Videogame downloads to increase faster than movies

Game revenue will be $5.4 billion in 2012, $2.8 billion for films

By Susanne Ault -- Video Business, 2/19/2009

FEB. 19 | Digitally delivered videogames will hit the mainstream before digital film, according to Futuresource Consulting research.

This year, digital game revenue will reach $2.3 billion, versus $880 million for digital film. By 2012, digital games will rise to $5.4 billion versus digital films’ $2.8 billion.

Games will dominate in the digital space because of their already strong connection to a Web environment, according to Futuresource. All three of the major consoles, PlayStation 3, Xbox 360 and Nintendo Wii, offer game downloads, conditioning consumers for online purchases. Also, many players are encouraged to download added-value items, such as vehicles and weapons, to advance through game levels.

“Online marketplaces such as Xbox Live, PlayStation Network and Wii Channels have provided a platform for additional revenue growth through full game downloads and revenue from [value-added] micro-transactions,” Futuresource senior market analyst Mai Hoang said.

In another motivating factor, downloading games can be cheaper than buying the packaged versions. With film, there is generally little difference between the packaged and download price.

Sony plans to roll out PS3 games priced at $39.99 download/$59.99 physical disc, according to Hoang. The company is expected to add several extras, such as wallpapers and trailers, to the premium disc version.

DVD consumption, not as naturally aligned with the Web, will stay a mostly packaged business for some time, says Futuresource.

“We do anticipate that an increasing number of consumers will engage in online [home] video activities; however, reaching the mass market video customer base is not expected in the short-to-mid-term,” said Hoang. This is “unlike the games market, where the majority of gamers are generally already accustomed to downloading.”

However, within the game industry, packaged titles will remain the dominant format over the next few years, notes Futuresource, generating $15.5 billion in revenue over online games’ $5.4 billion in 2012. Mobile games will churn out $1.9 billion.

In packaged media retailing, online retailers are poised to dramatically increase their market share over the next four years, according to Futuresource. Interestingly, however, retailers can rack up higher scores when merchandising packaged games online rather than in-store, Futuresource says.

Currently in the U.S., 7% of all packaged videogames are sold online. That portion will more than double to 15% by 2013. DVDs will be increasingly sold online as well, lifting to 20% of the market from 12% in 2008.

“E-tailing is one of the channels that will show impressive year-over-year growth,” said Alison Casey, Futuresource head of global content.

Videogames are well-suited for the e-tailer channel because of Web-specific sales opportunities, Casey said. Sites’ built-in pre-ordering mechanisms, for instance, let retailers better predict titles’ success, with customers purchasing games weeks before their expected in-store bows. Stores also can design cross-promotions between like-minded films and videogames, taking advantage of the Web’s few shelving constraints.

Casey said U.K. retailers especially have been advancing a Web retail model for packaged games. U.K. stores will corral early sales by listing games at cheaper pricing if bought prior to their designated in-store launch. For example, U.K.’s HMV.com tagged a £34.99 pre-order price to Halo Wars, which carried £39.99 in-store launch pricing. The U.S. generally offers identical pricing for pre-order and launch, as in Best Buy listing the title at $59.99 for both.

“Pre-ordering can help improve sales forecasting,” said Casey, adding that “60% of sales come from a pre-order in the U.K. This is a very important part of the business here.”

She also said online retail is better equipped to nurture a catalog games business, which to date mostly revolves around new releases. Selling library titles is important because they typically generate 30% profit margin, versus 10% margin on new releases.

Although few consumers will rush out to purchase old installments of long-running game series, the growing casual game fan should stay attracted to titles based on evergreen film properties. One perfect way to cultivate film-based game sales is to slot the title next to their DVD movie counterparts, best accomplished online, added Casey.

“Bricks-and-mortar isn’t as good at cross-category [promotions]; there are different buyers in charge of product in different parts of the store,” she explained. “But there is a massive opportunity for leveraging the strength of the franchise” online.

She notes that, “With the Top 10 movies last year, eight of those had games associated with them, but only two, Indiana Jones and the Kingdom of the Crystal Skull and Iron Man, got onto any of the top game charts. There are great opportunities with the e-tail channel.”