Gamefly Archive

To quickly bring everyone up to speed, GameFly is Netflix for video games. Users pay a monthly fee and receive video games in the mail. It’s a great service, I’m a member and I love it, but mailing video games to users is its core business. What happens when users can download video games directly? Can GameFly survive in a video game on demand (VGOD) world?

The shift towards digital downloads in the video game industry is natural. Microsoft announced the first download-only game for the Xbox 360, Marble Blast Ultra, back in October of 2005.

We already see this in music and movies with iTunes and Amazon’s Unbox.

By selling directly to users, video game producers should make more money. They can sell their games for less, because the middle man is cut out. With lower prices, more people would buy games; the total amount of video game sales should increase.

We see this in the music industry. The new Nas album costs $14.99 at Best Buy in CD format. The same album costs $8.99 on Amazon as a digital download. That’s a 40% difference!

If this trend holds for video games, we should see prices drop from $59.99 (on average) to $35.99, a 40% decrease!

Subscriptions, Downloads or Both?

For gamers like me, who pay a monthly fee, buying games, via DVD or download doesn’t make sense. I’m paying a subscription because I want to play a game until I get sick of it. Purchasing video games doesn’t work for me because I usually don’t play them enough. After a week or two, I’m ready for the next game.

If gamers can download games, a subscription service could be created. What would this look like? Could gamers play every game on a system for a monthly fee?

I pay roughly $25 per month for GameFly. I’d gladly pay that amount to Microsoft, if I could access every Xbox 360 game online. Does a plan like this make sense?

If the average gamer spends less per month than the subscription fee, monthly "all you can play" packages will create new revenue. In other words, if the average gamer spends less than $25 per month on games, it would be more profitable if that user had a monthly subscription for $25.

The Changing Game Space

If video games moved to a download-only model, the essential companies would gain, as the middle men are squeezed out. Companies that create consoles (Microsoft, Sony, Nintendo) would build and manage the "online video game store" for their consoles. These companies would take a cut, much like Apple does with iTunes, when video games or subscriptions are sold. The remaining money would go to the companies that made the video game (EA, Rockstar.) Distributors like Best Buy, would get squeezed out. We see this in the music industry, Best Buy already devotes less floor space to CDs.

What’s also interesting is the ability for advertisers to enter the market. Currently, in-game ads have been a disappointment. If users congregated around an online video game store, ads could be displayed there. The video game industry would make money by selling downloads, subscriptions and ads.

So, Can GameFly Survive?

It just makes sense for users to download video games directly. Why bother going to the store and buying one or waiting for the mail to be delivered?

Unless GameFly drastically changes its model, I think they will be squeezed out too. Currently, they add no value when users can download video games directly. NetFlix, well aware of the changing DVD space, created a streaming service. Even if users can download or rent movies online, NetFlix can compete. GameFly needs to create a big value-added feature in order to survive the changing landscape. I’m not sure what it could be, if users can download directly from their console, I don’t see where NetFlix can deliver games (online or physically).

Even though VGOD makes sense, don’t expect to see it happen soon. Just look at CD sales, they’ve been on the decline for years, but stores still sell them. Also bandwidth may be a problem. Users without broadband access will be left behind. I’m sure they represent a large chunk of money.

We are on the path to video game downloads, but it will take time before every game is available online.

Distributors should pay attention now and think of creative ways to add value, otherwise they will lose out.

Gregory Schnese is a co-founder of SoUrban.net, an East Village blog about music, tech and fashion, and is the Web Producer at beYOU.tv, a fitness and wellness video community.