The State of PC Gaming: The Shift from Packaged Goods to Digital Distribution
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The State of PC Gaming: The Shift from Packaged Goods to Digital Distribution

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The video game industry is undergoing a fundamental shift from a traditional business model reliant on the sale of packaged goods and perpetual licensing, to one dominated by digital distribution......

The video game industry is undergoing a fundamental shift from a traditional business model reliant on the sale of packaged goods and perpetual licensing, to one dominated by digital distribution and new forms of monetization. With unit sales of game downloads surpassing physical purchases, the transition to digital is creating tremendous opportunities for game developers, publishers, retailers, and device makers.

In this rapidly changing landscape, how can industry players evolve their offerings to better meet changes in consumer expectations and buying behavior? In this research study 505 US adults over the age of 18 who had played a downloaded or boxed PC or Mac game in the previous month were polled to examine consumer attitudes and behaviors toward PC and Mac games.

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  • 1. Frictionless. Social. Everywhere. The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 1.800.942.5282 (toll-free within North America) +1.604.408.8078 (outside North America) www.elasticpath.com
  • 2. “The shift to digital distribution represents a revolution in PCgaming. The publishers and retailers that win will be those whounderstand that this is not just a change in how software is sold,but a fundamental change in how consumers want to find, own,and play their games.”Survey BackgroundThis 2011 online study polled 505 US adults over the age of 18 who had played a downloaded or boxed PC or Macgame in the previous month. The survey was developed to examine consumer attitudes and behaviors towards PCand Mac games.Executive SummaryUS game sales total approximately $16 billion, with unit sales of digitally distributed titles surpassing physicalpurchases, according to The NPD Group. Following similar trends in the music and movie industries, game buyerpreferences are shifting away from packaged software to online distribution, a change driven in part by increasingconsumer awareness and acceptance of virtual goods.Industry leaders are being forced to explore new business models to accelerate digital growth as boxedsoftware revenue declines. With free-to-play, casual, and social titles expanding consumer choice, PC gamingbusiness models that offer a lower barrier to entry, such as rentals or freemium games, will increasingly findfavor with consumers.Multiple device ownership is also on the rise, driven by the widespread availability and increasing affordabilityof mobile technologies such as tablets and smartphones. The improved performance of this hardware providesopportunities for game publishers to expand their marquee franchises from the relatively limited landscape of PCsand game consoles to faster-growing platforms. By delivering core titles or complementary content based on majorfranchises to accessible and pervasive mobile platforms, publishers can broaden the overall gaming experience,increasing consumption, monetization, and engagement.Finally, digital distribution platforms and in-app commerce have come of age as more consumers take advantageof faster connection speeds and better purchasing mechanisms to buy playable content directly from their gamingdevices, or in many cases, from within a game title. The leading industry players will capitalize on this trend bycreating, or improving, their own digital distribution channels to build deep and direct relationships with gamers.Personalized recommendations, comprehensive product discovery tools and a frictionless shopping and playingexperience will make it easy for visitors to find and buy content, raising conversion and retention rates.The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 2
  • 3. Key Findings: US gamers have access to two or more game-ready devices. Multiple device ownership is on the rise, driven by the widespread availability and affordability of game consoles, tablets, and smartphones. The typical US gamer now has access to two and often as many as three or four game-ready devices. In addition to a PC or Mac, over half of those surveyed own or have access to a game console (68%) or smartphone (54%) [Figure 1]. Twenty-one percent of gamers have access to a tablet device.ure 1 – Table 3] Early adopters of advanced consumer electronics, members of Gen Y (ages 18-34) and the more educated and affluent are significantly more likely to own or have access to game consoles, smartphones, and tablets in addition to a primary PC or Mac. Which, if any, of the following devices do you own or have access to? Game console 68% (e.g., PS3, Xbox) Smartphone 54% (e.g., iPhone, Blackberry) Tablet device 21% (e.g., iPad, Xoom) None of the above 21% 0% 20% 40% 60% 80% 100% Base: 505 US PC and Mac gamers [Figure 1] The State of PC Gaming 2011: The Shift from Packaged Goods to Digital Distribution A consumer research study by Elastic Path Software Inc. 3
