You'd think distribution would be a less exciting part of the games industry, but you’d be wrong.
As its life is so deeply rooted with physical retail, the sector faces just as many ups and downs as the High Street. If it’s not the threat of new competitors emerging and routes to market opening and closing, its day-to-day difficulties such as declining sales and warehouse fires.
So recent trouble at two of the UK’s leading High Street games retailers, GAME and HMV, will have been seen by distributors first-hand. The transition to digital? Yep, distributors are wrestling with that too – perhaps more aggressively than ever the publishers. Distributors, then, are putting out fires all over the place. Sometimes literally: the most high-profile of distribution crisis in the last year was Sony DADC’s Enfield hub getting torched during the London riots in August.
But despite all this – even someone as tested as Sony DADC remains optimistic: “There is certainly a land of opportunity for all concerned, with new technologies to support businesses and consumers and our sector,” says UK GM Natasha Tyrrell.
Thinking outside the box
In a challenged market, the answer is obvious: evolve and diversify.
One obvious new business for distributors is applying physical skills to the growth of digital.
The Producers – part of the Mastertronic Group – is one such firm. It has been supplying products digitally for seven years, and its parent owns the PC download site Get Games.
“The sector seems to acknowledge digital distribution will continue to grow, and as a player with a foot in the digital and physical camps, we’re hoping this will be the case,” says operations director Dermot Stapleton.“There will continue to be a place for physical distribution and a growing digital arena.”
Others like Koch Media and Creative Distribution are seeing success in the DVD and games publishing spaces, while Gem has expanded after acquiring Swedish digital distributor Ztorm. So traditional boxed distributors are moving to acquire business-to-consumer digital retailers. Metaboli is another target, rumoured to be be in the sights of suppliers such as distribution giant Arvato.
Finding that niche
The drive for digital proves that the distribution sector is no longer just about similar companies competing on price and service. Each is finding its own specialist area, whether that’s accessories, downloads, publishing, online retail or other tailored services. There’s now a stronger demand for specialist service providers with premium prices, rather than just the standard pick, pack and shippers who can only compete on price.
“The last year has seen a much clearer line of divide appear between the different types of distributors in the market, that all excel in their specialist area of service,” Interactive Ideas’ marketing manager Andrew Miles tells MCV.
The Producers’ Dermot Stapleton adds: “Where we read every day of a constant need to ‘cut’, there will always be the perception that there are savings to be made in the distribution chain – whether it’s physical or digital. We have to keep demonstrating that we can add value and not be seen as simply a business cost.”
Don’t mistake this article for taking a negative spin on games distribution. Let’s not forget – boxed games and hardware still make up the bulk of the UK games industry’s overall sales.Consumers spent over £3bn on video game products last year.
With a £2.52bn majority of that made up of boxed software, consoles and accessories sales, there is a still a clear, dominant market for the box.
But the market was still down – and that’s not the only point of concern for games suppliers. Consumer confidence is low, the economy is still in need of recovery, games drop in value quicker than ever and competition at supplier level is stiff. With retailers struggling, the need for distributors to obtain credit insurance on their products is stronger than ever (see ‘Credit Where It’s Due’), and supplying stock on consignment is becoming an increasingly attractive choice (see ‘Will Consignment Become ‘The Norm?’).
Bright Red Entertainment MD Danny Russell adds: “There is more caution from retailers with less credit and new competitors pushing into distribution, which makes it even more challenging. Reliance on just distribution may mean some companies find themselves exposed.”
Link Distribution says the sector is moving at a much faster pace – including price drops. “We now have games losing 30 per cent of wholesale value within 14 days of release, and as much as 50 per cent within 45 days,” says international trade manager Adam Harris. “This is being driven both by the onset of DLC and the cut-throat nature of consumer appetite for poor sequels and unrefined or rushed launches of new IPs.”
And let’s not forget the rising price of fuel which puts a strain on logistics divisions each passing year.
On the flipside, looking at the record-breaking mega sales of games like Call of Duty and FIFA shows an unquestionably huge demand for the distribution of pricey boxed video games.
Weathering the storm
So what can be done to surive?
“Consumers still want to buy games, but no longer have the amount of disposable income they used to,” explains Robert Stallibrass, the MD of PC simulation game and accessory distributor Contact Sales.
“The future looks uncertain to them so they are holding on to their money. I want the economic conditions to improve, and for hardware manufacturers to continue to sell large volumes of PCs.”
Gem’s UK general manager Darren Houghton adds: “The market is unquestionably tough, but we all have to be tougher and more creative and agile about how we look to evolve our businesses to effectively navigate through it.
“A collaborative partnership is a stronger one and that’s always been our mantra and I believe it’s also the reason why our partners remain loyal to us.”
Gem’s group strategic development officer, Alex Croft, says tackling piracy would aid the distribution sector enormously.
“A more concerted and far-reaching set of policies and activities to combat piracy within the entertainment sector would see some very positive results across the board, for everyone involved,” he tells MCV.
Koch Media believes we shouldn’t hit the panic button.
“There’s not much to be done, apart from work more supportively with our partners to ensure they survive the downturn,” comments the firm’s MD Craig McNicol.
Sometimes finding alternate solutions isn’t the answer. As times get tough, sticking together becomes the priority.
Distributors have learnt how to overcome big challenges already, and they’ll be ready for whatever’s next.
Times may be tough, but the sector is in safe hands.
Going it alone
Going?direct to retail is one option for businesses that is not without its benefits. Accessories manufacturers Hori and Venom are just two that prefer this method of distribution as it can ‘maximise margins’.
“We have a proven track record of successfully providing solutions to our retails partners that maximise margins and merchandise effectively,” says Tom Hodge from Venom’s Business Development division.
The company designs, manufactures and supplies games accessories like the Nintendo licensed Mushroom Earbuds for 3DS, Twin Docking Station for Xbox 360 controllers and the VX Comm Response Headset for PS3. But although it goes direct-to-retail for most retailers, it also works with partners such as CentreSoft to widen its reach.
Hori produces goods like the Namco Bandai licensed Soul Calibur V Fight Stick. It manufactures products in China and has a logistics centre in The Netherlands. Like Venom, it only supplies its own products to retail.