save game data on the PlayStation servers and access it remotely from any PlayStation console via a unique PlayStation Network ID. Providing this is done well it will help overcome the storage problems mentioned earlier.
It is not just the retailers who need to look over their shoulder. Industry giants PlayStation, Microsoft Xbox and Nintendo will all be aware of new services such as OnLive where games are streamed entirely over the internet with no console required, just a phone line and controllers. OnLive represents a new approach to gaming, and game publishers may choose to develop their titles for these new platforms, with potential exclusivity options.
Gaming publishers and services like OnLive have the opportunity to change the industry and provide new payment models, such as charging a user £5 for five days of access to a game, or an entry fee to an online arena where one could play against friends for a specified amount of time. With intricate understanding of consumer behaviour, and new models of buying and playing video games, this could be a very successful and profitable opportunity for anyone who wants to push gaming beyond the frontiers.
In conclusion, while the downloading of games is not yet ready to overtake out-of-the-box purchasing, it still offers some great benefits – e.g. to demo up-and-coming games. And as technology advances, broadband speeds quicken and storage options improve, I do not doubt we will eventually see revenues for downloaded games overtake the traditional out-of-the box revenues. But not this year.
[i] http://www.techradar.com/news/gaming/ea-digital-downloads-to-overtake-boxed-games-in-2011-920513
The quote was: “At the end of [2011], the digital business is bigger than the packaged goods business, full stop”
[ii] http://www.speedtest.net/global.php
[iii] UK Broadband Speeds study carried out by GfK NOP Technology on behalf of OFCOM
PHOTO COURTESY OF:
http://www.flickr.com/photos/preshit/3100942884/
ABOUT THE RESEARCH:
Conducted in January 2010 among a representative sample of UK adults who have access to the internet (base = 896)
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Tags: Consumer, Downloads, EA, Games Console, Gaming, Playstation, PS3, Publishers, Research, Retailers, Second-hand games, Video Games, XBOX 360
I think this is where Playstation and Nintendo can really learn from someone like Valve and their Steam platform.
Certainly some kind of Cloud functionality should (and will?) be built into the next generation of consoles, it’s something that has become so intrinsic in Steam. As long as the client and game is installed on the local machine you can pick up any settings. I’m sure in the future this could extend to all but only the core game files, hopefully allowing much less space on the console or PC hard drive to be taken up by game files.
I would love the next Nintendo console (lets call it Wii2) for example to let me buy (old games for now; think Super Mario Bros 3, Zelda: Ocarine of Time) on my Nintendo account and then able to access them on any Wii2 with access to wifi and me signing into my account, as well as any saved data I have for my Mario Kart.
I guess it’s really around space on the server side. I know Steamworks (the name around the Steam cloud service) has really expanded over the years from 1MB of storage per user to 100MB per user.
In terms of OnLive I think it still has a way to go before it’s widely accepted. I’m not sure the gaming audience is yet at such a transient (for want of a better word) stage to simply stream games like that. I’m not sure, might just be me.
if there was an online second-hand store for downloaded console games, then the secondhand market wouldnt die out. basically, after youve purchased a downloadable at full price, once you no longer want it, instead of just deleting it, you just sell your downloadable to the secondhand store for xx price, and then that gives that store just that one copy of the game, that then can then sell on to another gamer at less than full price, but more than they bought it for from the customer they purchased it from…obviously. so say twenty people sell there copy of say, batman arkham whatever, then that means the online secondhand store only has those twenty second hand copies available for purchase. instead of having unlimited copies of the game available but at a cut down price, basically just like a real life secondhand game shop, but for downloadables. kind of similar to GMG trading system. also the onlive cloud gaming is an amazing idea, because instead of having to download the game to your computer like on steam, its just streamed, which is better because it means that if your laptop/pc is only just capable of playing games of a playstation 1 quality, it doesnt matter. i cant play nextgen games on my laptop anyother way but through onlive, because the capabilities of my laptop arent very good, it wont even play minecraft without lagging like mad, its that bad. but through streaming, i now can. i think streaming games is the future, especially for people with crap computers like me, i now means i can still play next gen games at the same quality as those with good computers, wheras with steam, you still have to download the game, which takes up valuable hard drive space, and seeing as how i only have 30gb (half of which is constantly in use already) onlive is the much better option. my vision of the future is this; games available to stream, even on consoles, digital download secondhand stores online, and flying cars, though im not too sure about that last one.