GameTrust: Preparing for the Death of Physical Games

About three months ago, Insomniac Games revealed it’s newest game: Song of the Deep. A smaller, lower budget project than some of Insomniac’s other offerings, the most interesting thing about Song of the Deep wasn’t it’s beautiful aesthetic or it’s reveal trailer. What surprised people most about the titled was that it is to be published by GameStop. The retail chain.

Today, GameStop doubled down on this initiative by announcing GameTrust, a division of the company focused on publishing 5-10 independent games in the next year. In addition to Insomniac, GameTrust has announced it will fund upcoming projects from Ready at Dawn, Tequila Works, and Frozenbyte. As it is currently outlined, GameTrust’s strategy will be focused on the funding and distribution of these games rather than on the creative side of the development process. What does it mean, then, when a games retail giant like GameStop is looking towards the other side of the industry for growth?

GameStop’s VP of Internal Development and Diversification Mark Stanley was cited in Gamasutra today saying that the company hopes to “reduce core game sales revenue to 50% of total revenue by 2017.” Due to the vague wording, it’s unclear exactly what percentage of the company’s current revenue is made up of “core game sales.” However, GameStop’s 2014 Annual Report shows that just over 90% of the company’s total sales were comprised of new video game hardware (22%) and software (33%), pre-owned video game products (26%), video game accessories (7%), and digital products (2%). If these categories are all considered to be “core game sales,” this statement has very significant implications on the future of the games retail business.

Let’s be clear here that Stanley’s comments don’t specifically call out a decline in core game sales from a dollars perspective. GameStop could still reduce game sales to 50% of their portfolio solely by increasing revenues in other areas. This is something the retail giant has shown a push towards in recent years with the acquisitions of Simply Mac and ThinkGeek, among others. Acquisitions like these coupled with the aggressive reduction of the company’s core historical business model in the near future seem to indicate a perceived shift in the industry’s future, or recognition of a shift that’s already taking place.

EA’s Annual Report for 2015 shows 3o% year over year growth in digital full-game sales along with 24% year-over-year growth in overall digital sales (inclusive of DLC, Subscriptions, etc). Ubisoft tells a similar story with their 2015 Annual Report showing 96% year-over-year growth in overall digital sales. In the case of both companies, growth in the digital marketplace is far outpacing the growth of physical game sales. For GameStop, these figures have to be troubling. With much of their business built around maintaining a customer base through the trade-in cycle, digital sales promise to break down that routine and put the whole buisness model at risk.

GameStop currently sells digital games and add-ons through it’s retail stores, even allowing customers to trade-in their old physical games towards new digital purchases. However, every digital game sold becomes one less tradeable game in that customer’s collection. As their customers continue to favor digital games, GameStop is likely to have a diminished role in the market place, being unable to match the speed and convenience of digital purchases made directly on the platform of choice.

To me, this is what GameTrust is all about. GameStop’s future. For years, video games have been moving towards an all-digital model. With the rise of mobile gaming and storefronts like Steam and Origin, PCs and Smartphones have been an excellent example of this over the last decade. As we’ve seen before, traditional game consoles will have a harder time selling their customer base on the benefits of an all-digital platform. When they finally do make the switch though, GameStop needs to be ready…and with digital games publishing, it’s a step in the right direction.

 

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