The buyout of GAME Digital PLC (LON:GMD) by Mike Ashley’s Sports Direct International PLC (LON:SPD) could signal the start of the end game for disc-based video game retailers on the UK high-street.
The physical market for video games has been under pressure for a number of years, with faster internet speeds and digital game marketplaces such as Steam, Origin and the Epic Games Store providing gamers with an easier method to access a bigger library of games than the shelves of any store could hold.
In fact, according to data from the Entertainment Retailers Association (ERA), UK video game sales in 2018 were 80% digital, which included revenues from micro-transactions, downloadable content (DLC), subscription services, pay-to-play and individual game sales.
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By far the biggest converts to digital gaming are PC users, with Alexandre Schmidt, an analyst at Liberum, saying that around 95% of the global PC gaming market is digital.
The console market is also moving ever closer towards digital dominance with users increasingly being offered ways to directly purchase games through the hardware itself rather than from third-party sellers.
And the trend looks set to continue, particularly with tech giants such as Google and Apple Inc (NASDAQ:AAPL) announcing the launch of the Stadia and Apple Arcade respectively earlier this year, which are aiming to offer the ability to play high-quality games via the cloud, removing the need for gamers to own high-spec hardware and, more importantly, physical disks.
GAME itself has not been ignoring the shifting sands either and in recent years has been trying to diversify away from a pure retail offering and into the events and e-sports space.
A key element of this is BELONG, a network of bookable arenas where gamers can play on various platforms; Sports Direct bought 50% of BELONG for £3.2mln in February amid plans to bring the arenas into its own stores.
The FTSE 250 retailer has also said previously that it did not believe GAME was able to weather the pressures it was facing as a stand-alone business, implying that it did not think a high-street video game seller had much of a future.
In fact, it could be argued that given that GAME collapsed into administration in 2012, before being bought out by private equity firm OpCapita and re-listed on the LSE in 2014, that the writing has been on the wall for some time.
Time to eject disc?
So is ‘game over’ for GAME sounding the death-knell for other high-street video game sellers? According to Schmidt, the answer appears to be no.
The analyst says that while the PC gaming market is currently dominated by digital, physical copies continue to hold a hefty chunk of the console gaming market, which includes hardware like Sony’s PlayStation and Microsoft Corp’s (NASDAQ:MSFT) Xbox.
This fact appears to be borne out in the ERA data, which showed that in 2018 the best-selling game of the year, FIFA 19, sold 2.5mln units, 75.6% of which were physical copies.
“Console is still predominantly boxed and packaged”, Schmidt says, adding that even in the PC market large geographies such as Germany and Russia still prefer physical copies of games.
There is also the appeal of resale value for physical games in the second hand market, which is more or less non-existent for digital games due to their access being locked behind online access keys or account links in order to prevent multiple players using the same copy of a game, instead of pay for a fresh copy each time.
Schimdt says this ability to cut down on a player’s overall purchasing price by selling a disc later on could prove to be a “bit of a lifeline” for the high street video game retailers.
And while the new streaming platforms could present yet another threat to disk-based gaming, Schmidt is unconvinced it will be able to kill it off entirely.
“You’re still going to have people who live in remote areas or with bad internet that still want to go to a shop and buy the game they want”, he says.
“While the [physical game] market may reduce, I don’t think it will go away altogether”.