Although console games are still largely tethered to the retail market, PC games are slowly moving away from the retail market. In fact, PC game unit sales from digital have surpassed retail since 2010. Retail sales still bring in more revenue due to fewer markdown sale periods, but revenue, too, will shift towards digital sales in time. Valve was really the driving factor behind this when they created Steam.
When released in 2004, there was little interest from fans and developers for Steam, but Valve kept marketing and adding features to it. They eventually found the key to profit: lots of competitive sales. These really pushed Steam to the forefront of consumer’s minds. They started buying more and more digital games instead of retail because the sales were just so good. They could find fairly recent games at half price or even less when retail stores were still selling it near full price.
Of course after Valve’s monumental success with Steam, businessmen and women started thinking about how they could get a piece of the pie. Today many competing digital distributors exist. Some of the big ones (popular) are Origin, Impulse/GameStop PC Downloads, Games for Windows – Live, GOG.com, Green Man Gaming, and Amazon.com Game Downloads, but there are many more smaller distributors around. Including Steam, that is 7 big distributors all vying for your dollars each with their own daily, weekly, and yearly sales.
Th at is a lot of competition. Average prices of digital games have gone down even further compared to retail. There are even websites that aggregate sale periods, so gamers can easily see all the big sales going on. This is good for us consumers, but I also think it is going to cause problems. There are more and more companies trying to get into this digital distribution market. I am sure many publishers and developers plan to create their own platforms. At some point it will be just too much competition though.
This heavy competition will eventually result in another video game crash, only this time restricted to the digital games business. Sale periods will be so frequent, the smaller companies will start to be priced out of market. After they fall, anyone who bought games from those companies will lose access to them. People will start to be hesitant of buying digital games, fearing they too might lose their games if the company they trust disappears.
This will cause even more companies to go bankrupt, cascading down like a waterfall until only a few big ones exist. I do not know which ones will remain but millions of dollars will be lost both from consumers who bought games from failed businesses to investors who lost their investments in these companies. Some of the failing companies will be bought out by the bigger ones. When all is said and done, only 3 to 5 companies will remaind, and the gold rush will be over. I really do believe it will be a gold rush pretty soon.
We are already at the start of it, with huge growth in digital revenue every year compared to small losses in retail in those same years. Of those 7 distributors, only 3 have been around longer than 5 years. The other 4 are all fairly new companies with many other smaller distributors starting up every year. There is going to be a time when everyone is switching over to digital and huge profits are made. Then this market collapse where lots of money is lost. Finally, the market will equalize with just a few survivors.
I expect average prices to stay lower than retail but not as low as they are now. New games will cost $40 or $50 instead of the current $60, but we will not see sales of 66% off or 75% off anymore. The market will not favor us as much then, but we will still be saving some money over retail.
I do not have a set date on when the crash will happen but definitely within 10 years. Around that time, though, streaming games will start to become more popular. I believe there will be about 10 years of digital distribution being the dominant source of games, but in 20 years everyone will play streaming games. Right now, internet speeds are not fast enough for the average player to have full 1080p video. Also, network latency is too high for the player to have good control over the game.
It will come in time though, and it will be nice not having to worry about upgrading my PC every few years.