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meteorscrap avatar 1:18 AM on 09.07.2011  (server time)
The Threat of a Retail Ban Is Without Merit

Back in July, I wrote an article about Digital Distribution. And the thing is, I noticed a common theme in the comments for the article:

The fact that retailers, specifically GameStop, could crush a revolution in digital distribution before it got off the ground.

Now, I put a lot of thought into this problem, since it does completely stymie the idea of digital distribution ever gaining a foothold in the retail market. Then I realized that there's an equally simple solution. So join me for a three-part series of articles on exactly how publishers can take power away from retailers and make them a single link in the chain in one of many revenue streams instead of being the all-powerful titan that they are.

We'll start with the first bit: The Threat of a Retail Ban Is Without Merit

One of the worries I've seen paraded around is that GameStop and other retailers can simply threaten to not stock a publisher's latest release, or even going further and threatening to remove an entire publishing line from their retail library. Indeed, this can be a massive deterrent for even Activision or EA, two of the biggest publishers on the market. It would seem to be a major catastrophe for any company if GameStop or any company were to follow through with such a threat.

I've seen numbers paraded around anywhere from forty percent to eighty percent of all units sold, but regardless of the actual market share GameStop enjoys a retail ban would directly impact the bottom line of any company. Not only does GameStop account for a number of titles sold, but they also do their own marketing to push new titles and take pre-orders on top of it all. They keep the upcoming games fresh in the mind of their customers and push the newest hardware and software with a tenacity which would impress a door-to-door salesman.

With both the work they do to bolster the games industry and the potential threat they hold over the heads of the largest publishers, it would seem like pure folly to even challenge them on the issue of digital distribution.

Photo by Rafael Matsunaga

Or would it?

Let's talk about the sweet, sciency magic of economics. Before your eyes glaze over, let me reassure you: I'll be vastly simplifying things and I promise I won't be bringing any numbers, theoretical or otherwise, into this series of articles. All you really need to know is that supply and demand generally equalize and that the market has an endless ability to adapt to changing conditions where the demand is constant and the supply has the potential to be there.

Or in other words: If a lot of people want games and a lot of publishers are willing to supply those games, the rest is just paperwork. The games will get to the people through the easiest route possible, and there's a large profit there to be made for the person who can handle both the number of games people want and the number of games publishers want to sell.

Right now, GameStop is the easiest route, and has been for a number of years. Yet ever since the debut of services like Xbox Live Arcade and the Playstation Network Store, that's been subverted. A lot of smaller titles like Megaman 9, Castle Crashers, Shadow Complex, and Flower have gone on to be critical and commercial successes completely under GameStop's nose, with the retailer seeing none of the profit between publisher and customer.

Even independent developers like Iridium Studios and Zeboyd Games have found success on Xbox Live Indie Games, a rarity in the console market.

GameStop is currently facing something of an identity crisis: Right now they're in the same position that HMV and Blockbuster were in a decade ago, ludicrously powerful at the retail market for the moment but poised for a sudden, sharp fall from grace whenever the market finally shifts from underneath them.

Picture a world where next year, Activision decides that they're going to go for it. Call of Duty: Whatever Treyarch's Developing will be debuting, on launch, at $44.99 through both the Playstation Network Store and Xbox Live Games on Demand and if GameStop doesn't like it, they can kiss Activision's ass. GameStop could, in theory, reply by stating that they wouldn't stock Activision titles at all in response. However, even the greediest of GameStop executives could take one look at the percentage of their new-game sales that Activision represents, a number likely in the double digits, and realize that this would be as disastrous for them as it had the potential to be for Activision.

However, I previously discussed how the demand of the gaming customer is always met by the supply of the publishers by the easiest possible route, and let's face it: I'm a guy who blogs about the industry for fun. Activision has got to have some people who know better than I do what a good idea it'd be to have a deal with Best Buy, WalMart, or even Amazon about how you could only get physical copies of the next Call of Duty game through one or several of those retail outlets ready. Such a document, well in hand and ready to be taken to the appropriate contacts, would very likely quiet GameStop up about the notion of a ban of any sort.

GameStop is the middleman. The customers are the ones who create the demand, and publishers are the ones who fill it. Ascribing them any more power than that of someone who gets the goods from the publisher to the consumer is ludicrous. If they were to go belly up tomorrow, the games industry would not crash horrifically, never to recover again. Someone else would step into the profitable gap left behind and fill the needs of the customer. No matter how much GameStop would like to present a united front to publishers with other retailers, there's too many avenues the retail stream could take and there's always retail chains willing to buck a ban like this and sell anyway.

Because customers don't care about where they get their products: $64.99 spent at Walmart, Amazon or Best Buy is no different from $64.99 spent at GameStop, and unlike GameStop, none of those places earn their big bucks just from the sale of video games. For them, losing a quarter of the sales from a big-ticket game to digital distribution is an adjustment of stock purchased, not a catastrophe.

If any publisher, or more likely multiple publishers acting together, takes this route, there will be a transition period. Sales will slump a bit, and how much sales are hit is entirely dependent on the preperation and deals the publisher or publishers make to ensure that their customers have as many avenues as possible which are convenient for getting their products. However if done properly, GameStop won't have a leg to stand on and their only path of action will be to accept what's coming gracefully and attempt to regain their relevance before what little credit they have finally dries out.

Like it or not, digital distribution is on the way. The path has long since been paved first by songs, and then movies and books. Physical media, like it or not, is eventually going to become out of date and not worth the effort of producing. Likewise digital distribution is going to become even more convenient than it already is, with easier, better ways of getting the games you want to play in your hands than traveling to a store and picking up a copy.

In part two, I'll be discussing just how GameStop and other retailers can hope to stay relevant in a world where customers can download the latest releases directly to their game consoles.

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