  • 4. Game play is up this year, across all devices.Increased device accessibility has expanded the target demographic for games from a limited core audiencefocused on PCs and consoles to a broader market. When asked about their playing habits compared to last year,many PC and Mac gamers report spending more time playing games online and on mobile hardware in 2011.This shift in focus away from traditional devices opens up the opportunities for cross-platform publishers.Almost half (46%) of those surveyed increased their browser-based online play this year, while 36% spent moretime playing conventional games installed on their PCs [Figure 2a]. Of those with access to hardware otherthan a PC or Mac, 33% of respondents spent more time this year playing games on their consoles [Figure 2b],while 51% increased play on smartphones [Figure 2c], and 74% on tablets [Figure 2d].Women, in particular, are increasingly playing games on mobile devices like iPads and iPhones, suggestingthat these devices have been successful at broadening the target demographic for interactive entertainment.Developers and publishers who expand their product lines to these more approachable platforms cansignificantly widen the audience for their offerings. At the same time, the increasing performance of mobilehardware means that, for the first time, content related to marquee franchises can be brought to theseplatforms without a dilution in production values.The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 4
  • 5. [Figure 2a – Tables 4-5] Compared to 2010, are you spending more or less time in 2011 playing games...? More time Less time[Figure 2b – Tables 6] Same amount of time Unsure All gamers surveyed On the Internet 46% 39% 2 14% (in a web browser) Installed on a PC or Mac 36% 44% 1 19% 0% 20% 40% 60% 80% 100%[Figure 2c – Tables 7] Base: 505 US PC and Mac gamers [Figure 2a]Gamers with game console access On a game console 33% 44% 1 22% (e.g., PS3, Xbox) 0% 20% 40% 60% 80% 100%[Figure 2d – Tables 8] Base: 343 US PC and Mac gamers with [Figure 2b] access to game consoles Gamers with smartphone access On a smartphone 51% 34% 1 15% (e.g., iPhone, Droid) 0% 20% 40% 60% 80% 100% Base: 272 US PC and Mac gamers with access [Figure 2c] to smartphones Gamers with tablet access On a tablet device (e.g., iPad, Xoom) 74% 21% 2 4 0% 20% 40% 60% 80% 100% Base: 108 US PC and Mac gamers with [Figure 2d] access to tabletsThe State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 5
  • 6. Boxed game spend still beats downloads.Despite the success of digital gaming platforms such as Steam, PC and Mac gamers still buy—and spendmore on—packaged products, although the disparity is notably less than in the console market. In the past12 months, 59% bought boxed computer games while 53% purchased downloads [Figure 3a]. Of those withaccess to a console, 76% bought boxed games while just 49% purchased downloads [Figure 3b].Across the board, males and those aged 18-34 tend to be the biggest spenders, although only a tiny minorityspent more than $150 in the past year on any game type or format. Free-to-play, casual, and social titles haveexpanded the choices available to consumers and increased competition for their time.A fast-growing segment, and one of increasing significance, is mobile game spend. Of those with access tosmartphones and tablets, 61% paid for mobile game downloads, with a roughly equal split between the sexes [Figure 3a – Tables 9-11][Figure 3c]. Although only 10% of gamers spent more than $50 in the past year, forward-looking publishersshould embrace mobile as a way to expand their market, cross-sell to their existing customers, and increasefranchise profitability. In the past 12 months, how much have you spent on...? Over $150 $26 to $50 $0 $51 to $150 $1 to $25 Don’t remember All gamers surveyed [Figure 3b – Tables 12-13] Boxed PC or Mac games 5% 8% 21% 25% 2 40% (with CD/DVD) Monthly game subscription fees 4 4 9% 17% 1 65% Downloaded PC or Mac games 3 7% 15% 28% 2 45% (no CD/DVD) 0% 20% 40% 60% 80% 100% Base: 505 US PC and Mac gamers [Figure 3a] [Figure 3b Gamers with – Tables 14] game console access Boxed console games 13% 21% 23% 19% 2 22% (with disc) Downloaded console games 4 7% 14% 24% 3 48% (no disc) 0% 20% 40% 60% 80% 100% Base: 343 US PC and Mac gamers with access [Figure 3b] to game consolesGamers with smartphone and/or tablet access Downloaded mobile games from an app store 4 6% 12% 39% 1 39% 0% 20% 40% 60% 80% 100% Base: 290 US PC and Mac gamers with access [Figure 3c] to smartphones and tabletsThe State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 6
  • 7. Genre preferences differ widely by age and gender. Amongst PC and Mac game buyers, the most popular genres are Puzzle (45%), Shooter (35%) and Action/Adventure (34%), with Role-playing (31%) and Strategy (31%) tied for fourth place [Figure 4]. Genre preferences vary dramatically between genders and age groups; women and those 55+ overwhelmingly prefer Puzzle games such as Bejeweled, while younger men gravitate towards Shooter and Strategy games like[Figure 4 – Tables 15] Call of Duty and Civilization. Sports and massively multiplayer (MMO) titles tend to be most popular with affluent, highly educated males. Which, if any, of the following types of PC or Mac games have you purchased in the past 12 months? Puzzle 45% (e.g., Bejeweled, Crazy Machines) Shooter 35% (e.g., Call of Duty, Crysis) Action/Adventure 34% (e.g., Grand Theft Auto) Role-playing 31% (e.g., Fallout, Mass Effect) Strategy 31% (e.g., Civilization, Starcraft) Simulation 26% (e.g., Flight Simulator, The Sims) Driving, racing 24% (e.g., Need for Speed) Massively multiplayer online 23% (e.g., World of Warcraft) Sports 23% (e.g., FIFA Soccer, MLB) Music and party 16% (e.g., Guitar Hero) Other 14% 0% 20% 40% 60% 80% 100% Base: 371 US PC and Mac game buyers [Figure 4] The State of PC Gaming 2011: The Shift from Packaged Goods to Digital Distribution A consumer research study by Elastic Path Software Inc. 7
