Business Comment Business

Game over for the game industry?

James Harrison considers what the struggle of video game retailers suggests about a rapidly-changing industry.

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CC Photo courtesy of DCMaster on Flickr
CC Photo courtesy of DCMaster on Flickr

On the 24th February, the Court of Appeal ruled that gaming retailer Game will have to pay £3mn to a collection of Britain's biggest landlords after it lost a landmark legal case about unpaid rent. This is yet another blow to the struggling retailer, which has faced great difficulties for several years. Things came to a head in the run up to 2012 when it was reported that some suppliers had stopped doing business with the retailer. Going into administration led to the immediate closure of 277 stores in Britain and Ireland, and over 2000 employees were made redundant.

Game had seen a remarkable turnaround in its finances since, but this is a huge hit for a company suppliers have ignored over fears of its creditworthiness. It bought out Gamestation but then closed that down too. Zavvi and HMV also entered administration, though HMV survived.

The struggle video game retailers have faced can largely be explained by the industry moving from the physical world. Digital distribution platforms like Valve's 'Steam', smartphones and social networking games are some of the new ways gamers can access the industry's products today, leaving retailers increasingly obsolete. Online distributors can also purportedly boast 70 per cent profit margins, versus retail stores' 30 per cent.

However troubles in the gaming industry go far beyond struggling high street retailers. Game publishers and development studios are also suffering. One of the highest profile recent failures was the collapse of THQ, which declared bankruptcy in December 2012, a steep fall for once the gaming industry's third-largest publisher. It has now been divided up among Ubisoft, TakeTwo Interactive Software, Sega, and others. Walt Disney shut down Junction Point Studios in early 2013 and confirmed that LucasArts would cease to operate as a video game developer, while Gas Powered Games has also been struggling in recent years.

Why so much of the gaming industry has been struggling is put down to the fast-evolving nature of the industry, mainly in terms of how people are playing and paying for games, requiring companies in the industry to be nimble and adaptable to a frequently changing market. Partly as a consequence of the diversification of platforms, much of the industry's growth is now coming from sources other than dedicated games consoles.

Gaming on smartphones is growing explosively, with games such as Angry Birds leading the charge, as are casual games designed to be played through web browsers and social networking sites, such as Candy Crush Saga. Its creator King recently announced its IPO, hoping to raise $500m. Rival Zynga floated at a value of $9bn in 2011 though, based on revenues exceeding $800m a year.

As smartphones and tablets continue to grow as gaming devices, the next generation of consoles isn't the assurer of recovery it may have once been, further casting doubt over the traditional areas of the industry. Candy Crush Saga has revenues of over $800,000 a day, with 93 million daily users, showing how large the casual gaming market has become.

The rapid evolution of the gaming industry has always made it a difficult area to find success in, but the development of digital distribution has done much to accelerate this evolution, leaving large portions of the industry struggling not only to keep up, but to survive.

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2 Comment

Ben Posted on Thursday 6 Aug 2020

James Harrison for business editor!


The lizard King Posted on Thursday 6 Aug 2020

James Harrison for business editor


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