Will digital downloads kill the video games store?

As Internet distributors continue to grow retailers from Wal-Mart Stores Inc and Target Corp to GameStop Corp more often ask a question: will digital downloads kill the video games store? More and more gamers, especially on PCs, are turning to other methods of purchasing games than buying them from a retailer. They prefer to download or “stream” online games rather than go around to a store.

Dave Perry, whose Gaikai online system lets PC gamers buy and stream games through their Web browsers without needing to download any content says: "Our solution is not to dive into a fight with Sony (Corp), Microsoft (Corp), Nintendo Co Ltd, as it wouldn't gain any 'new audience' for publishers," Perry said. "Instead, our strategy is 100 percent focused on being an ally to publishers and first-party hardware makers, by delivering them audiences they don't reach today."

Digital download now is a small, but fast-developing business. According to Wedbush Morgan Securities analyst Michael Pachter’s estimation digitally downloaded games will account to 2% of current year sales, which approximately is equal to $400 million. As he expects demand for digitally downloaded games will double annually during few years. "As broadband penetration increases and the Internet connection migrates to the living room, downloads or cloud computing solutions will become much more viable," he said.

Publishers and developers of video games are seeking for new channels to reach a customer. Yet some retailers refuse to go through a third-party online distributor, saying that margins for both developers and retail chains will further diminish. Analysts consider that the big retail chains should embrace and invest in digital sales. Some start-ups try to work around that issue: digital distribution box called OnLive, the largest independent games distribution network Valve Software's Steam.

Source: Reuters