  • 8. Spend is shifting from packaged goods to downloads.PC and Mac game sales should remain strong this year, although gamer preference is shifting from boxedgames to digital downloads. Of those surveyed, 73% plan to spend the same or more on downloads in 2011compared to 2010, while 63% will spend the same or more on boxed games [Figure 5a]. Underlining thecritical importance of this trend, leading publisher Electronic Arts signaled its intention to transform itself from apackaged goods company into a “fully integrated digital entertainment company” in its Q4 2011 earnings call.In its July 2011 news releases, top retailer GameStop announced a successful integration of the Impulse digitalgaming platform into their online network and declared that it will begin selling downloadable versions of PCgames in its stores, allowing gamers to trade in used packaged games for credit toward downloads.Of those with access to consoles, over 70% anticipate spending at least as much as last year on bothpackaged and downloaded console games [Figure 5b]. Mobile is yet another bright spot for game publishers;76% of PC and Mac gamers with access to tablets and smartphones plan to spend as much or more onmobile games in 2011 compared to 2010 [Figure 5c]. In contrast, interest in monthly game subscriptions iswaning slightly; 31% are planning to reduce their spending on these products this year.The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 8
  • 9. [Figure 5a – Tables 16-18] Compared to 2010, will you spend more or less in 2011 on...? Will spend more Will spend less Will spend the same amount Unsure All gamers surveyed [Figure 5b – Tables 19-20] Downloaded PC or Mac games 19% 54% 6% 22% (no CD/DVD) Boxed PC or Mac games 15% 48% 6% 31% (with CD/DVD) Monthly game subscription fees 13% 44% 12% 31% 0% 20% 40% 60% 80% 100% Base: 505 US PC and Mac gamers [Figure 5a] Gamers with game console access [Figure 5c – Tables 21] Boxed console games 24% 50% 5% 21% (with disc) Downloaded console games 22% 50% 10% 19% (no disc) 0% 20% 40% 60% 80% 100% Base: 343 US PC and Mac gamers with access [Figure 5b] to game consolesGamers with smartphone and/or tablet access Downloaded mobile games from an app store 31% 45% 4 20% 0% 20% 40% 60% 80% 100% Base: 290 US PC and Mac gamers with access [Figure 5c] to smartphones and tabletsThe State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 9
  • 10. Game buyers shop at multiple channels, but digital platforms are gaining in importance. Game buyers are not loyal to a single purchase channel. While 68% of those who bought boxed PC and Mac games did so at brick-and-mortar stores such as GameStop, 44% also shopped at online retailers, and 21% purchased from individual sellers [Figure 6a]. Boxed console game buyers exhibit similar preferences [Figure 6b]. Men and those aged 18-34 are much more likely to shop online for boxed games, in sharp contrast to women and those over 55. Of those who bought game downloads, 71% say they shopped on retailer websites such as amazon.com, and a further 48% on digital platforms such as Steam [Figure 6c]. With most estimates putting Steam’s control of the PC download market at between 50% and 70%, our numbers appear low. However, this could indicate that Steam users tend to spend more, generating more overall revenue. These comprehensive, self-contained gaming networks are gaining in importance as purchase channels, particularly amongst younger, affluent and[Figure 6a – Table 22] more educated gamers. Last October 2010, Valve announced that Steam’s user base had grown by 200%; 6 million unique users log on to the service every day. Where have you purchased boxed PC or Mac games in the past 12 months? Physical store 68% (e.g., Best Buy, GameStop) Retailer’s website 44% (e.g., amazon.com, gamestop.com) Individual seller 21% (e.g., friend, eBay auction)[Figure 6b – Table 23] 0% 20% 40% 60% 80% 100% Base: 298 US PC and Mac boxed game buyers [Figure 6a] Where have you purchased boxed console games in the past 12 months? Physical store 74% (e.g., Best Buy, GameStop) Retailer’s website 46% (e.g., amazon.com, gamestop.com) Individual seller 28% (e.g., friend, eBay auction) 0% 20% 40% 60% 80% 100% Base: 262 PC and Mac boxed console game buyers [Figure 6b] The State of PC Gaming 2011: The Shift from Packaged Goods to Digital Distribution A consumer research study by Elastic Path Software Inc. 10
  • 11. [Figure 6c – Table 24] Where have you purchased PC or Mac game downloads (no CD/DVD) in the past 12 months? Retailer’s website 71% (e.g., amazon.com, gamestop.com) Digital platform 48% (e.g., Steam, PSN, Xbox Marketplace) Other 9% 0% 20% 40% 60% 80% 100% Base: 268 PC and Mac game download buyers [Figure 6c] The State of PC Gaming 2011: The Shift from Packaged Goods to Digital Distribution A consumer research study by Elastic Path Software Inc. 11
  • 12. Search and category browsing are of equal importance in game discovery.When beginning the hunt for a new game on a retailer site or digital platform, one in three gamers browseby game genre (32%) or use the search box (31%) [Figure 7]. Affluent, more educated gamers are more likelyto use recommendation engines, while Gen Y gamers (aged 18-34) find browsing the bestsellers,new releases, and highest rated games more appealing than older audiences.Savvy retailers and distributors should expose their product catalogs in numerous ways—through personalizedrecommendations, an effective search function, rankings, and well-structured categorization—to meet visitor [Figure 7 – Tables 25]expectations and lift conversion rates. How do you most often find new games you want to buy on a retailer website or digital platform (e.g., amazon.com, Steam)? Browse game genres 32% (e.g., sports, shooter) Use search box 31% Browse bestsellers or new releases 28%Browse games recommended for me by the website 21% Browse highest rated games within a genre 21% (e.g., sports, shooter) Other 10% 0% 20% 40% 60% 80% 100% Base: 505 US PC and Mac gamers [Figure 7]The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 12
