TECHNOLOGY SPECTATOR: Sony's PS4 eyes the end of retail

Technology Spectator

It may have a fancy new controller and state-of-the-art social networking system, but there's one point Sony failed to mention during its PlayStation 4 launch event… whether or not the new gaming console takes discs.

The concern may seem trivial in an era where all content can be downloaded over the internet, but it's a rather pivotal one for Australia's billion dollar video game retail industry – the same industry that recently reported a year-on-year 23 per cent drop in 2012 retail sales due to the rise of digital distribution.

Then again, there's probably a raft of questions retailers have about Sony's new console, given that the company didn't actually show a working model of it at its launch event in New York yesterday. And many retailers probably aren't fretting about this detail given that Sony's chief executive officer Kazuo Hirai last year confirmed to the media that the market isn't ready for download only games.

But in unveiling its vision for the "future of gaming”, Sony appears to have shown that its retail partners may be lurking in its blind spot. The innovations revealed hints that the company may be slowly grooming its consumers for a future download-only industry.

If its earlier acquisition of cloud gaming company, Gaikai wasn't a dead give-away, the new console will also include a play-as-you-download feature and will only let users play popular older PlayStation games through online streaming.

Given that consoles have a shelf-life of up to six years, the disc-using PlayStation 4 may be the last of its kind.

A slow but steady shift to downloads

As with music and videos, the rise of digital distribution in gaming has been a gradual process. Over the past five years Sony, Microsoft and Nintendo have all expanded the offering on their respective consoles' online stores and have tried to make downloading games more appealing to their customers.  

For example, Nintendo launched its first online store on the Wii console in 2006. It was originally intended to stock older, hard-to-attain games, like ones the company released during the 90's.

But as time went on Nintendo started to stock download-only games called Wii-Ware and now on the company's latest console, the Wii-U, the virtual store stocks digital copies of all its games.

Both Microsoft and Sony have shown a similar line of progression with their respective game stores.

Despite the growth, there are a few points which have held back a shift towards a download-only industry. While internet download speeds are improving, they are still at a level where downloading a full-length feature game is an arduous process. On top of this, modern games take up gigabytes of data, and most consoles simply don't have the storage to hold a library of them.

Perhaps the most jarring feature slowing down this trend however is the fact that on average Australian retail store charges less for games than their digital counterparts. Both the digital and retail vendors are expected to charge the recommended retail price, however more competition in the retail scene often forces prices down.

How will the industry adapt?

But this race to the bottom in retail may also see the companies who design these games opt for an online-only approach. Modern games typically take anywhere between one to two years to create, thus developers need to ensure they glean as much profit as they can from each title.

Manager of the Melbourne-based independent game retailer, Dungeon Crawl, Chris Powers says that he could see a future game developers favour digital distribution as it could offer them higher margins than retail sales.

It also may lead to a future where games are released online first, and then filtered into retail stores afterwards, Powers says. Such a move would prove damaging to retailers, as game launch events and new release titles drive foot traffic into their stores.

However, Powers says that the gaming industry is more likely to work with retailers than against them in this transition. While retail sales are gradually declining, stores still generated $1.61 billion in sales in Australia last year. An immediate transition could lose customers for the industry and see an overall decline in sales.

He says that ultimately digital distribution "won't put retail out of the picture”, he anticipates that the dynamic of game sales will shift over the next five to 10 years.

Telsyte analyst, Sam Yip agrees on this time-frame, saying that this shift will foreshadow the tectonic changes that will affect the wider retail industry. He predicts an industry where game retail stores will simply exist as a form of marketing rather than as a major conduit for sales.

While Yip also forecasts a rise in digital distribution, he says the physical sale of games and the experience it brings along with it "will never die”.  

While the rate in which this shift is happening may be evident in what else Sony says about its new console later this year. Microsoft's new gaming console (which is expected, but yet to be revealed) may also hint at how fast this trend is actually progressing.

Which, if you think about, would be the most burning question on all retailers' lips.