Huffpost UK Tech uk
The Blog

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors

Bob Thomas Headshot

GameStop Vouching for Valve: Terrible News for EA

Posted: Updated:

The end of gaming retail, I'll vouch:

I've written elsewhere about the inevitable failure of GAME, and particularly the poor strategic decisions that have set the retailer apart from its competitors, and have sealed its fate. However, I also suggested, in a more recent article, that companies looking to promote digital distribution (particularly EA) could be doing more to capitalise on the now-weak bargaining position of high-street gaming retailers to more effectively promote their platforms.

That's why Valve's latest move, to start selling Steam vouchers through GameStop in the US, has me so excited. It's a real vindication of that argument, and a creative marketing play to extract value from a shrinking market.

Gaming goes digital (in chunks):

Explaining the decline of high-street retail as a channel for games distribution isn't as simple as saying "well, gaming is going digital" and waving at "the cloud" (a gesture that is "post-peak", in terms of its credibility as an explanator).

There are added degrees of complexity, surrounding gamer types (segmented, most easily by platform, but also by game-types and other, more subtle, gaming behaviours), which help explain why the shift in consumer behaviour, towards digital content acquisition, has been only partial. While some segments of the gaming market have quickly gone digital, other segments have been stickier in retail channels.

Valve's sale of vouchers through GameStop concerns the PC gaming segment, and particularly, two subsegments which have been stubborn in their refusal to move away from high-street retailers, towards online content provision.

PC gamers - the natural beneficiaries of digital distribution:

The PC gaming market was the first to move substantively towards digital distribution models, and now is mostly distributed in digital form. Since 2010, digital distribution has outweighed physical distribution of PC games. The market for digital distribution on the PC is dominated by Valve's Steam platform, with more than 50% market share by revenue.

EA attempted to challenge Valve's dominant position, releasing Origin in June 2011, but the platform arrived too late to secure the first-adopting, hardcore PC gaming market, and with substantial spend in Steam online libraries (which initially contained many EA games), switching incentives for gamers were virtually non-existent. Steam had arrived 8 years previously, and the strength of release-period titles (initially Counter Strike, then Half Life 2, Portal titles and the free-to-play release of Team Fortress) and the stability of the platform itself made it difficult to unseat as a consumer favourite.

A series of very public (often ridiculous) Origin customer service gaffes soon after launch, followed by an excellently-timed (and very well-received) Steam Christmas sale, cemented the first-mover advantage held by Valve and the popular impression that the Steam platform was superior to Origin, just as EA were hoping to capitalise on their platform's first serious exclusive title (Battlefield 3). Origin has been left to play catch-up, and hasn't displayed much imagination in attempting to unseat the champion.

So, who hasn't gone digital in PC gaming?

The increasing ubiquity of DRM processes that require constant connectivity and the last decade's growth in massively multiplayer titles will combine to make offline forms of gaming increasingly irrelevant. If top games require an internet connection to be verified, and to be enjoyed fully with friends, the digital distribution hurdle is likely to be one that consumers are equipped/prepared to clear. But GameStop and others are still selling PC games. So who is still out there buying them?

Essentially, two groups of people:

(1) The "long tail" of late adopters of digital distribution. The consumers who, when GAME folds in the UK, will simply visit HMV, Play.co.uk or Amazon.co.uk for their games. They will not necessarily jump towards digital distribution, simply because their buying behaviours are store or website-based. Why is that? Console games could be a distant complement, and PC titles could be cross-sold to consumers who happen to be in-store. Opportunities to trade-in games could be attractive. Broadband infrastructure limitations may make the opportunity to own disks more attractive. Whatever the reason, the gradual disappearance of gaming retailers and infrastructure improvements mean that this group is shrinking, but slowly.

(2) Younger gamers who make cash purchases. Steam and Origin (or any other smaller digital distribution platform) are platforms that require a credit card, or personal account linked to finance, from their gamers. However, Little Johnny has very limited access to electronic credit. Perhaps mum and dad will buy Little Johnny a game each month, but are more likely to do so while visiting a retailer (on a weekend shopping trip) than via Steam or Origin. For those without parental credit access, but with allowances sufficient to buy games, a visit to GAME is still in order.

That's why Steam's latest play is creative:

Steam's ability to sell vouchers for the online platform in GameStop gives the platform access to (1) and (2) to a degree which digital distributors haven't previously achieved. The company is clearly determined to change consumer behaviour, and sweep up as much of the existing retail-buying market before other online distributors get an opportunity.

Of course, Valve will forego some margin, handed to GameStop. But Valve playing the long game. Valve is building brand loyalty in young gamers and those users who may not have had chance to purchase digital products before: gamers who are now likely to build a Steam library, before they start owning products on Origin.

Ten years in the future: Little Johnny has become Big John, and it's an important part of his buying decision-making that he built up his games collection on Steam (exposed to Steam, not Origin, marketing) - a platform that he trusts. GameStop may well have disappeared from the market, but the opportunity that Valve established in striking a deal with the dying retailer ten years ago was a long-term masterstroke in their campaign to control digital distribution.

There is real "lock-in" value in changing the behaviours of the long tail too. Valve's deal with GameStop is such that second-hand games owned by die-hard physical-game buyers will be tradeable for Steam vouchers - presenting that sticky tail of consumers (and some console users) with a real incentive to finally move to digital ownership.

EA should be kicking themselves. It's a massive win for Valve.

Bob Thomas also writes at GamesRSrsBsns