Disc vs Digital: 4 Reasons Physical Video Games are Leading Sales

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by John Koller, Video Game Industry Expert

Most of us have been swamped with streaming, download, and subscription offers and opportunities in our personal lives. Netflix, Hulu, Spotify, iTunes downloads and others have all taken up sizable parts of our time and wallets. The entertainment industry has clearly embraced these models over physical ownership of content. And the consumer has been trained to enjoy these uses for content, and have found very little friction versus the cost of actually owning the content. Yet, the video game industry has had nowhere near this level of digital acceleration. Per public statements from executives at console game publishers, physical games still account for approximately 70-80% of total new game sales in the United States (defined as units sold at frontline pricing when sales are highest, i.e. within first 3 weeks of launch). I’m routinely asked ‘why?’. Here’s a quick overview of the reasons:

 

1. SIZE OF GAMES
Game sizes are much different than any other comparable in entertainment. While music downloads are approximately 3-5MB per song, and HD movie downloads are approximately 6-8GB, PS4 and Xbox One games can be anywhere from 20-100GB per game. This means that the consumer must actually pre-plan his or her gaming time if they choose digital consumption. Retail is winning the battle of choosing between an 8-10-hour download vs. a 15-minute drive to the store. There are a few solutions that the industry has introduced that reduces some of this friction – including ‘play as you download’ buffering, as well as digital pre-ordering, which provides the game to the consumer at midnight of the game launch day and removes the long download wait. However, these solutions do not completely solve the issue, as there are many other use cases that require a longer download. This remains a major problem for digital advocates.

 

2. TRADE-IN CURRENCY
Despite a relative reduction in popularity, game trade-ins remain a significant way for many consumers to afford purchases. Many consumers view the trade-in dollars that they will eventually receive as a reduction to the cost they are paying so that their net cost is more affordable. There is no trade-in system available digitally, which greatly prioritizes the physical purchase.

 

3. PRICING
For many reasons, digital pricing can tend to be higher than the price of physical games. Retailers are much more reactive to market changes and also have to deal with situations that the digital side does not – particularly inventory costs and shrink.

 

4. NEW TECHNOLOGIES
While streaming gaming is nowhere near the level of movie and music streaming, streaming content is still a familiar behavior for consumers. There is a line of thought that streaming gaming begins to take greater share from digital downloads over time, because, as with other mediums, owning the content ultimately doesn’t matter as much as having immediate access to that content. There is a streaming solution in the market today from PlayStation called PlayStation Now, but Xbox does not have a comparable technology.

 

There are several other consumer behavior reasons for the state of physical game dominance, including changes in the makeup of the consumer and their spend behavior. We must also keep in mind that the physical/digital split can be even higher (in favor of physical discs) in other parts of the world that do not enjoy the same level of the U.S.’s internet infrastructure.

 

While digital growth will continue in this market, it’s unlikely that it will happen at the accelerated rate that many analysts expect.

 

As a gaming industry veteran over the past 20 years, I’m happy to connect via Guidepoint and speak further with you on a call about the state of the gaming industry and can certainly speak to the digital distribution situation in greater depth.

 

Please note: This article contains the sole views and opinions of John Koller and does not reflect the views or opinions of Guidepoint Global, LLC (“Guidepoint”). Guidepoint is not a registered investment adviser and cannot transact business as an investment adviser or give investment advice. The information provided in this article is not intended to constitute investment advice, nor is it intended as an offer or solicitation of an offer or a recommendation to buy, hold or sell any security. Any use of this article without the express written consent of Guidepoint and John Koller is prohibited.

 

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