MCV/DEVELOP News, events, research and jobs from the games industry
The games industry is a highly-complex marketplace. One that spans almost every imaginable distribution channel, be it physical, digital or some blend of the two. From customers purchasing digital content via a physical card code; to games published by one company, with physical media handled by another, distributed to an online retailer, before being sold and delivered in the post; to a piece of merchandise that’s shipped to a distributor, then onto retailers, before being sold on a shelf in a bricks-and-mortar store.
While direct digital publishing has been the big story of the last decade, huge amounts of retail product still move through numerous channels before ending up in the hands of consumers. These distributors play a key role in ensuring that retailers not only have the stock they know they need, but also in seeking out new lines to keep businesses growing.
In this issue, we’ve reached out to talk to some of the biggest distributors in the UK to get their take on the state of the games industry, their relationships with retailers and publishers, and how their businesses are coping with the uncertain inevitability of Brexit.
Pictured above, left to right: [Top row] Click Entertainment’s Dan Thurgood, Fraser Blakemore from Link Distribution, and Gareth Philips from Exertis. [Bottom row] Jonathan Rose from Lime Distribution and Kevin Young from Creative Distribution.
CURRENCY FLUCTUATIONS
As you’ll no doubt have seen from the news, there’s still a lot of uncertainty around the process of Brexit, and no certainty at all about the outcome – unless ‘Brexit means Brexit’ helps you make business decisions. However, one thing we all know about is the rollercoaster ride the British pound has taken in recent months.
Jonathan Rose, sales director at Lime Distribution tells us that “currency has made a big impact on not only margin but also the viability of distributing certain products. Where brands have had a strategy to increase pricing to alleviate some of this, consumer driven sales may not always necessarily continue at previous rates seen at lower price points.
“This has been quite a challenging year, but we have managed to keep ourselves relatively buoyant with good hedging of currency during periods of positive rates. We have also seen challenges where pricing has caused issues on a cross border level, especially going into Europe where SRPs are showing much lower in GBP vs the euro. We have been working closely with suppliers to manage channels and retailer expectation and strategy to ensure all sell through is as consistent for all parties involved prior to Brexit.”
Gareth Phillips, head of commercial at Exertis, also has concerns. “With such a large portfolio of products across console and PC gaming, we have seen both positive and negative impacts. Products we are buying in dollars or euros have increased significantly in price and we have worked with our vendor partners to try and lessen the impact on our customers. The flipside of this is the reduction of imported stock to the UK, which had been reducing our ability to compete on price.”
For Click Entertainment’s business development manager Dan Thurgood, however, it’s not all bad news: “As we predominantly do export, we have actually managed to increase our business in non-euro markets.”
DIVERSIFICATION
With software sales moving slowly but steadily to digital, many retailers have diversified from physical media and consoles into a wide range of products in recent years, including their own digital offerings. We wonder how the distributors are supporting this move, what new product lines they’re selling and how this diversification helps their business.
Kevin Young, sales and purchasing manager at Creative Distribution, says: “Our product range is constantly expanding. We typically sample small quantities at first on new product and then gauge the feedback from customers. Be it Nerf guns, Pop! Vinyl figures or board games, we are always willing to stretch the range and find what works. In creating these extra revenue streams, we are filling the gaps left from a reduction in video game sales.”
Link Distribution’s sales director Fraser Blakemore is in the same boat: “We’ve gone from being purely video games, consoles and accessories to now attaching gaming-related toys, merchandise and other third-party niche accessories,” he says. “We also now have our own in-store subscription kiosk (Link DGTL) which has gained traction within the last couple of years. Current plans include the development of new product ranges, allowing us to fulfil the needs of the pro PC gamer market with a range of hardware and components to sell alongside our software range.”
Other distributors have expanded through mergers, either recently or over time. Click Entertainment’s Thurgood tells us that after the merge with Danish electronics firm Dangaard, it’s now able to add consumer electronics to its growing portfolio. “We have a wide range of product SKUs at all times in stock so we aren’t reliant on the core traditional business model.”
Likewise, Exertis’ Phillips has found success through both mergers and a shift to digital. “The Exertis business was formed of many specialist distributors and our combined expertise and product sets have massively enhanced our gaming offering,” he tells us. “Our investment in Ztorm, our digital gaming platform, and the bringing together of two of the UK’s leading PC and console gaming distributors, has allowed us to diversify our gaming proposition without changing our core business or values.”
Lime Distribution specialises in gaming accessories and associated products already, so the move plays right into the company’s strategy, says Rose: “With digital sales increasing and having an impact on high street retailers, this is really forcing retailers to become more diverse and look to other potential markets that make sense for them whilst still being related.
“This is great news for us as prospective clients look more towards accessories, collectibles and tech. I only see this trend increasing with internet speeds becoming faster and ISPs being more competitive with pricing.”
He adds: “We move into many different sectors wherever we see a trend in search trends or products that get us excited. From gaming we have moved into drones and tech.”
RELEASE SLATE
Many of the biggest publishers have slimmed down their release slates in recent years, concentrating instead on building a handful of big titles, although other publishers such as Team17 and 505 Games have since stepped into the physical space to start filling in the gaps. We wonder how this switch in strategy has affected distributors and their clients.
Phillips, at Exertis, feels the industry is on the upswing and calls out one of the company’s own titles, the early access smash hit Ark: Survival Evolved, as being one of the highlights for the rest of the year.
