NPD: PC retail and digital distribution sales equal

[Mr Bean]

Joystick

The NPD's "PC Games Digital Downloads: Analyst Report" states that in 2009, 21.3 million "full-game" PC titles were downloaded through digital distribution networks, while 23.5 million physical units were purchased at retail. Yes, despite the explosion of digital distribution in the PC space, retail is still important.

Overall, digital distribution "accounted for 36 percent of dollar sales," but the initial cost of a PC product -- if it even has any upfront cost -- doesn't really give the full picture of the financial potential.

The top five "frontline" digital retailers (those who have the games that are also typically offered in stores) were:

1. Steam (SURPRISE!)
2. Direct2Drive
3. Blizzard.com
4. EA.com
5. Worldofwarcraft.com

We've listed the top five casual digital retailers after the break. NPD notes that casual distributors have lost market share due to the rise of "social network gaming" (Facebook) and free, inexpensive mobile titles.
Top 5 Casual Digital Retailers – 2009 (based on unit % share)

1. Bigfishgames.com
2. Pogo.com
3. Gamehouse.com
4. iWin.com
5. Realarcade.com

PC GAME DIGITAL DOWNLOADS REACHING PARITY WITH
IN-STORE PURCHASES

ACCORDING TO THE NPD GROUP, IN 2009, 21.3 MILLION PC GAMES WERE DOWNLOADED IN THE U.S. VERSUS 23.5 MILLION PURCHASED AT RETAIL

PORT WASHINGTON, NEW YORK, July 21, 2010 - According to the PC Games Digital Downloads: Analyst Report, from leading market research company, The NPD Group, in 2009, 21.3 million PC Game full-game digital downloads were purchased online in the U.S. compared to 23.5 million physical units purchased at retail during the same period.

While NPD's point-of-sale research shows that PC physical retail sales experienced a year-over-year revenue decline in 2009, it was still slightly larger than PC digital download sales on a unit basis. PC digital downloads represented close to half of unit sales across digital and retail at 48 percent in 2009, and accounted for 36 percent of dollar sales.

PC Games Digital Downloads: Analyst Report segments the PC full-game digital download landscape into two Web-based 'retailer' segments (offers games for download, and with no physical storefront): Casual Digital Retailers, which often focus on smaller, easily accessible games that typically utilize try-and-buy or advertising revenue models; and Frontline Digital Retailers, which often focus on titles that are also offered in retail stores as physical purchases.

Top 5 Frontline Digital Retailers –2009 (based on unit % share)
1. Steampowered.com
2. Direct2drive.com
3. Blizzard.com
4. EA.com
5. Worldofwarcraft.com

Top 5 Casual Digital Retailers – 2009 (based on unit % share)
1. Bigfishgames.com
2. Pogo.com
3. Gamehouse.com
4. iWin.com
5. Realarcade.com

Frontline Digital Retailers increased their share of the PC full-game digital download market in the second half of 2009, at the expense of the Casual Digital Retailers.

Free Gaming Vs. Digital Retailers

One of the most significant factors contributing to the decline in share captured by Casual Digital Retailers is the increase in popularity of free social network gaming and free mobile gaming.

"The popularity of social network gaming increased from Q3'09 to Q4'09 as 4.8 million more people played games on a social network in the U.S.," said Anita Frazier, industry analyst, The NPD Group. "This demonstrates how consumers can now experience casual types of games through myriad vehicles, broadening the competitive landscape."

Free mobile gaming is also capturing the attention of gamers, illustrated by the 30 percent increase in usage of the iPhone and the iPod Touch as gaming devices from Q2'09 to Q4'09. Furthermore, 97 percent of those who downloaded a game app in Q4'09 downloaded a free version of a game.


Methodology:
Information contained in this press release sources from two of The NPD Group's ongoing consumer services covering the games industry:

- Games Acquisition Monitor
The NPD Group's Games Acquisition Monitor is a quarterly tracker which measures both digital and physical forms of games acquisition activity, volume, awareness and usage of retailers and services, as well as other technology and entertainment activities that could influence game acquisition trends. It is based on online survey responses from over 8,000 members of NPD's online consumer panel. Data is weighted and projected to be representative of the U.S. population ages 2 and older.

