The EA Store?

I really don’t think the big game publishers would get into retail any time soon because they need to focus on making games that sell, but I do think it’s a potentially interesting strategic direction. And when I say strategic, I mean “money-makin’, money money-makin’”.

I offer two reasons why.

For one, current retailers like GameStop and Best Buy take about 20% of the retail price. So out of your $60, they make $12. Well, if you had your own retail store, guess what? You take that $12 for yourself! That’s a real bump to your profit margin. Heck, you could even try to price your titles a few dollars cheaper than GameStop, and still improve upon your existing margins. But, nobody likes a price war so let’s stick with $60 like everyone else.

Reason two: become a player in the bountiful used games market. Currently, GameStop is the place for buying and selling used games, and they’re pretty much running a racket. They buy your used game for an insulting amount, say $12 for a brand new title, and then sell it in their enormous Used section for $55. (FYI, GameStop gets 100% of that revenue) Sounds crazy, right? But they do that because they can, and no one is providing any other options for game sellers (this just in: Amazon is making a run at this market). Let’s say you’re EA. You could pay “just a little bit more” for used EA games to get people in the store, but then could sell more EA games to them, used AND new! That’s a lot of sales just for EA.

And the timing might be right to do this soon. Commercial real estate is not in the best shape, so you could get a lot of retail space for not a whole lot of cash.

Who could actually do this? I think only EA and Activision could pull this off. They have large game libraries, and their brands are pretty well-known. The rest of the publishers either have smaller libraries or are in rough financial shape so it would be a difficult task.

Of course, it wouldn’t be easy for EA or Activision either. Launching a retail store is an expensive and complicated exercise, but maybe there will come a time, when the “business needs to grow”, and retail becomes an attractive option.

T.G.I. Wasn’t a Transition Year

Some have remarked how resilient the game industry has been. Year on year, the industry did demonstrate double-digit growth in 2008, which is somewhat of an achievement given the economic turmoil the world has found itself in during the last 6 months or so. The question is “Why?”

I can point to two good reasons.

For one, the price of games is not terribly painful, especially given the high replay value for many of today’s games. Some games like Fallout 3 and Oblivion provide 80-100 hours of gameplay for your $60. That’s less than a $1 an hour. Movies are probably in the $5-7 an hour range (depending on your consumption habits), so that’s a pretty good deal for gamers. I think people inherently “get” this idea, so they continue to buy games.

But my first point relies on my second: fortunately for the industry, there are truckloads of consoles already in homes (almost 100 million according to wikipedia). People bought these consoles, and they want to enjoy them. Since Microsoft, Sony, and Nintendo released their current generation of consoles in 2005 and 2006, they’ve had a few years to build up an installed base of console owners – and the industry should be thankful that they did so. Imagine if 2008 was a year of transition! Things would have been real ugly. (To be clear, transition years are when new consoles are released and console manufacturers do their best to convince consumers to purchase the new system. They do this by launching big, super-awesome, platform-exclusive titles like Halo 3 or Super Mario Galaxy.)

Imagine if Sony tried to launch the $600 PS3 last fall! What a massacre. Even the Xbox 360 would have had a rough go of it in the $350-400 price range. A $60 game as a Christmas gift is palatable, but a $400 console amidst this economic downturn? No way Santa is dropping off many of those.

So despite a collective concern for 2009, for those in the industry, be thankful that there are millions and millions of consoles out there, hungry for more games!

Guitar Hero vs Rock Band

The dust is finally starting to settle now that Rock Band and Guitar Hero have had two holiday seasons to go head to head. Despite my love for Harmonix's work and Rock Band, the sales numbers speak for themselves. According to vgchartz.com, as of February 2009, the Guitar Hero games have sold 23 million units compared to Rock Band's 8 million units. That's a 3-to-1 trouncing. (The Guitar Hero numbers include GH III, GH: World Tour, and GH: Aerosmith. The Rock Band numbers include Rock Band 1 and 2, RB: AC/DC, and the RB Track Packs.)

Now the Rock Band fans would say, hey, Rock Band is a more polished game, we're probably over 30 million song downloads, and there's new songs every week! All of these are true, yet despite the polish and the expansive content library, Rock Band has not sold nearly as well as Guitar Hero. Roughly speaking, 30 million downloaded songs is $60 million in revenues, and that's plenty for MTV/Viacom to be happy about (they own Harmonix). Yet think about what these revenues could have been if more units of Rock Band had been sold. Let's do some quick math. Combined, about 30 million "band" games were sold since holiday 2007. If Rock Band sold twice as many units as they did (effectively splitting the market with Guitar Hero), it's quite feasible that they would have sold twice as many downloadable songs - that's 30 million more songs and another $60 million in revenues. That's a nice bump to MTV's earnings. (Although Sony and Microsoft take a cut of downloads on to their consoles)

But enough with hypotheticals, let's take a hard look at why this came to pass. If I had to put my finger on one thing, it would be marketing. I believe Activision won the marketing battle against MTV. Celebrity-laden commercials, Guitar Hero releases throughout the year to keep the brand fresh, and a constant stream of PR announcements kept GH on top. On the other hand, I've only seen two different ads for Rock Band 1 and 2 combined. Two ads!!! Where's the news about the superior metacritic ratings? Where are the announcements about the WEEKLY stream of killer songs? What about getting one or two rockstars to help promote a game about Rock and Roll? I really just don't know. And I think it's a shame, because the Rock Band games are good stuff, and the Harmonix folks have rock 'n' roll in their blood.

It's not all bad marketing news though. EA, MTV's distribution partner, did a pretty good job in filling up Best Buys and Gamestops around the country with Rock Band gear. I have to say that the space given to Rock Band versus Guitar Hero was pretty even, and that is an accomplishment for an admittedly bulky product in a tightly-controlled retail space.

But overall, I think the message is clear: in a hyper-competitive market such as games, the company that gets the clear, consistent (yet fresh) message to the consumer, is the company that wins.