Are Microsoft, Sony, Google, and Amazon Trying to Kill Off Gaming Shops?

Microsoft and Sony are ushering a new exciting generation of gaming, but could it cost us our traditional brick and mortar gaming shops?

I have been a gamer since the late 70s (yes, I’m that old) and I have never been this excited about the future of gaming before. We have a fresh wave of consoles on the immediate horizon capable of 4k and even 8k graphics. The days of waiting for games to load are over, which is one I didn’t foresee, even with SSDs becoming so common.

Then we have the new wave of gaming streaming and subscription services. For less than a third of the price of a physical game, you can get instant access to hundreds of games. Even if you don’t own a console you can stream and play a AAA console game to your phone.

For a gamer, the future has never been so bright. However, for traditional gaming shops, the future is far from sunny. There are some dark clouds over their struggling end of the high street. Market forces are changing, and they could squeeze gaming shops out of the gaming market altogether.

The traditional bricks and mortar game shops are facing a 3-pronged attack from digital-only consoles, game streaming services, and game subscriptions.

Why Chop Off The Hand That Feeds You?

Why would the big console companies cut off the hand that has fed it for decades? The quick answer is for extra profit and tighter control of their customer’s future spending.

Let’s have a look at the way the money you spend on a game is distributed. This will vary from game to game, and from platform to platform, but for a typical $60 console game it will look something like this;

Breakdown of a $60 physical game illustration by the author.

If you bought a $60 console game from a game shop, the console manufacturer would get a $7 (12%) cut in the form of a platform royalty. This is the fee the game developer or publisher pays for selling games on the manufacturer’s platforms.

However, if Sony or Microsoft can get you to buy digital copies of games instead, that they distribute, they get to keep a bigger cut. They get to keep everything apart from the publisher’s $27 (45%) cut. Microsoft, Sony, or Nintendo will go from a $7 (12%) cut to a $33 (55%) cut. Even when you consider the cost of operating the digital platform needed to sell digital copies, that is a massive increase in profits. An almost 470% increase in profit!

And that is not the only financial benefit to Microsoft, Sony, and Nintendo. By selling digital downloadable copies of games, they instantly kill off the second-hand market as well. None of the console manufacturers want you to buy second-hand games when you could be buying their new games instead.

For Google and its streaming service, Stadia, it is a way of getting into a new market and taking market share. For Amazon’s newly announced Luna gaming streaming service, it is slightly different. For them it is not just about getting into a new market, it is about bringing new customers to the Amazon store.

All these companies have the motive and means for turning the screws on the gaming shops.

Digital Only Delivery Means Less Physical Games

Microsoft and Sony are offering digital-only versions of their latest consoles at reduced prices. The digital-only Xbox Series S is half the price of the disk-based Xbox series X. This is not because they are passing on the savings of leaving out a physical drive, which probably less than $20. It is because they want you to buy games online, and only online. That way, they get to make more money from your future game purchases.

With digital-only consoles being so much cheaper, it is hard to imagine them not selling well (I have my Xbox Series S on pre-order). And if digital-only consoles sell well, they will drive down the need to buy physical games.

The selling of second-hand games by retailers like GAME has been a constant thorn in the side of the console manufacturers. If people are buying second-hand games, they are not buying new games, which means console manufacturers don’t get a share of the sale.

Meanwhile, the console manufacturers still have to support the second-hand games in the form of providing updates and other support. When the Xbox One and the PlayStation 4 were launched, both Microsoft and Sony both floated the idea of blocking second-hand games from working.

However, this idea was met with resistance from both the gaming press and the public, so it was quietly shelved. It is worth noting nothing is stopping either company from making use of this feature in the future.

The console manufactures have got around this by selling us consoles that can only run digital copies of games that are tied to specific accounts. The method is different, but the results are the same – you can only buy new games that can’t resell.

If we can’t buy our new games from a shop, and we can’t we buy second-hand games from a shop, why even visit them? After the banking crisis, GAME has constantly struggled financially because of the lower traffic in their shops. How long can they survive with even less footfall in their shops?

If you don’t believe these scenarios are possible, you only need to look at what Valve did to the PC game market with its Steam platform. Less than 10 years ago, you could walk into a game shop and browse endless rows of PC games.

If you visit a game shop today, you would be lucky to see a single PC game. Apart from a few games, you have to go to Steam for your PC gaming fix.

Streaming and Subscription Services Means Less Need to Buy Games

Gaming streaming and gaming subscription services both work on very a similar basis. For a small monthly fee, you get access to hundreds of games.

The major difference between the two services is that you will need a console or a PC for the subscription service to install the games on. With a streaming service, the computing power is at the server end and you stream the game to a phone, console, or streaming device.

With both services the end-user doesn’t get to own a copy of a game, they are just renting access to the games a month at a time.

Most gamers will only buy a AAA game every 2-3 months. This means the platform manufacturers will only earn $30 to $40 in platform royalties from that customer each year. With a subscription or streaming service, the platform ties its customers into making smaller but more regular payments.

The user gets an instant library of games and is far less likely to venture out to game shops for other games. When was the last time you ventured out to buy a DVD when you have Netflix and Amazon Prime a click away?

Conclusions

There is no doubt that the big console manufacturers are looking for a bigger share of our gaming spending. Unfortunately, this will have to be at the cost of the middlemen, i.e. the gaming shops and distributors.

Many gaming shops have struggled to stay afloat with the big fall in footfall since the banking crisis. So, it is hard to imagine how they will survive with even less footfall in their stores. Gaming shops face their biggest challenge ever over the next couple of years.

The question for gamers is, is this really a good thing? On the plus side, they get instant access to hundreds of great games without leaving their armchair. On the negative side, we are helping to create a monopoly that will no doubt cost us dearly down the road.

If we can only buy games via the manufacturer of our chosen console, surely it is a monopoly with zero competition? What is to stop the console manufacturers ramping up the prices once we are committed to their platform?

Do we really want to trade a better service, with more gaming options, for a monopoly that could cost us more in the long run?

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