Digital versus retail revenue in the game industry (update)

David Hughes's picture

Leaks of an upcoming report from the NPD Group, titled "Games Industry: Total Consumer Spending" are providing unprecedented detail about the size of the game industry as a whole, particularly the less-understood digital market. Though digital sales just eclipsed physical retail boxes in the PC sector this year, digital revenue comprises an impressive percentage of the industry as a whole. Read on for the details we know.

How much revenue exists beyond physical game copies sold at retail?

Last month we reported on another report from the NPD Group that expressed what we all knew was inevitable: in the PC market, digital games sell more units than physical retail ‘box’ copies. From January-June 2010, 11.2 million digital games were sold versus 8.2 million box copies. This was an impressive showing, but the author of the report went on to note that physical copies still generated significantly more revenue: 57% to 43%.

At the time, reaction to the analyst’s report on the revenue split was generally derisory, pointing out that the NPD’s data failed to include the massive revenues generated by online game subscriptions and micro-transactions. This new report aims to fix the flaw, expanding the breadth and depth of the NPD Group’s research to include used games, game rentals, game subscriptions, digital full game downloads, social network games, downloadable content, and mobile game apps. This provides a much clearer picture of overall consumer spending on video games than has to date been available.

What does this clearer picture show us? Physical retail sales still dominate the market, but not as much as some might think. Though data in the report is limited (like the report we mentioned above) to the first six months of this year, revenue from all ‘alternative’ sources hit 75 percent of revenue from traditional retail sales, or about 40 percent of the overall market. The actual numbers are $2.75 billion for ‘alternative’ revenue and $3.7 billion for retail sales. This is impressive, considering that even the digital distribution-heavy PC sector is still very well represented by physical sales.

That said, stronger conclusions about the state of digital vs. physical retail can’t be made until the full report is made available, because it’s unclear just how much used games and game rentals factor into the ‘alternative’ revenue totals. Though Netflix-like services such as Gamefly are reasonably popular, game rentals can’t amount for a significant amount of the total revenue. Used games, on the other hand, represent a rather large chunk of the category.

Based solely on previous earnings reports for the major U.S. used game chain, Gamestop, first-half 2010 revenue from used games would be close to $1 billion. This reduces the digital category to approximately $1.75 billion—impressive, but still a far cry from the revenue generated by traditional retail. That said, look for physical retail to eventually lose its edge, as even retailers like Gamestop are anticipated the eventual end of traditional retail revenue in the game industry.

Stay tuned for further developments, particularly when the full report comes out later this month!

Source: Gamasutra

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