Casual Biz Models No. 1 – Retail Distribution

In a nutshell
The ready-to-play casual game is sold for full price on a DVD packaged in a box or jewel case at bricks-and-mortar retailers. No online access is required.

Pioneers
For 30 years, the video game business has been overwhelmingly based on selling boxed product in shops; casual games publishers looking to real-world retail are reinventing the wheel. That said, their particular difficulty (and the reason why, in contrast, online distribution has worked so well for this demographic) is that casual players don’t tend to frequent games stores.

Many conventional and start-up games publishers have tried to establish casual-focused labels over the years, but among the first to align itself specifically with the burgeoning Try Before You Buy casual market was developer MumboJumbo, which began taking other publishers’ casual best-sellers, such as Bejeweled and Super Collapse!, as well as its own game Luxor, into retail stores in 2003. Now established as a leader in this sector, MumboJumbo also helps online-focussed developers and publishers with unfamiliar issues such as packaging design, disc manufacture, and in-store promotion.

In detail
Selling games at retail has all the difficulties associated with the download-based casual games business model, and then some. From the manufacture and distribution of physical goods, to the design of the packaging, and on to the prosaic details of shelf allocation and in-store marketing, selling casual games means more middlemen, lower margins, and greatly increased risks for whoever is paying to have the game physically made.

On the positive side, selling games in boxes is a massive and well-established market, taking more money than box offices or music retailers. A retail success can means a big increase in profits earned by a title for the game’s publisher and/or developer, and if a third-party specialist takes on the risk of the boxed product (for a share of the reward), the downside for owners of online games looking to retail can be limited.

Margins are tighter than selling online through a portal, because while the pricepoint may stay at $19.99, as much as half of that could go on manufacture, distribution and marketing costs. As with online, the retailer will take around 30 per cent of the revenue, and any third-party retail re-publisher will want a chunk of what’s left over – which newcomers will need to pay, since dealing with major retailers is not really feasible for any but the biggest independents. All this leaves at best a few dollars for the owners or creators of the game.

Then there’s the risk of paying to box up tens of thousands of games that nobody wants to buy – again, such inventory risk doesn’t exist online – which means retail games publishers are extremely cautious. They look first for online success, ideally a game that’s already well-known to the public, since building a retail franchise from scratch is extremely expensive and time-consuming. This, together with the slim margins, means boxed retail sales are a revenue stream best exploited by casual companies who already have hits to squeeze harder, as opposed to being an under-exploited territory for newcomers to the market.

Advantages

• The consumer must pay upfront before being able to play.

• A boxed copy can be bought to be given as a gift.

• Can sell boxed copies of games to consumers who are already familiar with online casual games but wary of downloading and/or using a credit card online.

• Exposes a casual game to new audience who isn’t familiar with the online scene.

• Boxed games can include marketing material to strengthen relationships with consumers, establish a direct sales channel, and so on.

• Can create bespoke games displays in non-traditional retailers, such as department stores (albeit for a significant price).

• More scope to upsell via attractive premium products or two-in-one bundles.

• Cost of manufacturing physical goods and distribution reduces margins.

• Physical product also means far greater risks of loss compared to online distribution, since tens to hundreds of thousands of copies of the games must be manufactured ahead of any sales.

• Casual games are usually too simplistic to impress via screenshots on boxes, which is traditionally a key retail sales tool.

• Retail sales could theoretically cannibalize more profitable online sales.

• Hard to stand out among hundreds of games in traditional game stores.

• Unless the game is an ongoing hit, it will have a limited shelf-life compared to online, where even if a game leaves a portal’s prime front page slot it can be available indefinitely elsewhere on the site.

• Consumers cannot try before buying, which puts greater weight on the franchise and the appeal of the packaging, rather than compelling gameplay.

• Store staff unlikely to be evangelists for casual games.

• Different business procedures, which means a big learning overhead for new entrants, or more likely the need to work with (and lose margins to) a third-party specialist.

• Big carbon footprint compared to digital distribution.

Future developments

Several companies are now selling online casual games in retail stores, while established boxed game publishers like EA and Eidos are trying to defend their turf by setting up their own casual labels. Ironically, with traditional hardcore games distribution long-predicted to be moving online – a movement that’s finally gained traction in recent years, especially with the arrival of console services like Xbox Live – it may be that casual impulse buys will be the long-term future of boxed games. In the near-term, casual publishers are looking to non-PC platforms, especially DS and PSP, as new outlets for the boxed software.

The Bottom Line

Selling casual games in retail stores may seem counter-intuitive, but for proven titles with existing brand awareness it offers the promise of bolt-on extra revenues. Costs are high, and smaller companies will need to work with specialists and carefully weigh up the potential risks and rewards, since the price of failure is much greater than with an online-only game.