Speaking at the annual Credit Suisse Technology, Media & Telecom Conference – an event where usually Strauss Zelnick represents Take-Two – the president of Take-Two Interactive, parent company of Rockstar Games, developers of Red Dead Redemption 2, spoke a bit about how he sees the future of the video game industry.
Digital distribution has changed the way many gamers buy their games and while the mainstream consumer base still makes retail the bigger market, trends indicate this will soon change. Digital distribution’s benefits to broadening the potential audience of games is vast, increasing the accessibility and longevity of games.
What game store would carry 2011’s Red Dead Redemption on its shelves today? What if someone lives in a location with no game stores nearby? Digital distribution allows them to buy games from the comfort of their homes, and the selection of games on offer reaches back decades, spanning the breadth of the entire industry.
Digital distribution also has budgetary and environmental benefits. All those discs, cases, cover sheets and manuals (provided there are any) cost the publisher money. That’s a chunk of budget that could go towards development, and actually making the game better and more polished. The retail copies need to be shipped to resellers, which also costs money and consumes fuel. Cases and discs will inevitably become waste at one point. None of these concerns stand with digital games.
Digital distribution has also transformed the way content is added to games. While not directly linked, the trend of constant post-launch content support, with some games setting the example of adding free DLC to the game every single week, stems from the digitization concept as digital distribution does, and the two systems are entwined. In the case of DLC, it’s even in the name – “Downloadable” content.
The reason why, for all its benefits, digital distribution hasn’t yet outstripped retail is that the majority of consumers are casual.
In terms of percentages, the walk-in buyers still make up a larger segment of the market than the hardcore gamers. Simply put, the majority doesn’t much care about the benefits of digital distribution. Most people who bought Red Dead Redemption walked into a non-game specific store that also happened to sell games, and picked it up, or did so simply because of the Rockstar logo. The die-hard fans who followed the game pre-release, pre-ordered it and so on are the minority, but they are also the minority most prone to opting for digital purchases.
Karl Slatoff predicts that the scales will tip soon – so soon, in fact, that he thinks the entire industry will shift to becoming 100% digital within the next 5-20 years. 5 might seem a bit extreme, but it’s safe to say that, based on how things look today compared to the early 00’s, in the next decade or so major shifts in the market will be seen.
I think over the long-term, it will be 100% [digital]. I just can’t predict whether that’s five years, 10 years, or 20 years. It’s probably less than 20 and maybe more than five, but I think it ultimately gets there. That’s the zeitgeist. Things are moving in that direction.
The increasing popularity of digital services that are integrated with games, even when bought through retail, are conditioning the average consumer to shift their views to digital distribution as the default instead of retail. Even if you buy a physical copy in a store, you’ll likely need to download patches before playing and register an account.
You’ll have access to an in-game store, or the game will have additional content available only digitally. In extreme cases, like with the DLCs of Skyrim which for some reason got retail releases, you’ll go home, open the case and not even find a disc in there, only a sheet of paper with an activation key.
Another factor that has hastened the shift to digital is how two of the biggest players on the scene, Microsoft and Sony, have weaved together their multiplayer services with their digital distribution. Since multiplayer console games lead the industry in terms of player count, this has the most significant effect of all factors involved. Anyone playing through Xbox Live or PlayStation Network will have bumped into their respective online stores a few times.
Why I think it’s a little quicker than people imagined is honestly, Sony and Microsoft have done a really nice job with their services. You’ve got more people on Xbox Live, more people on PSN, and it helps. The friction is going away at a quicker rate because these platforms have been really well developed, and the consumers love it.
Digital distribution has went from being nonexistent, to a new and strange experimental method, to being the norm. It’s logical to assume it will soon be the go-to method of buying games for everyone. Convenience is another factor, as this doesn’t require you to leave the comfort of your home, and this convenience factor is what pushed almost every other industry to embrace online shopping.
These days, anything can be bought online, and people are buying everything online. Streaming has transformed the way people watch movies and TV, how they listen to music. The various services of sites like Amazon have transformed shopping, be it for gifts, clothes, books and anything else. Grocery chains allow you to purchase everything on your list and have it delivered to your door. If all these are going digital, it’s only logical for games – the best-suited product for digital distribution – to lead the charge and be the first to become 100% digital.
This vision of the future is one thing, but in the present, the power of retail cannot be denied, and Karl Slatoff knows this. It will very likely still account for the majority of Red Dead Redemption 2’s sales, as it had for the majority of Grand Theft Auto V’s sales back in 2013 (and 2014 and 2015). Digital is more powerful than ever, and it will only get stronger, but retail has a head start of… well, the entirety of human history.
The truth is physical retail is still the majority of our business, and very important partners of ours,” he said. “And we want to do everything we can to support that environment. And we do. They’re very strong marketing and distribution partners for us. But again, it’s out of our control. Whether we want it or not, it looks like it’s going to happen eventually.
As distribution methods shift, other market practices shift with them. When digital distribution didn’t exist yet, or was very preliminary, post-launch content had to be released in a similar manner as standalone games. So, if you’re putting out a new disc with a whole new marketing push to let people know it exists, you might as well pack it full of stuff, right? These expansion packs have become a rarity in the industry, replaced by a new form of DLC and monetized content, which is far smaller, far more frequent… but not a lot cheaper. Monetization of content in AAA games is something of a hot topic currently, and Slatoff commented on the recent lootbox controversy as well.
The whole gambling regulator thing, we don’t view that sort of thing as gambling. Our view of it is the same as the ESA statement for the most part. That’s going to play its course, but in terms of the consumer and the noise you hear in the market right now, it’s all about content. It’s about overdelivering on content and making sure you’re focused on engagement. That has been our strategy and where we’re focused, and as long as you keep your eye on that ball, you’re going to be OK. The consumer’s going to be really happy with what they get.
While it might still be a while until we reach that point of a fully digital gaming industry, based on the speed at which Rockstar Games releases its titles, we might very well see Red Dead Redemption 3, or whatever the fourth game in the franchise will be called circa a decade in the future, get released in digital format only without any retail versions.