“The new release slate has been fairly quiet, but after an action-packed E3, where we saw a raft of new products and IPs, we feel that we have a few good years ahead. There are always studios prepared to try new things and we see an example of a digital product moving to physical after an amazingly successful beta with Ark: Survival Evolved releasing this summer.”
Creative Distribution’s Young is equally confident about the rest of the year: “I couldn’t say whether there were more or less new releases overall, but we are certainly bringing more to market than we have ever done before.
“Working a lot more with smaller publishers directly or through their official distributors, we are finding success on a number of titles that aren’t readily available in the market, helping to bring games to consumers that aren’t available from mainstream retail.”
Over at Click Entertainment, Thurgood echoes these sentiments: “There are fewer publishers competing at the triple-A level, so the releases are more focused on big IPs now. That said, there seems to be another boxed release stimulus with the success of indie titles as a good example.”
Link’s Blakemore also thinks the year is looking rosy: “In terms of new releases, this year is a big one. More so than recent years, as there’s lots of new hardware to be excited about, plus the games and accessories that sell with them. We had noted a decrease in physical boxed sales in 2016, but this year is on course to change that.”
Rose at Lime, meanwhile, feels there’s at least one title on the horizon that should boost business: “There have been relatively few releases this year to drive sales or attach, but we’re really looking forward to Destiny 2, which is personally my favourite franchise.”
Overall, it’s a positive response, then, with distributors feeling there are more opportunities for them now that the big players have vacated the middle-tier release space. The trend may still be toward digital, but the next couple of years look healthy.
CONSOLE CYCLE
The console business is deviating from its long-held template, with the release of the PS4 Pro and the upcoming Xbox One X. We ask our panel whether they think the recent mid-gen console updates are a positive evolution, and whether new hardware is more of a hindrance than a help when it comes to driving sales of software and peripherals.
Click’s Thurgood is upbeat about the new devices, saying: “The consoles seem to be performing [well] and as consumer demand for improved performance and visuals continues, it will hopefully add longevity to the hardware business as a whole.”
Meanwhile, Phillips at Exertis thinks the evolution is in step with modern consumer habits: “We have welcomed the mid-gen updates. Technology’s improving rapidly and people are getting used to trading in their phones every 12-18 months for the latest and greatest kit. Multiple SKUs offer more choice and varying price points, so this is a good thing and it will be interesting to see how the install bases play out, as we could see that we have premium and standard version install bases for each format holder.”
Link’s Blakemore is also keen: “I personally like these mid-gen updates. It injects interest back into the market and we get buzz around games that make use of that extra power. I’m excited to see what Xbox One X will bring to the market.”
It’s not a clean sweep, though, as Rose from Lime isn’t quite so enamoured: “We saw quite a period of time for the PS3 and Xbox 360 to enjoy their life cycles. With these more Apple-esque console releases, these short lifespans don’t necessarily translate well for consumers or developers.
HARDWARE SUPPLY
With more hardware than ever, stock shortages are becoming increasingly problematic for distributors, especially when big players such as Nintendo and Sony have both suffered from supply constraints in recent months, the former with the Switch and Classic Mini NES and the latter with PS VR and the PS4 Pro.
Exertis’ Phillips admits there have been problems, but also certain upsides: “We have been affected by hardware shortages, and in an ideal world there would always be free supply, but it does help with maintaining demand. Products come and go, as do their supply, and one thing we have learnt is that you cannot build a sustainable business relying on a single product or product set –unless you’re Apple, of course. Console, PC, handheld, physical, digital, accessories, merchandise or retro – we have to be able to offer what consumers want, when they want it.”
Click’s Thurgood tells us he’s also managed to cope with fluctuating stock levels: “We managed to provide a good supply to customers and saw a huge spike on Nintendo this year, even with shortages in the market we were able to fulfil demand.”
Lime’s Rose is equally proud of the company’s record: “We’re sometimes affected by supply issues, mostly new manufacturers not forecasting for demand. Generally, though, we work with some really great suppliers.”
PRICING AND GROWTH
As for the health of the industry overall, Creative Distribution’s Young is somewhat concerned: “Business is currently good, albeit a tad slow, but at this time of the year that’s to be expected,” he says. “We are gearing up for Q3 and Q4 by ensuring the customer base is engaged and they are ready to purchase when the time is right. However, we are finding that a lot of independents are having a tough time. The high street in particular has seen a drastic reduction in footfall over recent years, with consumers increasingly ordering online.”
Rose, from Lime, however, has a more positive outlook: “Competition is a healthy thing, but we’re seeing growth as a business as we would expect.”
Phillips of Exertis feels the same: “As a business, we’re on track and the market is more competitive than ever. We’ve been working with our vendor partners on promotions, bundles and new initiatives to drive sales across our portfolio.”
Blakemore is also keen to talk about Link’s success: “We have experienced exponential growth this past year, partly to do with our diversification and new product ranges, but also our active customer engagement and great service.”
LOOKING AHEAD
Distributors are a key indicator of the health of retail. We thought their tone might have been more downbeat given the wider conditions on the UK high street, but the companies we spoke to were keen to talk about how they’re making it work in this tough environment, thanks to diversification and other initiatives. In the near future, we’ll be undertaking the same opinion test from their clients, the retailers, to see if the two match up.
