Summary
Downloading could seriously cut into retail sales, but if done right offers a chance for even the game retailers to profit.
Analysis
All of the major game consoles now have some form of downloading service that allows players to download independent and classic games from a growing library of selections. So the issue of whether it's possible or desireable or even a practicle business model is already being explored.
There will always be a demand for in-store sales of games, just as there is for music CDs. The stores give consumers a place to congregate, puruse boxes, browse through magazines, talk with salespeople and other players and get the lowdown on the latest games. But when you think that the average game store stocks just a small fraction of the titles that a music store does, and the impact that the iPod has already had on the music industry, you wonder why there isn't more digital distribution of games going on.
One reason is bandwidth. More and more people now have broadband, but the US still ranks much lower than many other countries percentagewise. And while DSL is considered broadband, it is certainly many times slower than cable, but there is certainly a consumer preference to seek out faster and faster connections.
The other major reason is fear of alienating retailers. The game industry has a well established system of developers, publishers, distributors, and retailers. And most of them benefit from the status quo. Many years ago I was involved with an early software teledelivery service. Everyone warned/threatened us that if we went the download route, no retailers would stock our products. And while it might be tempting to cut out the middlemen, publishers know that downloading works best with customers you already know, not in finding new customers.
As Nintendo works their strategy to not just expand market share, but to expand the whole pie of which everyone takes their share. This has helped the Wii outsell all other consoles and has helped the Nintendo DS to already blow past 40 million units. But many of these new consumers might need to go into a store to have some recommend a game or Brain Age series title.
What is probably needed is a new paradigm, where games are sold initially at retail and then updates and sequels are sold automatically online, but with some revenue passing back to the initial retailer.
Here's an example you buy Madden 2007 and now it's time for 2008. Perhaps EA will be able to ask you automatically next time you're playing if you'd like to bring your version up-to-date for a small fee. If you bought the original game from GameStop then EA couls send some small "commission" back to GameStop to compensate them for the add-on sale. The amount doesn't have to be as much as on the initial sale, as GameStop didn't have to invest in inventory or even make the sale, but also the payment of the fee keeps GameStop a loyal EA supporter and a customer for other future EA products. And like an insurance salesman, they know that a new sale may lead to several years of additional revenue.
We can hide under a rock and say we like things the way they are -- like the way the railroads resisted the airplane or Western Union resisted the telephone -- or we can try to adapt and create a systeem that benefits all of us, including our consumers.
