Digital distribution for games is the future. Digital purchases have increased year after year. Mass Effect 2 debuted on PSN Store selling double-digit percentages of all copies sold. The casual and social networking games market, comprised mostly of Zynga-style games and cheap games on iTunes, make billions of dollars despite having no physical presence at all (unless you include monetary cards to buy even more digital property). Valve, the company behind Steam, estimates that digital distribution will overtake retail by 2012. Most people agree that digital distribution is the future.
But what will happen when we get there?
One market that will be changed, if not outright destroyed, is the used games industry. Games bought on a digital distribution platform typically have all purchased games tied to an individual. You can gift unplayed copies of games on a lot of these services, but you cannot sell off an individual game you own if you no longer wish to keep it. It may be possible to sell an account with all games tied to it, but no existing business model supports this so the legality is grey at best. There might be workarounds but they seem overly complicated or at the very least incredibly inconvenient. This means that if the used games industry cannot find a way to exist in this market, they'll disappear.
GameStop, who makes roughly half of its revenue from used games, can see this threat on the horizon. They've had public battles with Steam, and have purchased digital distribution platforms of their own to try to stay competitive. However, they jumped in the game too late. Steam dominates the PC digital distribution games market at roughly 70%. Even within its own stores, GameStop still sells games that are tied to Steam in one way or another that benefits the consumer by having free registration for a digital copy, or simply supporting Steam's auxiliary features. They have no apparent answer to save the used games industry, and are attempting to change their business model altogether by embracing digital distribution.
Even though the used games market will likely disappear as our industry advances, it isn't all bad news. Services like Steam give publishers about 70% of the revenue from a sold game, nearly double what standard retailers offer. This allows games to be sold at a much lower price point (often during Steam's infamous sales). Although, a lot of publishers still try to sell games at the full retail price to increase their profits on each copy sold, many large titles have participated in these sales, and competition with other services will likely make similar pricing the norm.
In light of all this, it is interesting how much bad will game companies are willing to incur in punishing the used game consumer when the evolution of the industry will cause the end of the used games market as we know it. However, it is possible in the digital age for some new form of the market to emerge as services offer new features to try to remain competitive. Digital content providers like Barnes & Noble and Amazon have taken to allowing users to lend out e-books, albeit with strict limitations. Selling off digital copies may be one, but given the current distaste most publishers have for this industry, it seems unlikely. However, there will come a time when the average consumer will have spent a fortune on digital content and realize that is money they are never getting back and something will have to give.