As discussed in previous posts, game retailers have to radically change their strategy if they are to survive on the high street, but what does this major shift in consumer buying habits and, potentially, retailers’ strategy mean for the titans of the videogame world: publishers and platform holders?

The good news:

• More direct digital sales. A decrease in the physical availability of the product is bound to spur the (already growing) trend in digital downloads — particularly for more obscure titles or add-ons that are unlikely to be stocked/discounted by non-dedicated game retailers. The boom in indie PC games is a clear example of this already happening; boxed PC games have been a highly fragmented market prone to piracy for years, and systems like Steam have enabled otherwise unlikely titles to make it big via secure digital distribution.
• The long-term decline of the secondhand market. As previously discussed, publishers have long considered secondhand games a thorn in their side, diverting sales from new titles — or so the theory goes. While an online secondhand market will continue to grow, the disappearance of high-street stores with lots of available secondhand titles (often shelved next to the same title, new) reduces impulse-buying opportunities.
• A smoother supply chain. Obviously, digital sales don’t require holding inventory; in addition, much of the complexity of distribution, credit facilities, and returns will disappear if physical boxed games end up being distributed mostly via two or three massive online stores and major chains/supermarkets. However, there are significant downsides to dealing with only a few firms like WalMart, Tesco, or Amazon — see below.
• Direct engagement with customers (or at least better information via partners). What do you, as a publisher, know about your end customer — or how many units were bought in a particular state? Perhaps a buyer is tied into your loyalty program or online service — but that doesn’t tell you where they bought from. By simplifying the supply chain and even selling digital goods directly, you gain insight into the buying behaviour of your customers and should be able to respond more quickly and effectively to their needs. Whether the big retailers like Amazon will share this information (even for a fee) is trickier; it depends whether they view the data as a revenue opportunity or a strategic advantage.

The bad news:

• Supermarkets and multi-category retailers become the primary physical retail outlets. You may have simplified your supply chain, but when Wal-Mart becomes responsible for 50% of your title sales, you become overly reliant on its largesse. And firms like Wal-Mart and Tesco negotiate hard for discounts. A secondary consideration is that, like books, videogames will become a loss leader for multi-category stores: pull punters in with $10 off Mass Effect 3 and then sell them $200 of groceries. As a publisher, you still get your revenue, but this exerts downward pressure on price points and devalues games.
• Online retail is still a mixed blessing. The gold rush in online shopping is largely over for most categories, including videogames. A few, well-behaved retailers dominate in multiple geographic markets; they don’t tend to discount massively and do now take part in pre-order and limited-edition promotions. But their long-term strategy isn’t necessarily obvious. Could Amazon become a leading competitive digital game distribution service? Will eCommerce (and rent-by-post) players jump into the gap left by high-street stores for secondhand games? The answer to both of these questions is probably ‘yes’.
• A short-term spike in the secondhand market. A key strategy (as I see it) for those struggling physical stores is to up their game in secondhand and trade-in games. While long-term publishers and platform holders may be able to cut off the air supply to this market with digital downloads and a reduction in the number of physical game disks/cards, that is going to take some time. Be prepared for struggling chains to keep pushing the boundaries in terms of what they see as their right to exploit this (more) profitable segment.
• The high-street showcase disappears. Often overlooked — especially by people who see GAME and GameStop stores as somewhat grubby holes (guilty as charged!) — is the showcase that these venues provide for new titles and new game systems — however seemingly badly organized to an outsider. 3D-based systems are the clearest example here: you can’t demonstrate a 3DS on TV or YouTube; you actually have to play with one in-person. Ultimately, this also means that videogames cease to hold a special place in consumers’ minds (just like books and music) — dedicated stores where you can browse and be immersed in your hobby/obsession, rather than just picking up the latest Call of Duty while you do the weekly food shop.

Today’s videogame market is such that both publishers and platform owners will probably benefit most from a slow, graceful decline in high-street videogame stores rather than catastrophic collapses — even if the threat of the latter accelerates plans around disintermediation.