  • 13. Downloadable content is growing franchise revenue. Levels, stories and expansion packs are the most frequently purchased types of downloadable content (DLC). Of those surveyed, 35% had bought levels, stories and expansion packs in the past year, closely followed by music or song tracks (34%), and in-game currency (31%) [Figure 8]. The majority of those who paid for DLC spent under $25, with single-digit percentages spending $50 plus. Downloadable content remains vastly more appealing to Gen Y gamers (ages 18-34) who are most used to buying digital goods such as apps and movies. However, even these younger consumers are not yet paying much for downloadable content; most of those who bought DLC spent under $25. Although the above numbers seem small in comparison to overall spending on interactive entertainment, they are remarkable considering that a recognizable DLC market emerged only a few years ago. Producing a steady stream of DLC, and developing new ways to market, merchandise and sell it, will help publishers retain audiences for their major franchises and generate significant incremental revenue to offset the potential[Figure 8 – Tables 26-31] costs of providing new and lower-cost ownership models. In the past 12 months, how much have you spent on...? Over $50 $1 to $25 Don’t remember $26 to $50 $0 Levels, stories, or expansion packs 4 12% 19% 3 63% Music or song tracks 4 9% 21% 4 64% In-game currency 5% 8% 18% 3 66% Other in-game items 4 9% 17% 4 67% Armor or wearables 4 9% 12% 3 72% Weapons or vehicles 4 8% 12% 3 73% 0% 20% 40% 60% 80% 100% Base: 505 US PC and Mac gamers [Figure 8] The State of PC Gaming 2011: The Shift from Packaged Goods to Digital Distribution A consumer research study by Elastic Path Software Inc. 13
  • 14. In-game commerce appeals to younger gamers.Gamers who had never purchased downloadable content (DLC) expressed a lack of interest (58%),distantly followed by concerns over its cost (28%) [Figure 9]. Of those interested in DLC, 23% would prefer tobuy from an online retailer, 21% from within the game itself, and 17% from an official game website [Figure 10].This indicates that it may be beneficial to merchandise DLC through more than one digital channel.Younger gamers (ages 18-34) expressed slightly different preferences from the average, with 24% preferring tobuy DLC from within a game, 21% from the retailer website, and 19% from a digital platform such as Steam.In a highlyTable 32] [Figure 9 – immersive environment like a game, users are more likely to be receptive to additional contentthat immediately enhances game play; it stands to reason that developers and publishers offering effective,frictionless in-game commerce will benefit from higher average revenues per user. Why have you not purchased downloadable game content in the past 12 months?I have no interest in purchasing downloadable content 58% It was too expensive 28% I cannot resell it when I’m finished playing the game 6% I didn’t know it existed 5% Other 9% [Figure 10 – Tables 33] 0% 20% 40% 60% 80% 100% Base: 217 US PC and Mac gamers who did not [Figure 9] buy DLC in the past year. Of the following, which would be your most preferred way to buy downloadable game content? From a retailer website 23% From within the game itself 21% From an official website for a specific game title 17% From a digital platform 13% From a game studio or publisher website 9% Not sure 14% Other 2% 0% 20% 40% 60% 80% 100% Base: 379 US PC and Mac gamers interested in [Figure 10] buying DLC.The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 14
  • 15. Gamers are hungry for evolutionary ownership models.PC gaming has been dominated by straightforward perpetual license sales; however, our survey indicatesthat gamers are eager for new and alternative ownership models. Three quarters of respondents (73%) find titlebundles that include all current and future downloadable content at least somewhat appealing, while 70% ofgamers would be willing to view embedded ads in order to play PC games for free [Figure 11].Free-to-play, reduced cost, and limited functionality games also lower the cost of commitment and entry,significantly attracting wider audiences to new and existing franchises. In this environment, digital distributionallows publishers to track the behavior of individual gamers over time, which permits the creation ofcompelling, ongoing, one-to-one relationships where active, highly engaged players can be incented withcontent and ownership rights precisely tailored to their needs and desires.As active digital purchasers, males and younger gamers (ages 18-34) find a multitude of payment andownership11 – tables 34-41] appealing than the average gamer. Roughly half are interested in all-you-can-play [Figure options moregame access and short-term PC and Mac game “rentals” such as those offered by streaming service, OnLive. How appealing are each of the following ownership options for PC and Mac games? Very appealing Not too appealing Somewhat appealing Not at all appealing Unsure Buying a game title package 41% 32% 5% 11% 11% (includes all current and future downloadable content) Playing a game title for free with 29% 41% 4 13% 13% embedded advertising Buying access to play unlimited game titles 20% 31% 5% 17% 28% for a monthly fee Playing the first part of a game for free, but pay for 21% 26% 4 22% 27% the remaining levels/episodesBuying access to play a game title for several days or weeks 34% 14% 28% 6% 18% (i.e., pay-as-you-play) Buying episodes or levels separately 36% 11% 22% 8% 24% for a game title 0% 20% 40% 60% 80% 100% Base: 505 US PC and Mac gamers [Figure 11]The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 15
