Winning the battle with retail (but losing the video games sales war)

Winning the battle with retail (but losing the video games sales war)

Peter Laughton
4 Nov · 6 mins read

Chatting to a number of former colleagues at Gamescom this year, it really struck me how strong the impression was, especially at a studio level, that retailers are a bad cost and something that the video games industry would be better without them.

I was reminded about an incident that happened a few years ago at a major publisher.

One of our studios was struggling:- they had a PC-based free-to-play real-time-strategy. The game was excellent, but the revenue was just not there and the studio was facing closure. We suggested offering 'gift cards' to physical retail.

For the uninitiated, a 'gift card' (also known as top-up cards) are cards sold in physical retail, where you buy the card and get a code to either top your online wallet our download a specific game. The code is activated by the retailers till systems after you pay and can be entered on Playstation Store/iTunes/mobile phone or whatever to credit your account with the value.

A colleague at the studio was vehemently against our supply of gift cards to retail: "We are giving away our margin", he said, "our business plan cannot afford this". The typical gift card gross margin is 5-7% of the face value, though with distribution and other factors this can cost upwards of 15%.

After much discussion we agreed on a limited trial model placing a quantity of cards into the dominant video game reseller and major online retailer. Our studio colleague was sceptical, reasonably feeling that no-one will buy a physical card online, wait a day or two for this to be delivered - they will of course buy in game as it is instantaneous.

Anyways, the product launched, and amazingly, sold very well. Not only did we sell double the normal in-game sales in two weeks, in-game sales significantly increased, too.

But the most surprising thing to us all was that the online retailer had very high turnover.

We decided to investigate further.. why would a consumer choose to buy on Amazon and not in-game? Was it some arcane German payment method we were missing (and Germans do have some pretty arcane payment methods - do not get me going on EC card...)? Did Amazon discount? Were our servers down?

This was intriguing so we decide to spend a bit on research, and found three reasons why people were buying on Amazon and not in-game:

  1. 50% -"Did not know about until I saw it on Amazon"

  2. 30% - "My dad/mum does not want to put their credit card into the game - he is too worried I will abuse it"

  3. 10% - "Aunt Debra purchased this for my birthday/doing well at school"

  4. 10% - "Its easier" and several other reasons.

Discoverability

So the number one reason for these sales was simply discoverability. It is really, really hard to get people to your game. We analysed our final costs and these were still way lower than the money we paid to Google for AdWords.

Third party purchase

The second biggest reason was something that I can most definitely relate to as a parent. I am very wary about letting me child have free reign on my credit card... and I am not too sure I can bother with logging in when I can quickly do this on Amazon.

Future sales

Third party purchase feels like it can, ultimately, be resolved technically. App Store does this very well, with a smooth approval system.

But I worry about discoverability - retail is still a hugely important why to discover product. It is the ultimate search engine. And the costs at 15% of sale (i.e. $3) are very much inline with Adwords (which assuming a typical click through cost of $0.40 and a conversion rate of 3% will cost $13 per game sold!).

Happily ever after?

So, did our gift card experiment save the studio?

Sadly not.

The 'retail' experiment was stopped, not because it was not working, but because studio execs were more convinced that 'Build it and they will come', would work... and that be securing the retail margin they could make the game profitable.

The game was eventually converted to free-to-play but just could not get traction to break through. Acquiring those customers is really, really hard. An interesting footnote, though: the servers were finally switch off around 2015, but a core group of dedicated enthusiasts remain... and have reverse engineered the game. I hear it is in closed beta, and who knows, perhaps they can resurrect the game.

I just hope that when they come to commercialise it they do not have fall into the same trap and refuse to use the power of retail.


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