Overview: Retail is (and will remain for the foreseeable future) the dominant sales and distribution channel for games. The mechanisms behind retail – manufacturing, infrastructure, POS, inventory, sale or return agreements – are the foundations of the industry’s most common commercial models, whose rigidity is reflected in common commercial models but is also driving innovation in digital distribution.
Sustainability: Good. Retail will retain its position at the head of the growing list of distribution channels for at least the next five years, and probably longer. It faces a war of attrition with digital distribution, which will take a steadily growing proportion of the market.
Market Share (of 2006 global games software revenues): 72%
Overview: Mobile games, despite the hype, have still reached low levels of mobile phone owners, and despite low break-evens and rapid development cycles, combined with low production costs, the channel is hamstrung by structural problems which have slowed (and will continue to slow) its growth. The direct to consumer, ‘off-portal’ channel is still in its infancy.
Sustainability: Low. The structural problems in this sector are such that only a few companies can survive at scale.
Market Share (of 2006 global games software revenues): 10%
ONLINE FULL-GAME DIRECT DOWNLOADS
Overview: Digital download of games direct-to-consumer online where consumers pay for games or premium content to download the games onto their PCs or consoles in their entirety, or split into pieces. A wide range of channels exist, but only a few at scale (Steam, EA Link, Direct 2 Drive). Rising broadband penetration will drive this channel, but penetration is still minimal at present.
Sustainability: With low market penetration, the sector has been slow to grow, but eventually the market will take hold, increasingly driven by full game downloads on console.
Market Share (of 2006 global games software revenues): 0.4%
CASUAL PC GAMES
Overview: The casual PC games market has enjoyed rapid growth in the last five years driven by demand from a broad, mass-market demographic for simple, fun gameplay experiences. Distribution of casual games is via a growing number of channels including community sites, games portals, and direct from developers’ sites. These games are monetised variously by subscription, premium downloads, multiplayer wagers and advertising.
Sustainability: Good. A crowded series of distribution channels at varying stages of maturity, but all addressing a demographic that will continue to grow.
Market Share (of 2006 global games software revenues): 3.2%
ONLINE ITEM SELLING AND INCREMENTAL DOWNLOADABLE CONTENT
Overview: A new channel in the West via online consoles (post-launch content for boxed games) but established and dominant in Asia (in MMOs). Most providers rely on players filling wallets (via credit cards or game cards purchased at retail) which allows micro-payments for small goods and services, including added functionality, personalisation, game levels and other content. A number of leading console games have successfully trialled incremental content downloads.
Sustainability: The channel has great potential with fascinating P2P commercial models being trialled in Asia but in the West the surface has barely been scratched,
Market Share (of 2006 global games software revenues): 7.3%
MMO – ONLINE SUBSCRIPTION
Overview: While major releases are sold at retail, most MMOGs are available as a free download and monthly subscription enables continuing access to the game world. Subscription revenue is offset by the high costs of creating, marketing, maintaining and updating that game world. Failure rates are high, often due to underestimating on-going costs. Although console-based MMOs are coming, PC will retain most of the market.
Sustainability: The market for subscription MMOGs is being challenged by new MMOG models such as item selling/trading, but successful games like World of Warcraft are driving subscription gaming into new demographics, ultimately benefiting the entire market.
Market Share (of 2006 global games software revenues): 6.7%
DOWNLOADABLE CASUAL GAMES ON HOME CONSOLE
Overview: All three current generation consoles have online stores selling casual, retro and back catalogue games downloaded directly to the console’s hard drive or flash memory cards. Hundreds of such games are in development in this young but growing market. Publishers are jumping on board, driving up production values and leading to an increasingly crowded marketplace.
Sustainability: A crowded, immature channel but with good potential from 2008. Early results have been promising. Competition and console penetration will drive the market.
Market Share (of 2006 global games software revenues): 0.1%