While digitally distributed video games have not yet delivered the death-blow to traditional gaming based on physical media in France, the dematerialised approach is definitely starting to dominate the market and is having a strong knock-on effect on the entire games ecosystem.

Video Games: dematerialised distribution shaking up the value chain

The video games market is now being driven by online distribution, with 90% of PC-based games being distributed online. This is the main revelation of a survey carried out in September/October last year by the French Institute of Public Opinion (IFOP) on behalf of Hadopi, the French anti-online piracy body, and SNJV, the French video game sector federation.  Meanwhile, a separate analysis from IDATE, a European think tank on the digital economy, reckons that the online games market in France was worth somewhat over a billion euro in 2014, up from just €659 million three years earlier, i.e. averaging 17% growth per year. So it is hardly surprising that the survey finds that 56% of people in France are playing fewer games on consoles and dedicated physical equipment since the advent of digitally distributed games. Nevertheless, plenty of French people still play physical media-based video games. The IFOP report says that a huge majority (83%) of the online gamers polled stated they had played games on physical media during the twelve months prior to the survey.

Significantly however, the trend to digital distribution is creating a shorter value chain. Under the traditional model, the studio produced the game, it was then put out by a publisher and went through distributors and retailers before reaching the player. However this has now been pared back to the simplest of models – i.e. studio to player.

The survey indicates that the shift towards digital distribution is having a number of consequences. It makes it harder to set a ‘fair’ price, since the sheer variety of the online offerings and the existence of a ‘grey’ market of dubious legality in activation keys together make for a much more complex situation, whose effect is generally to drive the price down.  In addition, actual revenue is becoming more difficult to assess given the advent of business models which generate lower direct earnings.  It is nevertheless clear that dematerialisation is leading to a sharp increase in developers’ margins, which nowadays work out as high as 66% for mobile games and even 100% where the developer deals directly with the gamer. In addition, the market is expanding. Many of those involved in the industry – especially games publishers – are aiming at a wider audience of gamers via a much larger range of platforms than before, including PCs, consoles, mobile phones, tablets, connected TVs and social networks. The basic situation is that each party involved is attempting to ″get as close as possible to the gamer in order to capture maximum value,″ the IFOP report points out.

A wide range of business models

In tandem with this general trend towards digital distribution comes a wide range of business models, with ‘pay-to-pay’ (P2P) models existing alongside ‘free-to-play’ (F2P).

Some 17% of all French online gamers expect to have a F2P model, which means they can play part or all of a game free of charge, and then pay for additional content or in-game items that take their fancy.

With P2P, payment is required before the gamer uses a service for the first time. This model is applied across most of the online PC gaming market, accounting for 64% of total turnover.

Meanwhile the subscription model is still alive and well in France. A quarter of all French online gamers today play on a subscription basis.  You may take out a subscription for just one game, and then enjoy unlimited use, or for a series or a whole catalogue of games – what is known as the ‘all you can eat’ model. This is comparable with the paid-for streaming model for music popularised by Deezer and Spotify. However, the IFOP report points out that this formula is still in its infancy and is more suited to casual games.

The popular ‘freemium’ model is a pricing strategy designed to entice customers to buy. The ‘free’ aspect may be time-bound – a limited period in which you may try out the product before actually purchasing it – or cover just part of the game, for example making only one game zone, or only certain functionality, accessible – as in the case of demos which are programmed to disappear after a while. Overall however, one French gamer in two still pays to access online games, the report reveals.

By Virginie de Kerautem