- NPD Consumer Tracker
NPD collects data on PC game purchases via its weekly video games consumer survey. Each week, over 180,000 individuals are selected from the NPD online consumer panel to participate in one of four weekly studies. The responding sample is demographically weighted and projected through a series of steps to represent the Total Adult (18+) and Total Teen (13-17) U.S. population. Respondents to the survey report whether in the past week they purchased a PC game on a disc or downloaded the game from a web site
directly to their computers.

Only digital purchases of games from the above websites are tracked in this report. Shipped boxed products from these sites are not covered; information about these can be obtained through our PC Retail Tracking service.

There's been a long running argument about how PC gaming is dieing off. And the NPD numbers support this basic claim. And the basic counterclaim was that NPD did not count digital download sales on the PC market. The big question is how much is not being counted. And we have the answer here now. Almost half and if trends continue as is, it will be half or more by the next year's report.

[adam_grif]

Is this including the zillions of ultra-cheap steam-sale games that you download and then never play? It just says "full games". Does it mean full games at full price, or any game that isn't a demo? Does it include stuff like peggle or Plants vs Zombies?

[2000AD]

Is this including the zillions of ultra-cheap steam-sale games that you download and then never play? It just says "full games". Does it mean full games at full price, or any game that isn't a demo? Does it include stuff like peggle or Plants vs Zombies?

According to Rock, Paper, Shotgun's coverage of the same report it's mianly based on frontline retailers, digital distributors which specialise in games also commonly available at retail.
The second chart of the smaller shops is for the more casual and small games.

The main point is that now if anyone goes "OMG PC gaming is dieing, it's dooooooooooomed" we can just give them a slap ....... ok, a slap that's more justified than the one we were already giving them.

[Stark]

Why? A quick skim didn't show any actual growth figures, just information on where the money is being spent and how fast sectors like casual/phone games are growing.

Half of PC gaming is now Peggle and other Steam shovelware. Actually I wonder if I can find that sales breakdown from years ago... they're pretty closed these days.

[Steel]

It is impossible for all the digital sales to be full price titles. The article says that digital has half the market, but one third of the dollars.

The average game on digital download is therefore sold for half the price of a game in a shop.

As publishers wont let their proper titles be sold for less online than at retail this means that price gap must be caused by all the really cheap games (or the steam sale is accounting for 2/3 of their annual sales...)

[adam_grif]

Steel, keep in mind that although revenue is lower via DD, cost to distribute is lower also. You don't have to make and ship a physical product, and you don't have brick and mortar stores getting a hefty cut of the profits. So, revenue is lower, but a higher portion of that revenue is profit.

[Steel]

Certainly for a given price to the customer the developers/publishers will make more profit via digital distribution than in shops.

The thing is we know titles on steam do not sell for (significantly) less than those same titles in the shops. Therefore in order for online retailers to make the same number of sales and get half the revenue they must be selling large numbers of the cheaper, not sold in store games. This means their numbers of sales are being boosted by a large volume of mini games, and in fact the majority of the 'proper' big budget, full price games are still being sold in shops.

[Mr Bean]

The thing is we know titles on steam do not sell for (significantly) less than those same titles in the shops. Therefore in order for online retailers to make the same number of sales and get half the revenue they must be selling large numbers of the cheaper, not sold in store games. This means their numbers of sales are being boosted by a large volume of mini games, and in fact the majority of the 'proper' big budget, full price games are still being sold in shops.

Your falling to take into account one critical assumption
That online retailers get the same cut that physical brick and mortar stores do
They don't, Steam's take is half what Gamestop take is on most games. Every game sold via Gamestop is I've heard roughly 25% of the cost of the game while Steam gets 5%-20% depending on the publisher since they each work out their own deals with Steam. And to make sales Steam normally cuts into it's own take along with the retailer IE you'll knock the game price down by 10$ this week to increase sales and we will cut our take by an extra 4$ ourselves.

[adam_grif]

Therefore in order for online retailers to make the same number of sales and get half the revenue they must be selling large numbers of the cheaper, not sold in store games.

... Or they're getting a large volume of their sales during the price cut seasons where you get insane deals like Bioshock for 5 dollars. At the time that deal was on, Bioshock was still 30+ dollars in physical stores. That was hardly an isolated incident. Lots of back-log games that you can still buy in stores for "budget" prices sell for waaay less than in the stores. Then there are big bulk-buy deals, where you get Every game THQ has released on steam for 100 dollars. Same goes for several other publishers. You can also buy smaller deals, like "Buy all of the Dawn of War games for a 40% total discount".