  • 16. Most want to try before they buy.Gamers are value shoppers, likely a result of increased price competition and the fragile economy. So whenasked what might encourage them to buy more PC or Mac games, it comes as no surprise that the majoritysay lower prices (80%) [Figure 12].Still, three in four gamers cite other factors that could compel them to purchase more games, such as freetrials (77%) and an easier way to determine if a game is worthwhile (74%). Since many PC games requiresignificant investments of time and effort, game buyers are looking for no-hassle ways to sample titles prior [Figure 12 – Tables 42-53]to purchase, or even before committing to the download and installation of a traditional playable demo. As anexample of catering to this need, Walmart, Intel, EA and Bigfoot have partnered with cloud gaming start-upGaikai to serve streaming game demos directly to consumers. How likely would you be to buy more PC or Mac games if each of the following were available? Very likely Not too likely Somewhat likely Not at all likely Not at all likely Lower prices 44% 36% 4 9% 7% (e.g., 10-15% less) Free trials 40% 38% 5% 10% 7% Easier way to determine if the game is worth my time (e.g., downloadable or instant play demo) 40% 34% 7% 11% 8% Promotions or special offers 37% 35% 6% 14% 8% (e.g., 20% off regular price) Available as a digital download to install and play instantly 32% 35% 7% 15% 11% Discounted bundles 29% 36% 7% 17% 11%(e.g., buy 3 games at a lower price than buying separately) More expansion packs or other downloadable content 19% 32% 9% 21% 19% Multi-packs with extra copies to share with friends 19% 26% 8% 21% 27% (e.g., 4-pack) Easier ability to play with virtual friends 18% 27% 9% 21% 25% Time-based licenses 17% 21% 9% 25% 29% (e.g., can “rent” for several days or weeks only) 0% 20% 40% 60% 80% 100% Base: 505 US PC and Mac gamers [Figure 12]The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 16
  • 17. Lower upfront pricing can attract new audiences.In line with our previously discussed findings, four in five gamers actively shop for the best price (83%) and findsome titles too expensive (79%) [Figure 13]. The ability to install games on multiple computers, and trade, loan,or resell titles, are also of importance in a cost-conscious America. To better grow and monetize their customerrelationships, game retailers and distributors must lower the cost of entry by considering freemium or restrictededitions, subscriptions, or rentals, as well as deliver more perceived value through features like user-basedlicensing, title sharing and trade-ins.Members of Gen Y (ages 18-34) show a greater propensity to pay for digital content, including special editiondownloads. However, this group also places a higher dollar value on the boxed version of a game than olderadults, reflecting the appeal of its collectable nature. Related offline merchandise has more appeal for youngergamers as well, indicating that publishers would do well to carefully consider the overall packagingof their digital products, such as including vouchers for physical items.When it comes to attitudes towards piracy, 30% of gamers believe that downloading pirated PC or Mac gamesis acceptable, with major differences in attitudes across demographics. In the study 43% of Gen Y (ages 18-34) [Figure 13 – Tables 54-65]said it was acceptable to download pirated games, versus just 9% of those aged 55+. Having grown up withfile sharing, younger adults are more familiar with copying, ripping and distributing digital content on peerto peer networks. How much do you agree or disagree with the following statement about PC or Mac games? Strongly agree Moderately disagree Moderately agree Strongly disagrees Unsure I actively shop for the best price when 49% 33% 4 7% 6% buying a game There are games that I would like to play, 45% 34% 3 11% 6% but they are too expensive I like being able to install games 40% 32% 8% 11% 10% on multiple computers I would be willing to watch embedded advertising 36% 38% 6% 10% 11% if it meant I could play for free I would like to be able to trade or loan my games to others 28% 34% 9% 16% 13% I like to give or sell games that I’ve finished 27% 34% 8% 14% 17% playing to others I would buy special edition digital downloads 17% 36% 12% 17% 18% (e.g., with exclusive downloadable content) I would pay more for a boxed copy than the digital download 18% 31% 10% 22% 20% I would buy merchandise related to a PC or Mac game 16% 31% 11% 19% 24%Downloading pirated PC or Mac games is acceptable 13% 17% 9% 14% 47% 0% 20% 40% 60% 80% 100% Base: 505 US PC and Mac gamers [Figure 13]The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 17
  • 18. Gamers highly value the immediate gratification of downloads.The number one perceived advantage of game downloads over their packaged counterparts, as cited by 48%of gamers, is that they can be installed and played immediately [Figure 14]. No physical media to lose or damage(41%), better pricing (28%), and ease of purchase (24%) were also quoted as major benefits. Lower pricingand instant play are of particular appeal to older (ages 55+) gamers. Members of Gen Y (ages 18-34) value the [Figure 14 – Table 66]convenience of no discs and the easier shopping experience slightly more than other demographics. What do you think are the main benefits, if any, of downloaded games over boxed games? Can install and play immediately 48% No discs to lose or damage 41% Cheaper than boxed games 28% Easier to purchase 24% Take up less space than boxed games 23% Ability to re-download from any location 20% Easier to keep updated/patched 17% More environmentally friendly 17% Easier to browse and find 9% Exclusive digital bonus items available 9%I do not think there are any benefits of downloaded 8% games over boxed games Other 0% 0% 20% 40% 60% 80% 100% Base: 505 US PC and Mac gamers [Figure 14]The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 18
