Opinion: The Future Of Retail And The Blockbuster Myth

[As part of a new Gamasutra opinion piece, Divide By Zero CEO James Portnow says retail has a much longer life ahead than many often presume, and explains why comparisons to the video rental industry are irrelevant for games.] Often in this industry I hear people speak of the imminent death of retail game stores. At each conference I’ve attended for the past two years, there’s been at least one talk about how digital distribution is poised to consume the now anachronistic brick-and-mortar institutions we all know so well. I hate to be the one to burst our glorious digital dream, but retail's got a longer life than we, as an industry, seem to think. Introduction Before the flames begin (as this seems to be a touchy topic for reasons beyond my ken) and we decide to dismiss me as an anti-technology luddite fascist, or some other ridiculous forum-post fanboyism, I’d like to simply state my views on digital distribution: it’s great. I love digital distribution. Be it Steam, Stardock or Greenhouse, PSN or XBLA, or my frickin' iPhone, I, as a consumer, I adore the convenience, the 24 hour schedule and the portability of digital goods. None of this changes the fact that retail’s not going anywhere for five to 10 years. The Blockbuster Myth Many of you technophiles will remember the bold claims that Blockbuster would be undone by the digital revolution. In fact, a little web surfing will find you many reputable sources prognosticating Blockbuster’s demise in the first half of the '00s. And yet, in this, the two thousand and tenth year of the Common Era, if I were to ask you, dear reader, “Where is the nearest Blockbuster?”, almost universally you would be able to answer. Of course Blockbuster isn’t what it once was. They’ve had their rough patches. Digital distribution has certainly hurt them... but not nearly as much as was anticipated. Why do I bring this up? Because when discussing digital distribution, the decline in video sales is often brought up as a parallel to what is going on in our industry today, and yet the argument that digital distribution poses an immediate threat to retail is even less valid for game retailers than it was for movie rental chains. So, if you will forgive, I’m going to make you endure one more paragraph about why if you ever hear someone bemoan the woes of film as a harbinger of the doom of Gamestop... run. First, most of Blockbuster’s problems have actually been caused by their business model, not by the digital world at all. Blockbuster rents their goods, which means that they have to keep large amounts of product on hand. This has been a problem as they’ve had to endure two major format shifts in the last decade which made most of their existing stock worthless. Blockbuster also primarily deals in film, which has seen its share of people’s entertainment budget decrease dramatically over the last decade as people began spending more time on the internet and on video games. The opposite is true of game retailers. Lastly, film is incredibly easy to pirate and has no built-in methods of protecting itself against piracy (such as updates, hosted servers, et cetera), which leads me back to our main point: Retail will not start to die until there is a “download only” console generation. Why Retail Has Legs If you peruse the inventory at your local Gamestop, how much space is devoted to PC titles? Almost none. At this point, the video game retail business means console sales. We can argue all day about whether this is because online digital distribution/piracy drove the brick-and-mortar retailer out of the PC space, but, any way you slice it, the indomitable behemoth that is GameStop can continue rolling along at its present rate without PC sales at all. What does this mean? This means that service like Steam and Stardock are having almost no impact on GameStop and other similar retail outlets. This isn’t to say that PC digital distribution isn’t a huge market: it’s just not taking a bite out of the GameStop or GameCrazy we know today. Until digitally-distributed products are available on launch day for major retail console titles we won’t see digital distribution’s impact on the traditional retail model. And who holds the keys to console digital distribution? The platform holders. Right now, platform holders aren’t really incentivized to try and make the leap to a parallel digital/retail model (which I believe will be the first step towards a “download-only” box). In fact, given hard drive limitations and the difficulty of getting console owners to adopt new hardware piecemeal, I believe it to be extremely unlikely that you see any moves in that direction this console generation. Better-informed men than I know the broadband penetration rates amongst console owners, but even in the U.S., we’re still years away from platform holders being able to viably do away with retail as an option and rely solely on digital distribution. This means that in the next console cycle (unless some dark horse fourth console shows up) we’ll probably see one of the platform holders try the hybrid retail/digital same-day launch model (I’m guessing Microsoft). At that point we’ll begin to see the impact of digital distribution and be able to judge the longevity of retail. If I know anything about console cycles, I’d lay money on it that that’s at least three years out. One More Specious Argument On the other side, it’s been said that no one will carry an all-digital distribution console. This is equally ridiculous. Yes, Gamestop will leverage its weight to delay its own demise as long as possible, but saying that you won’t be able to find a retail outlet to sell a digital distribution Xbox is like saying that MP3 players aren’t viable because record stores won’t carry them. We may find ourselves walking into a Wal-Mart or a Best Buy to get our consoles in the world of the future, or we might be may be shopping at Sony and Microsoft stores (less likely Nintendo, as they don’t have the range of products that Sony and Microsoft have), but either way, so long as console games are a multi-billion dollar business, you’ll find plenty of people willing to take a cut of the console sales. Conclusion The digital revolution will change how we do business - how we sell and even how we make games. It’s a powerful thing and it’s unstoppable. Digital distribution is coming, and it will destroy retail as we know it, but it’s not going to make a dent in the brick-and-mortar game business until there is a digital distribution console…so if you really don’t think you’ll be walking into a Gamestop in 2015, I’ve got a bridge to sell you. [Questions, comments, death threats and Nigerian banking offers can be directed to [email protected] or @jamesportnow on twitter.]