NPD released their first quarter 2012 gaming industry sales data today which showed that consumers spent about $1.5 billion on new physical video game and PC software, down 26% from $2.03 billion last year. While digital sales are up from last year they’re still not enough to offset shrinking physical retail sales as the game market sank to $3.4 billion, down from $3.8 billion in the first quarter of last year. This seems to be further evidence that while digital distribution is growing, physical software, you know the stuff you go to the store and buy, erodes a bit more each quarter. According to Gamasutra sales are performing so poorly that they could hit a six-year low before the end of 2012. It would be naïve to think that this is temporary. As digital distribution slowly occupies more and more of the market companies are beginning to shift their focus to the digital as well, leaving physical retail in danger of becoming a fringe service.
In case you’re wondering where the future is headed, these sales numbers are just the tip of the digital iceberg. Remember how everyone said there was nothing really exciting about this year’s E3? Well, there was, but I guess it really all depends on how you define exciting. Microsoft made a technological leap with Smartglass and added bunch of partnerships for Xbox Live to increase their digital streaming services. Nintendo did pretty much the same thing, but instead of Smartglass you have to use their Wii-U gamepad. And now today we’ve received the news that Sony has purchased cloud gaming service Gaikai for $380 million. The big three console companies are gearing up for the next generation by all buffing their streaming services; that’s pretty exciting news.
Physical retail isn’t shrinking because consumers are disappearing, though that’s probably what started it, the real culprit is that the industry has finally begun to embrace digital distribution and steaming services. This year’s E3 and today’s announcement by Sony, shows that the industry is willing to rely on digital distribution more and more in order to keep their customers happy. So while no one is specifically responsible for the dwindling physical retail market, everyone’s enthusiasm for digital distribution might be.
No one seems to be mentioning that digital software tends to be cheaper. We see that sales are down which means that actual revenue is down, but that doesn’t necessarily mean that users are down. I would be more interested to see how many units are sold each year in lieu of raw sales data, although even the data we have is difficult to come by. Still, I think that many see shrinking numbers as a sign that there are fewer users out there when the reality is there could be more. Regardless of how it all shakes out, it looks like physical retail is about to get asked to sit in the back seat.