The Guardian recently blamed the downturn in the games sector on digital. Do you think this is fair? You said to us last year that the digital threat is ‘overblown’ – do you still stand by that?
There are two things we need to look at. Firstly, digital is a relatively small part of the market as a whole. A couple of percentage points. Not much more than that. And it has a similar proportion of our business, as it happens.
But the second thing – and this is through what we have learnt about digital over the past 12 months – is that the most powerful way to sell it is in a shop. Whether it is points cards, or the downloadable games we are now selling for Microsoft, or whether it is the role we play in selling stand-alone web-based digital content – in all of our UK stores, we are selling this digital content and Facebook games.
Millions of people every week walk into those stores. And the opportunity that you have to introduce these people to something they might not have heard of, to make a sale they might not have been planning to make, is absolutely manifest.
Yes, you have to put digital into perspective in terms of its overall size, but it is an area where we have a good opportunity to take market share.
GameStop is making big acquisitions in the digital space. Is GAME considering anything similar?
We are doing what retailers do well, – which is making content famous.
We are very focussed on how we use our customer relationships to introduce digital content to them, and essentially sell more content for our digital partners than they would be able to do themselves. We have a key asset to enable us to do that, which very few people have actually got, which is the reward card relationships that we have with customers. We now have 17 million reward cards around the world.
The strategy is less about acquisitions and more about engineering customer communication channels – in-store and through CRM – to make digital content famous.
Is digital content even ready to be famous when platforms like PSN can suffer such severe security breaches?
That does illustrate a larger point, that as gaming becomes more inter-connected, more multi-player, more digital, the skills needed to operate that are a bit different.
Subscription management, data security, and all of those things come much to the fore. And that is something the games industry at large needs to take stock of and really give some thought to.
How significant was it that GAME enjoyed a good launch for 3DS?
It’s a very good illustration of some of the underlying strength of our business.
If I look at the 3DS launch, a lot of our UK competitors were playing with one club, which was headline price. If I believed only what I read in the papers then the view would have been that a lot of the general retailers were very, very aggressive on price so must have done well.
Actually, what we saw is that GAME did very well. We took great market share on 3DS – significantly ahead of the share that we would naturally expect to take.
When a product is new in the marketplace, the customer turns to the specialist. They want to talk about the product, they want to see it demonstrated, they want to put pre-orders down, they want to trade-in their old DS to get money off the new product.
Customers responded very well to all of the elements of our offer. And I am immensely proud of the people in-store who did a terrific job on that product. We took the largest market on 3DS, despite all the price competition – we sold the product profitably – and we were still able to give customers fantastic value by using trade-in, reward points and all the other elements of our mechanic. As a story, I think it is a fantastic illustration of the power of the specialist. It is not true of every market, but it is true of the games market and it is true of GAME Group.
But you were aggressive on price online. Did that account for a big chunk of your 3DS market share?
We sold the 3DS at a very good average selling price. Some of the sales were online. But again we were able to do innovative things online, so we were using elements that our competitors would struggle to match.
With the successor to Wii due to be revealed at E3, do you think this is the right time to introduce new hardware?
This is a market that thrives on innovation. What you see from platform owners who are heavily invested in a very large $40bn plus global marker, is that they don’t want that market to fade away. So when challenged they will respond by creating innovation and bringing new stuff to market. The handheld gaming industry has been heavily challenged by smartphones, and the platform owners have responded with 3DS and the forthcoming NGP.
Equally, if your home console is challenged by not being the seller it once was, then you’re not going to watch that fade away, you’re going to do something about it. So it doesn’t surprise me that people are going to bring innovation to the marketplace.
Is Kinect and Move filling the void in the absence of new consoles?
That is clearly the strategy that Microsoft and Sony are following, which is using motion control to extend the life of the consoles. I think they have done a great job of it and the early signs are good. Kinect and Move have both sold really well. What we will learn at E3 is how much we can get out of the next wave of software. I think we have a lot ahead of us to be excited about with Kinect and Move and I do think they have been a big boost for the industry.
Over the past 12 months we have seen a number of new competitiors in pre-owned, and publishers have tried to deter this with second user charges – yet GAME’s pre-owned business jumped up again. How have you managed to do that?
First of all consumers are looking for value. And that isn’t surprising when you are worried about money, jobs and the future.
Lots of competitors are forever talking about how they’re going to get into this market, and every time we’re told that new entrants are going to challenge our pre-owned business, our pre-owned business gets bigger. It is something our team in-store are good at doing well. And therefore it is a strong part of our business.
I also think, through conversations with developers and platform owners, that there is a growing realisation that a healthy pre-owned marketplace is good for the whole industry. It has made the mint marketplace more affordable and has kept people in that marketplace.
There has been endless debate over pre-owned versus mint, but my view is that a healthy pre-owned and trade-in marketplace – which we are largely the people who are involved in driving – is good for the whole industry.
Is there not a danger of pre-owned distacting GAME from mint game sales?
Pre-owned as a percentage of our margin is good, but it is a long way from being the majority share. It is a really important part of our mix because it allows us to drive mint sales. We are able to offer trade-in deals and offer initiatives such as ‘play now, trade later’ because of our healthy pre-owned business. We are very focussed on and committed to growing the mint marketplace, and we see pre-owned and trade-in as a support to allow us to do that.