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Rumors of the Death of Physical Video Games Have Been Greatly Exaggerated

“The record labels still make CDs and the movie studios still make DVDs, so yes, I’d say it’s too soon to abandon discs for consoles,” writes Michael Pachter, managing director at Wedbush Securities when asked about Microsoft’s plans to drop a physical disc drive from their latest Xbox One model. The all-digital Xbox One is the first major console not to include an option for physical media.

“I suppose it’s up to the console manufacturers, but my guess is that the video game publishers would push back if discs were dropped. The majority of sales are still on disc, so it’s not even a close call,” Pachter continues.

A majority or not, physical sales dropped in recent years, indicating a shift in consumer spending and the availability of digital content. Many games don’t see physical release at all, especially in the growing indie space. For example, D3 Publishers’ Earth Defense Force franchise, previously available in digital and physical forms, went digital only with the two most recent entries.

But as Pachter notes, this shift to digital is not definitive. What’s happening is complicated. Simply saying physical games sales fell in revenue doesn’t consider the multitude of other factors. The disc isn’t dead.

The UK’s Entertainment Retailers Association reported that 80% of game sales were digital in 2018 – although that number included content like costumes and in-game currency, not just the games themselves. Sales of EA Sports’ FIFA still generated 75% of core sales from discs in 2018, according to the UK report. Overall industry sales need to consider the rise of apps too. A 60% drop in physical sales from 2009 to 2017 seems dramatic but consider the revenue sources. That’s not only Xbox and PlayStation involved, skewing the numbers, making the total loss difficult to pin down. A 2018 report from Nielsen states a majority of game consumers prefer physical.

Still, something is happening. Beyond excluding the disc drive, Microsoft offers Xbox Game Pass, an all-you-can-play digital game buffet at $10 a month (or $100 a year) that even includes new releases. Sony offers the $20 monthly PlayStation Now service, game streaming in the vein of Netflix. New console announcements like Google Stadia ditch any physical media. Digital marketplace Steam runs a majority of the PC market, and mobile platforms in the current era never offered a physical alternative.

With digital alternatives, consumer spending habits impacts outlets like GameStop who reported a $673 million yearly loss (and a dire outlook) this as stores transition from primarily (and profitable) used physical game sales and use floor space for pop culture collectibles. In a statement to Variety, GameStop cemented their support for Microsoft as a retail partner.

“We believe gamers should have the choice whether to enjoy playing video games either across digital or new or pre-owned physical platforms. Microsoft is a very strong partner of ours. We are working closely with them to identify a meaningful path forward on how we can support the new console. Regardless the outcome of those discussions, we believe there will always be a need for an Xbox One console that provides gamers the opportunity to enjoy games in both digital and physical formats,” writes GameStop’s representative.

Limited Run Games started its business in 2016. As their name suggests, they create small physical disc print runs of previously digital only games, with a focus on independent developers who might not otherwise have a chance to see their games in such a form. Limited Run stays with Sony, Nintendo, and PC platforms for now – Microsoft never agreed to a publishing contract. What happens if/when game consoles no longer offer a physical alternative? Does Limited Run continue?

“We’ll continue to support older platforms for as long as we can and that will include PS4 and Switch when they become “legacy” platforms in the future. We released over one hundred games on the PlayStation Vita after that platform had long been considered dead by the mainstream, so I think we have a long future ahead of ourselves just in supporting these older platforms with more physical releases,” writes Josh Fairhust, co-founder of Limited Run.

Fairhurst compared his company’s output to that of vinyl records – vinyl sales surged in recent years even as the music industry shifts to streaming services like Spotify. “It’s inevitable that a large chunk of any physical media market is going to be lost to digital each year as mainstream consumers migrate, but a small chunk of people will never stop buying physical movies, music, or games. There’s always going to be a niche market for this stuff,” writes Fairhurst.

And what about those niche markets? Take a small movie label. The MPAA reported a 50% drop in physical movie sales over the past five years, that period including the launch of a new media format, 4K UHD.

How does that impact a niche distributor of DVDs and Blu-rays? Eric Wilkinson is the director of acquisitions and sales for MVD, a small label putting out special editions of direct-to-video ‘80s and ‘90s movies like Billy Blanks’ high school kung-fu flick “Showdown.” He sees the market drop as natural.

“When I worked at MGM in 2003, people were buying everything back then. It got to the point where, studios could put a movie out in the theaters, have it perform poorly, and still sell millions of copies on DVD,” said Wilkinson. “Then people realized, do I need to own all these discs? At some point, the business was more bloated…. these physical sales for movies, they’re going to drop to a certain level, and I think they’re going to level off. It’s never going to be what it was. Back when movie sales were $20 billion in physical sales, it was that way because there wasn’t streaming. But there is streaming now. Not everyone wants to own what you or I own, but there’s still going to be people that want to own a copy.”

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