LGC 09: Will downloads be worth more than retail after 2014?

The games industry will see a major tipping point towards digital distribution – and finally experience its ‘the iTunes moment – by 2014, according to analyst Nick Parker.

Referencing reams of data, and an industry survey which grilled key execs on the future of digital downloads, he said that serious change will come within the next five years.

And by 2014 "we might have some parity betweeen digital distribution and retail", with both representing around half the games market each, said Parker – although he stopped short of elaborating on whether downloads will overtake retail from 2015.

Currently, the games industry is facing the emergence of new business models that operate alongside the established publisher/retailer market – but in time we will see "a comibation of download and streamed".

He drew parallels to the music market’s various services for both downloads (iTunes) and music streaming (Spotify), pointing out that "both can complement each other".

Parker also highlighted the five key areas where digital distribution will have an impact and how they will change. (Although he provided the caveat that ‘no one really knows’ what could happen given the surprising way Apple upended the music industry during this decade.)

Hardware, he predicted, will develop to include both next-gen, powerful machines, plus platforms that don’t put an emphasis on high end graphics, and instead focus on fast delivery. With items like the iPhone that’s already happening – so Parker said it wouldn’t now be in the realm of possibility if Apple launched a console with Intel’s Larabee chip in it.

For publishers, the biggest hit will be in their studio operation. "The retail model moves away from banking on enormous day one sales to a larger, longer tail for online models," said Parker, so publishers will need to reduce short term costs. "They will have to scale down exiting studio structures."

Meanwhile, developers are seeing "the value changing – it is shortened so they have the opportunity to benefit form diret consumer ownership".

Elsewhere technology will develop to find more new delivery mechanisms enter that enter the value chain. Parker postulated that these could "either be acquired by the above [retailers/publishers/developers] or become a new content aggregator." Again he pointed to Apple’s sudden entrance into music as evidence that the industry should always be aware of the potential of "one big new entrant to shake up the eco-system".

And what about retailers? Parker rebuffed the idea that retail becomes less powerful in the world of digital distribution.

"They still own hardware and peripheral distribution and can diversify into non-specialist but complimentary products," said Parker, saying that retailers will diversify their offer to include digital to maintain customer engagement – wherever customers are.

"Retailers should always have an online software digital distribution offering – gamers and publsihers need many points of purchase and distribution," he said, adding: "In store digital point cards will slow down emigration."