  • 19. No back-up discs and the inability to resell are the main disadvantages of digital.Despite the efforts of digital platforms like Steam, the lack of back-up discs is still seen as a majordisadvantage of game downloads over boxed copies (47%), followed by the inability to resell digital games(40%), and the lack of physical manuals (37%) [Figure 15].Despite, or perhaps due to, their greater familiarity with game downloads, younger gamers (ages 18-34)express higher levels of dissatisfaction with the digital purchase and installation experience than other agegroups. By eliminating the need to buy, download and install individual games, cloud-based, streaming gameservices such as Gaikai aim to minimize inconvenience, making gaming easier and more immediate. For other[Figure 15 – Table 67]digital distribution channels, a continued focus on reducing complexity and wait times, while streamlining thepurchase, installation and archiving processes, will likely result in improved conversion. What do you think are the main disadvantages, if any, of downloaded games over boxed games? No physical discs as a backup 47% Cannot resell when I’m finished playing with them 40% Do not come with physical manuals 37% Take too long to download and install 19% Not as many sales or promotions when buying 16% Do not come with physical bonus items 15% Harder to browse and find 10% Downloading and installing is too difficult 9% Harder to purchase 6% I do not think there are any benefits 12% of boxed games over downloaded games Other 1% 0% 20% 40% 60% 80% 100% Base: 505 US PC and Mac gamers [Figure 15]The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 19
  • 20. RecommendationsThe video game industry is undergoing a fundamental shift from a traditional business model reliant on the saleof packaged goods and perpetual licensing, to one dominated by digital distribution and new forms ofmonetization. With unit sales of game downloads surpassing physical purchases, the transition to digital iscreating tremendous opportunities for game developers, publishers, retailers, and device makers.In this rapidly evolving landscape, how can industry players evolve their offerings to better meet changes inconsumer expectations and buying behavior? Below are a few of the recommendations for action based on theresults of this research:Drop the barrier to entry for consumers.As the market for packaged software declines, higher margin digital sales are increasingly important to the PCgame industry to maintain and grow revenue streams, attract wider audiences, and respond to customer demand.But the typical US gamer is simply not prepared to pay a traditional price of $59 or more for perpetual ownership ofa digital title; unlike packaged software, digital products currently have no resale value and cannot be traded in forcredit against a future purchase, significantly reducing their perceived value in the eyes of consumers.With gamers seeking equivalent or better value for money, monetization mechanisms for digital games must evolverapidly to drop the barrier to entry for potential customers, following current trends in mobile, social and casualgaming. Business models that should be considered include ad-supported play, freemium games, rentals, or loyaltycredit programs designed to replace the value of a physical trade-in.In addition, the shift from physical to digital distribution creates a tremendous new opportunity for publishers tomove away from one or two SKUs per title to a wide array of ownership and game play options such as variationswith limited functionality (e.g., starter editions), restricted modes (e.g., single player only), or expiration dates,depending on the genre and franchise. Such forms of “customizable ownership” allow consumers to determinethemselves how much of a commitment they wish to make to a title or franchise, and offer better value to thosewho just want to purchase a particular mode, style or level of play.Lower cost, more flexible models will attract new audiences to existing franchises, as well as genre fans withinthe core gaming community who are loyal to competing titles. Different models will work best for different typesof games, but low-barrier choices that are easy to understand and simple to purchase will drive conversion:• Although still uncommon in gaming, pay-as-you-go or rental models such as OnLive’s 3-day and 5-day access allow infrequent gamers to pay only for time spent playing.• Low-cost digital subscription services, such as the one recently announced by games-by-mail company GameFly, can build audiences for niche titles while creating reliable revenue streams. Game quality and perceived value of the service will be crucial to success.• No matter what the pricing, those inclined to piracy will find a way to get their games free. Freemium models remove the incentive to pirate by making downloads free-to-play and monetizing more easily controlled in-app items.• Unlike in-store sales, digital distribution allows an unlimited number of variations of each title to be individually merchandised, expanding its potential audience. Examples might include multiplayer only, single player only, campaign-mode only, starter editions, certain levels or courses, and so on. The development process should evolve to consider monetization as part of the overall game design.The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 20
