Grumpy Gurevitz: Is it GAME Over?

It has been widely reported by the gaming press, including Eurogamer, that the UK’s largest independent video game retailer is in financial difficulties. The firm had a poor 2011, and whilst many had hoped the Christmas season might bring a last minute reprieve it was not to be and sales were down close to 15% compared to the year before. To put this into context, most major high street retailers in the UK experienced a rise in sales compared to twelve months earlier, as Christmas 2010 had been so poor due to excessive snow and ice keeping shoppers away from their town centres.

To be fair GAME have, for a while now, been issuing profit warnings and talking of reducing the number of shops they have over the next one to two years. This of course is taking place at the same time as HMV recently having to reorganise its debts with its lenders. However, HMV have a broader range of products, less stores but larger ones (and hence can sell more and try a greater variety of activities) and have earnestly started moving the business into new areas, albeit some more successfully than others. The firm has invested in live music and venues, and started to transfer space in stores (which was set aside to plastic boxes) to fan related merchandise and technology.

This is not to say that HMV has the answer, but I mention it as a way of demonstrating that specialist music, film and game retailers are having to find new ways and that this is hardly new. Over the last few years we have gone from having, perhaps, 3-5 retailers offering such products per high street to 1-3, with some towns having barely 2. Those two are often HMV and GAME. There is now a serious chance that over the next 2-3 years this will reduce further to one or in some cases none.

Let’s look at the reasons why and what this means for both the games industry as a whole and the consumer. Whilst it would be easy to say it’s down to the increase in downloaded content (legal or illegal), it would not be true for the overall market. For PC, clearly, it has had a huge impact but the average store dedicates very little floor space to PC titles. Meanwhile in console land, whilst you can get a small selection of titles as downloads, most are retail only, or are retail only for a long time before they go onto Xbox Live, for example. Sony has started doing near simultaneous releases for a few titles, but it does not release numbers for the PSN store; though it’s safe to say that if a game is on for significantly more money there than it is priced in shops that it can’t be picking up many sales at present.

So what does the trouble at GAME signify? It could just be that the business expanded too fast and inherited too many shops, with a range of leases and costs which are unsustainable. In other words the business has put itself into the situation it now finds itself and is not systematic of any type of global change. I suspect though that this is not the only reason the firm finds itself in trouble. It expanded rapidly, largely on being the only place which had a good selection of titles and in more recent times in supplying a strong second hand offering.

Both areas are now under attack, from both Supermarkets such as Tesco and due to the online side of the business such as Amazon, Play and many independent ‘warehouse’ only operators using the Amazon/Ebay marketplace. Whilst GAME also has a strong online presence, it’s not actually that easy to use, and doesn’t offer great prices. This is because the focus of the business has remained its stores.

So we have established that most consumers are buying boxed games still, but the market is being redefined by the online retailers and supermarkets. Yet that is not the only factor in play here. We are buying less games. Sure some games are selling in huge numbers, and for more money per purchase, but we are buying less overall.

The size of the UK market shrunk last year. The UK is not alone. Some people are hoping a new console generation will solve this. I doubt it will in the short term. In the medium to long term it will as people who currently play games continue to, whilst new younger generations join the ranks of hardcore gamers. However at present, there will be no sudden demographic shift where we immediately find new consumers to join our ranks. Such a culture change last took place during the Wii/DS generation and at least 30% of that has since found that smartphones suffice, as they were never hardcore gamers to begin with.

As I’m sure many of you will have noticed the games we buy take longer than ever to complete. Aha, I know what are thinking; Modern Warfare 3. This takes a bus ride to complete. That as we know is the single player experience only. The online is an ongoing all consuming social experience, with more special op operations being added, more multiplayer maps and modes. Even the Elite experience is designed to take up your gaming hours with stat analysis! Yet check out the games sale’s figures. It made more than Black Ops but sold less copies in 2011, as reported by Eurogamer.

So back to the idea of launching new consoles. The Vita is out pretty soon and as it offers an HD experience in your hand it, ironically, will split consumer spending even more. It won’t increase the size of the hardcore market but take purchases away from the PS3, Xbox and WiiU. In case you missed it we are now in the midst of a deep economic slow down, which for some people is starting to look like a depression, or at least a slow and ongoing contraction (which could last up to a decade). Whilst the entertainment sector as a whole is less effected during downturns (as reported by TIME, quoting the ever popular Michael Pachter), as people need escapism and spend less on holidays and other high price ticket items, it’s clear that new consoles and games costing £35 or above are now falling into the luxury area of disposable income for many, bar a few yearly purchases where value is eked out through replay and DLC offered throughout the year.

So less games are being bought, which means less games being traded, which results in less profits on second hand sells for the retailers such as GAME. The more money we spend on AAA titles and then investing in DLC to go with them also means we are more likely to play them to death and not trade them in (compounded by the ‘online pass’ feature meaning second hand copies lack online functionality).

So back to the present. In the short term this has been an awful week for GAME. Whilst they have managed to secure support from publishers and creditors it seems logical that consumers will slowly start to place pre-orders elsewhere in case the inevitable happens soon. Also will you be taking your games there to get reward points? What happens if the company goes down the pan and you haven’t spent those points? The time to redeem could be now, which could actually give the firm a short rebound, but if we don’t take in new games to part-ex against other new titles their business model will dry up. Publishers meanwhile will start to encourage the platform holders to push digital delivery, at decent prices (perhaps) and at the same time as the game launches on the high street. The days where they had to protect their retail distribution is perhaps starting to end.

The loss of GAME or HMV won’t mean the end of retail or a lack of competition for the consumer. We have 3-4 supermarkets in the UK of a decent size. In addition we have a plethora of online retailers all able to sell a product which is not required to be sold on the high street. After all it’s just a box with a disc in it.

The next generation of consoles will offer discs, but ultimately though, game retail will stop being physical and the next generation of consoles will offer all titles as near simultaneous digital copies, at competitive prices, as the publishers will learn a lesson from the (eventual) demise of GAME. Whilst it’s always been in their interests to protect and look after their retail channels, times are a changing and they now must look after themselves and their future distribution partners i.e. the platform holders themselves.

Assuming the next generation of consoles also offer a streamed game service in parallel to downloaded content for those with broadband fast enough (it’s safe to assume that a large enough market will exist 5-7 years from now with super fast broadband in many countries), it is clear that there is no hope for businesses such as GAME and HMV. In the UK it could be argued that the decline in the high street retailing of games really started with the demise of Woolworths and Zaavi (which is now online only), but the troubles at GAME have demonstrated that perhaps we have become perilously close to the tipping point which will lead to a fundamental change in the way in which the majority of gamers purchase and access future content.