The rise and rise of digital distribution for games

Digital distribution services like Steam are poised to overtake physical retail sales in the PC gaming market

In the early days of PC gaming most people got their gaming fix from games delivered by mail order. As sales increased, retail distribution of games on media such as floppy disks, CDs and eventually DVDs took over. Now further evidence of the changing gaming market landscape has been provided by market research company, The NPD Group. According to its PC Games Digital Downloads: Analyst Report, digital distribution is close to overtaking retail as the most popular form of distribution of PC games. The report says that 21.3 million PC full-game digital downloads were purchased online in the U.S. in 2009 compared to 23.5 million physical units purchased at retail in the same period – a difference of just 2.2 million.

NPD’s point-of-sale research showed that although PC physical sales experienced a year-over-year decline in 2009, it was still slightly larger than PC digital download sales on a unit basis. PC digital downloads represented close to half of unit sales across digital and retail at 48 percent in 2009, and accounted for 36 percent of dollar sales.

The NPD report segments the PC full-game digital download landscape into two Web-based ‘retailer’ (ones that offers game for download, and with no physical storefront) segments: Casual Digital Retailers, which often focus on smaller, easily accessible games that typically utilize try-and-buy or advertising revenue models; and Frontline Digital Retailers, which often focus on titles that are also offered in retail stores as physical purchases.

Based on unit percentage share, the top five Frontline Digital Retailers in 2009 were:

1. Steampowered.com
2. Direct2drive.com
3. Blizzard.com
4. EA.com
5. Worldofwarcraft.com

While the top five Casual Digital Retailers were:

1. Bigfishgames.com
2. Pogo.com
3. Gamehouse.com
4. iWin.com
5. Realarcade.com

The report showed that Frontline Digital Retailers increased their share of the PC full-game digital market in the second half of 2009, at the expense of the Casual Digital Retailers. One of the most significant factors contributing to the decline in share captured by Casual Digital Retailers is the increase in popularity of free social network gaming and free mobile gaming.

“The popularity of social network gaming increased from Q3’09 to Q4’09 as 4.8 million more people played games on a social network in the U.S.,” said Anita Frazier, industry analyst, The NPD Group. “This demonstrates how consumers can now experience casual types of games through myriad vehicles, broadening the competitive landscape.”

Free mobile gaming is also capturing the attention of gamers, illustrated by the 30 percent increase in usage of the iPhone and the iPod Touch as gaming devices from Q2’09 to Q4’09. Furthermore, 97 percent of those who downloaded a game app in Q4’09 downloaded a free version of a game according to the report.

It would be interesting to see the numbers if consoles and mobile gaming platforms, including phones were taken into account. Console figures would likely skew the numbers back in the favor of physical units a little, but mobile gaming could well skew it back the other way far enough for digital distribution to claim the distribution crown now. Either way, with PC gaming often acting as the trailblazer and the popularity of xbox LIVE, the PlayStation Network (PSN) and the iTunes App Store it seems like it won't be that long before we see physical retail sales go the way of mail order distribution.