  • 21. Produce a steady stream of downloadable content and game-related services.According to GameStop, the downloadable content market is growing 24% annually, from $3 billion globally todayto $6.4 billion by 2014, remarkable figures considering the DLC market emerged only a few years ago. To help payfor multi-million dollar title development costs, publishers and developers need to shift revenue attribution fromupfront license sales to downloadable content and other game-related services delivered online. Activision hasmade moves to extend players’ engagement with the Call of Duty franchise by offering new downloadable gamelevels at regular intervals but not through a single persistent and compelling service. EA Sports is experimentingwith service monetization through its $25 Season Ticket program that gives members access to digitallydownloaded games, like Madden, days before they are officially released, along with a 20% discount on DLC,and free premium web content.Producing a steady stream of DLC and monetizing other forms of digitally distributed content and services can helppublishers grow and retain audiences for their major franchises while generating significant incremental revenue atconsumer-friendly $5 or $10 price points. While not everyone will buy, many will, and a few “whales” may rack uphundreds on every piece of DLC available for a particular franchise.While continuing to maximize DLC sales through major third party distributors such as Amazon, Impulse, Direct2Drive,and Steam, PC game developers should also learn from social and mobile gaming leaders Zynga and Rovio, whointegrate distribution and monetization deeply into the design of their games and gaming platforms to encourage impulseshopping. Product marketers and game designers need to work closely together to ensure effective in-game commerce.Within a highly immersive environment like a game, users are more likely to be receptive to additional content thatenhances their game experience. If publishers are able to deliver easy, frictionless access to compellingand relevant DLC and services in-game, without gamers having to ask or search for it, they are more likely to benefitfrom higher conversion rates and average revenue per user.Extend franchises across multiple platforms, particularly mobile.Multiple device ownership is also on the rise, driven by the widespread availability and increasing affordabilityof mobile technologies such as tablets and smartphones. Increased device accessibility has evolved themarket for games from a more limited core platform market focused on PCs and game consoles to a massmarket, opening up opportunities for cross-platform game publishers. To fully take advantage of this, publishersmust shift from long development cycles and singular titles to operating games as a year-round service, withfranchises taken to market as a tailored mix of packaged goods, social, and mobile launches; downloadablecontent; and in-game transactions.Mobile, in particular, deserves special attention. Tablet and smartphone device performance is increasing atan exponential rate and may eventually be perceived as comparable to PCs or consoles by a majority of thegaming population. The improved performance and sophistication of this hardware provides many opportunitiesfor publishers to expand their marquee franchises from the relatively limited landscape of PCs and consoles toplatforms that are currently the domain of casual titles. Mobile also allows low-risk experimentation with new titlesor formats that, if successful, can be further developed for more conventional gaming platforms.By delivering core games and complementary content on the most accessible and pervasive platforms, publisherscan broaden the overall gaming experience, driving higher overall consumption, monetization, and engagement.Incorporating social features can attract new gamers. Exposing different stories or features via multiple devicescan extend and enrich gamers’ relationships with a franchise, to the point where they are constantly playing,from wherever they are—on PCs, consoles, tablets, or smartphones. To paraphrase Electronic Arts CEO JohnRiccitiello from his 2011 Electronic Entertainment Expo keynote, game titles need to change from being things thatyou buy to being places that you go.The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 21
  • 22. Build direct relationships with gamers.Popular digital retailers and platforms like Amazon, Impulse and Steam can help game publishers and developersreach a wide audience for their titles. But having a proprietary means of digital distribution could be the Holy Grailfor major industry players working independently, or a consortium of smaller companies. To compete with theincumbents, the key will be to offer a rock solid value proposition—including desirable titles at desirable prices—and a superior user experience, described further in our next recommendation.By controlling the platform, you own the fulfillment method, the ownership experience, and the overall customerrelationship, enabling a deeper and more holistic view of your buyer that is impossible to achieve via conventionaldelivery channels. You can understand exactly what games people own, what they’re buying, how they play, andwhat genres they prefer. You can determine their propensity to browse and buy DLC and game-related services.Through pre-orders, you know who has reserved a game so you can understand consumer demand and investappropriately.Digital platform operators can use this deep knowledge of an individual consumer to offer not only game and DLCrecommendations but also highly individualized pricing, packages and offers based on usage, genre preferences,loyalty, and other factors. By tracking gamer behavior over time, digital platform owners can engage on a trulyone-to-one basis to up-sell and cross-sell content and services once the player is engaged with a game, franchiseor genre. Gamers who have a more relevant and personalized game ownership experience across their universe ofdevices will be more likely to stick around and consume more, rather than starting all over again with a new systemor channel. Implementing flexible ecommerce technology that supports personalized offers and dynamic contentacross the gaming platform and within individual titles can therefore, raise conversions and build customerlifetime value.Owning the distribution channel also makes it far easier to address some of the perceived negatives of