This means their numbers of sales are being boosted by a large volume of mini games, and in fact the majority of the 'proper' big budget, full price games are still being sold in shops.

Didn't we just work out that it wasn't counting peggle and it's ilk?

[Steel]

Your falling to take into account one critical assumption
That online retailers get the same cut that physical brick and mortar stores do
They don't, Steam's take is half what Gamestop take is on most games.

This is totally irrelevant. The article stays that the total amount of money that customers part with online is half that of the total amount they spend in shops.

[Mr Bean]

This is totally irrelevant. The article stays that the total amount of money that customers part with online is half that of the total amount they spend in shops.

Yeah, turns out Gamestop keeps games at PC games at 50$ far longer than Steam or Direct2drive does, who knew?
No you once again failed to grasp the point
Lets say I sell 100 copies of The Amazing Space Game for 60$
I as the retailer take home 15$ of that, the Dev ends up with 24$ dollars of that, the publisher and S&H eat the rest of the profit.
So as the developer I take home 24,00 $ profit from that
However about if I sell 95 copies of The Amazing Space Game for 40$ on Steam?
Well the publisher cut is much smaller as is the retailer cut so I go from 25$ profit to a 22$ profit despite the fact the game price is that much less.
So I make 2090$ from the sale of those 95 copies and the total sold is a full 37% less(6000-3800)
But as a Developer I really only care about my cut which on Steam is much greater than Gamestop

My point is that your looking only at the retailer part of the equation not the arguably more important publisher/studio side of the equation. After all Console sales include used game game sales from which studios & publishers make nothing from. Every Steam sale nets profit for the developer. Even if that profit it lesser because prices are lower it's better than retailer.

And it is Developers, not publishers who make games, not retailers. If their profits are steady or slightly up from cheaper games offered via Digital download sales then the PC game market is still quite intact. And if a game is being bought digitally (Starcraft 2 will be a good indicator) far more than brick and mortars during that critical first month of 60$ sales then the Dev's profits go up even if over-all sales are down.

[Steel]

This is totally irrelevant. The article stays that the total amount of money that customers part with online is half that of the total amount they spend in shops.

Yeah, turns out Gamestop keeps games at PC games at 50$ far longer than Steam or Direct2drive does, who knew?
No you once again failed to grasp the point
Lets say I sell 100 copies of The Amazing Space Game for 60$
I as the retailer take home 15$ of that, the Dev ends up with 24$ dollars of that, the publisher and S&H eat the rest of the profit.
So as the developer I take home 24,00 $ profit from that
However about if I sell 95 copies of The Amazing Space Game for 40$ on Steam?
Well the publisher cut is much smaller as is the retailer cut so I go from 25$ profit to a 22$ profit despite the fact the game price is that much less.
So I make 2090$ from the sale of those 95 copies and the total sold is a full 37% less(6000-3800)
But as a Developer I really only care about my cut which on Steam is much greater than Gamestop

My point is that your looking only at the retailer part of the equation not the arguably more important publisher/studio side of the equation. After all Console sales include used game game sales from which studios & publishers make nothing from. Every Steam sale nets profit for the developer. Even if that profit it lesser because prices are lower it's better than retailer.

And it is Developers, not publishers who make games, not retailers. If their profits are steady or slightly up from cheaper games offered via Digital download sales then the PC game market is still quite intact. And if a game is being bought digitally (Starcraft 2 will be a good indicator) far more than brick and mortars during that critical first month of 60$ sales then the Dev's profits go up even if over-all sales are down.

Did you just try to illustrate your point with an example where you make $2400 in the shops and $2100 from digital distribution, a loss to you personally as the developer of $300, 12.5%?

Yes developers make the games, but the publishers fund the development. It is a very unfortunate reality that no studio when it is starting can afford to bankroll itself for the 2+ years and $10 Million+ it takes to make a high profile game now. In order for a developer to make their first game they need to have someone cover their costs while they are making it; a bank wont do that, because all they see is the 90% fail rate.

Of course I don't like the fact that in order for a big budget game to succeed it needs the 'special industry inside knowledge' of the publisher which amounts to them just making it 'halo again, but more generic' every time. But if the publisher sees their profits are going to decline then they aren't going to be doing as much funding.