The physical retail model is disappearing, and digital distribution is extremely concentrated among a few key players: The Covid-19 pandemic accelerated the ongoing trend of a move from physical to digital game distribution, with up to 90% of games sales being digital, from a base of approximately 20% as recently as 10 years ago. In this modern world of digital distribution, the companies that control access to consumers are the platform holders / digital storefront owners. For console games there are 3… Sony (PlayStation), Microsoft (Xbox) and Nintendo (Switch). On mobile, Apple(AppStore) and Google (PlayStore) perform this role. PC is an open platform but the vast majority (>85%) of sales go via Valve Corporation’s online storefront Steam.
What this means:
- For decades, publishers had huge power as “gatekeepers”, dealing with the complexities of the physical supply chain on behalf of game developers. Publishers could justify their cut of sales revenue through managing the many various negotiations required with platform holders, certification bodies, distributors, retailers and trade marketers that were well outside of the skillset of most studios. With that channel now in rapid decline, a huge part of a publisher’s raison d’etre (at least in the eyes of studios) is rapidly evaporating.
- Platform holders and digital storefronts have always played an important role in the video games value chain, but the move to digital has strengthened this further. In addition, their increased willingness to deal with studios directly offers both parties an opportunity to disintermediate publishers, cutting them out of a share of game revenues.
Live service games are taking up an increasingly large share of users time, attention and spending: Under the traditional unit sales based model, the only cannibalisation publishers had to worry about was negated by ensuring a staggered approach to launches. The most important revenue generator for traditional games releases used to be the period around the launch. However, in the time-spent dependent business model of today, games need to be actively pursuing consumers’ limited time continuously. This means that a publisher’s third-party portfolio is in gradually increasing competition with itself. The larger the share of live service games, the more impactful this dynamic will become. Ultimately, this will negatively affect the developers’ incentive to partner with third-party publishers.
What this means:
- The impact of this business model shift is somewhat acknowledged in the publishing community, but the scale of it not yet appreciated. 10 years ago a AAA title could be expected to do up to 70% of its lifetime sales the first 2 weeks post-launch. With this opening weekend dynamic and a focus on specific launch dates, publishers could re-use their standard campaign template in the run up to launch, effectively “fire & forget” at launch and move onto their next title. Our games media still reports on those traditional big successes (e.g. Hogwarts Legacy, Elden Ring, Tears of The Kingdom to take 3 recent examples) but misses out on the fact that even these massive hits now represent an ever shrinking percentage of player time and attention. Iceberg-like, the hidden majority of player time is now spent on live service games with a completely different dynamic in terms of marketing, monetisation and update. Publishers who cannot successfully adapt to this model (and it not easy) are going to find they are in a losing battle for player time & money.
Alternative routes to funding are more available: Funding in general (current high interest rates aside) has become more accessible since the turn of the century, be it through the rise of venture capital (VCs), games funds, or crowd-funding opportunities. As a result, developers are increasingly able to self-publish.
What this means:
- For a long time, attraction of publishers to many developers has been based on simply one thing….access to upfront cash. The cashflow challenges of gamedev are significant, with revenue not often coming into studios until many years after the start of a game’s development. This has meant the project financing many publishers offer has been a lifeline to get the funds needed to make a game, and revenue-sharing deals are subsequently signed where there really is no other real benefit to the studio. With the emergence of other funding opportunites, studios are better able to assess the merits of choosing a particular publisher or even going down the self-publishing route. In short, publishers can not depend on the “pay to publish” model for much longer.
Successful digital marketing is more attainable: Twenty years ago, handling the marketing of a title was much more complicated than it is today, logistically speaking. Though there is still a big difference between DIY and top class professional marketing, games developers can utilise a plethora of platforms to find audiences effectively and leverage affordable marketing tools to help them reach their goals. Marketing is not easy, however. Alongside funding, it is probably the key remaining pillar of traditional games publishers’ value. However, the direction of travel in terms of marketing accessibility is also playing against the value a traditional games publisher can bring to the table in the mid-long term.
What this means:
- As their other historic strengths of the publishing world get whittled away, publishers’ value becomes increasingly associated with their marketing capabilities. Unfortunately for them, this side of the industry is also evolving rapidly. The channels through which to reach gamers are more diverse and affordable than in the past, yet the increasing fragmentation of the gamer audience has also made reaching them more complex. In combination this means that many studios now bypass traditional publishers and reach their audience directly via influences, streamers, devlogs and smart community management. Publishers not able to embrace and excel in these new paradigms are at serious risk of losing the last remaining pillar of value in these changing times.
At Player One Consulting, our mission is to enable video games companies to be successful though the best strategic planning and execution. We work with all kinds of companies, both within the games industry and adjacent to it. They each have their own challenges but right now we believe is publishers that are most in need of urgent advice & support!
If you are a game publisher who wants to talk to us about how we can help you deal with these challenges, and drive your company to improved growth, then mail us on contact@playeroneconsulting.com.
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