digitalgames expressed by consumers, such as the lack of trade-in value or the inability to buy used games. If you ownthe distribution platform you can counter these perceived negatives by offering loyalty credits, early access to newreleases, and even trade-ins themselves. Steam’s latest beta update will allow gamers to trade in-game items and‘gift’ copies of games.Make it easy to find, try, buy, and play titles.Savvy retailers and distributors will expose their product catalogs in numerous ways—through personalizedrecommendations, an effective search function, rankings, and well-structured categorization—to meet visitorexpectations and lift conversion rates. Retailers that can offer relevant recommendations, and social featuresthat let gamers easily find their friends and see what they are playing, will improve retention rates.Since many PC games require major investments of time, money and effort, game buyers are looking forno-hassle ways to truly understand and try titles prior to purchase. And the greater the commitment a gamedemands, the better its discovery tools need to be. Free trials, streaming game demos, trailers, user-generatedcontent (e.g., videos, screenshots, reviews), and industry reviews can all help gamers determine in advance if a titleis worthwhile. As Oliver Kaltner, GM of Microsoft Germany’s Consumer and Channel Group, noted atGamescom 2011, “So far people don’t spend less, but they spend more time making the right decision beforethey make a purchase.”Developers and publishers should also make it easy for gamers to get up and running once they have decided whatthey want to play. Hardcore gamers may have the patience to endure 45 minutes or more to find a suitable game,sign up for an account, pay, and download; older or casual gamers most likely will not bother. One reason whySteam is so popular is that it has become akin to a “games folder”; when they want to play, gamers simply launchSteam and choose a title from their library. New entrants wishing to compete with these market leaders will need tooffer lightening quick installation, with the rest of the game streaming in the background once play has commenced,or cloud gaming, to find favor with consumers impatient to play.The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 22
  • 23. Key takeaways • Drop the barrier to entry for potential customers by offering lower cost, flexible ownership, and gameplay alternatives including pick ‘n mix content options. • Produce a steady stream of downloadable content and bake its distribution deeply into every title to encourage impulse shopping, following the trail blazed by social and mobile gaming. • Expand major franchises to mobile platforms in creative ways, to enable gamers to interact with their favorite games anytime, anywhere. • Create (or join with others to forge) your own proprietary distribution channel in order to build compelling, personalized, mutually beneficial relationships with gamers. • Make it easy to discover, purchase, and play titles through personalized recommendations, comprehensive product discovery tools and a frictionless shopping, ownership, and playing experience.The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 23
  • 24. About the Authors Amanda Dhalla Follow Amanda On Twitter Amanda Dhalla is an ecommerce consultant with Elastic Path’s consulting division. A seasoned ecommerce professional with more than 14 years in the field, Amanda has hands-on experience marketing, merchandising, and managing multimillion dollar online stores. Her areas of specialization range from market research, conversion optimization, and analytics to traffic generation tactics such as social media, search engine optimization, and content marketing. David Chiu Follow David On Twitter David Chiu is an ecommerce strategist at Elastic Path, and a veteran internet marketing specialist with 15 years of experience delivering business solutions to Fortune 500 companies. Prior to joining Elastic Path, David was Director of Product Management at a global ecommerce software company, as well as an award-winning information architect and designer for several prominent interactive marketing agencies.The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 24
  • 25. About Elastic PathElastic Path provides the industry’s most flexible enterprise ecommerce platform and strategic ecommerceconsulting. We help innovative enterprises sell more digital goods and services in a way that is frictionless,social, and everywhere. Major global brands such as Symantec, Time Inc, and Virgin Media rely on Elastic Pathto innovate and grow.Web www.elasticpath.com | Blog www.getelastic.com | Twitter www.twitter.com/elasticpathContact UsElastic Path regularly produces original ecommerce research that impacts enterprises selling digital goodsand services. For more information on Elastic Path platform and ecommerce consulting services call1.800.942.5282 (toll-free within North America) or +1.604.408.8078 (outside North America).MethodologyFrom July 14 to 19, 2011 Elastic Path Software hired Vision Critical, an interactive research solutions company,to conduct an online survey among a sample of 505 US adults over the age of 18 who had played a digitallydownloaded or boxed PC or Mac game in the past month. The full dataset has been statistically weighted to ensurea representative sample. The margin of error is ±4.4%, 19 times out of 20. Discrepancies in or between totalsare due to rounding.© Copyright 2011, Elastic Path Software Inc. All rights reserved. Elastic Path™ and the Elastic Path logo are trademarks or registered trademarks of Elastic Path Software Inc. All other trademarks are theproperty of their respective owners.The State of PC Gaming 2011: The Shift from Packaged Goods to Digital DistributionA consumer research study by Elastic Path Software Inc. 25