Video Games Digital Sales Slowly Phasing Out Physical Sales, a Future of Digital-Only Era

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Over the past decade, digital sales of games have exploded and overshadowed that of physical copies. This trend is no secret and is widely debated by gamers, but if we look at statistics, the disparity between digital and physical sales is undoubtedly staggering.

In 2020, Capcom, one of the biggest Japanese publishers, revealed in a Q&A at its shareholders’ meeting that approximately 80% of its games are sold digitally. This number lines up with the sales ratio when compared to physical unit sales in Capcom’s latest financial report, unveiling that since 2019, Capcom has been selling more digital copies than its physical units.

The year 2020 was also a significant year for the games industry when purchasing trends had a huge notable shift due to the COVID-19 pandemic as the majority of people have to go through a lockdown lifestyle. This is also the year when digital sales, especially on consoles, outnumbered physical sales for the first time. It was worth noting, physical sales did not decline during the pandemic period, but rather digital sales grew. If we look at Sony Interactive Entertainment’s earnings between 2019 and 2020, physical sales had a 1.3% year-on-year increase, but digital sales grew by 154%.

The Shift to Digital Distribution

When we look back in time, the video game distribution landscape looked quite different 20 years ago than it is now. Games were traditionally sold as physical discs or cartridges at local retail stores, but by the mid-2000s, the viability of digital distribution truly took shape and the momentum has been pivoting towards it since.

On PC, gamers largely rely on digital platforms such as Steam, Epic Games Store, and GOG.com, just to name a few, as physical boxed PC releases become less and less, while PC games become more widely distributed via internet downloads only. The side of consoles also see their push for digital distributions, with each of the major platforms having its own digital storefronts, namely PlayStation Store, Xbox Games Store, and Nintendo eShop.

When heading to the ninth generation of consoles with PlayStation 5 and Xbox Series X|S, companies even began to sell their consoles in two variants, with options that either come with an optical disc drive for physical game compatibility or digital downloads only – further cementing the shift in trends on bolstering the digital distribution market.

Today, digital sales dominate over physical sales, no doubt about it, given the statistics provided. In fact, many companies are actively pushing digital sales as their main business focus. Earlier this year, Square Enix announced a new medium-term business plan that aims to push for multiplatform releases going forward, but stepping up on digital sales to build “continuous customer contact points of its titles” was also highlighted as a significant part of its plans to strengthen its business.

What Drive the Shift to Digital 

While many players still prefer physical media, the video game industry has been favoring digital games and there are numerous factors to it. For one, production costs for digital copies are cheaper than for physical games. To produce physical copies, publishers have to manufacture the discs, cartridges, cases, and other materials, which all add up in cost.

A thing to note is that, aside from manufacturing the games, there are also other costs including warehouse rental, logistics, export tax, transportation costs, and so on. Meanwhile, digital stores are not constrained by physical space, allowing for a much wider library of games. Also, the cost of producing a digital copy versus a hundred digital copies is the same as there are no additional production costs attached as compared to physical discs, where one disc would include printing, the box, and other costs.

Another part of the reason for this shift in trend is the accessibility and convenience of digital stores, not just on the consumer side but also the publishers. When companies are set to launch physical copies simultaneously across the globe, they have to plan the logistics and distribution of the game extensively, exporting the discs early, and ensuring stocks arrive on time. For digital platforms, games can launch and become available immediately, allowing them to be purchased directly without shipping time, cutting down a lot of complicated planning and costs.

Another benefit to digital stores is that they are online 24/7 while retail stores have an operation time, thus allowing consumers to purchase games at any time.

Not to mention, promotions and discounts are more commonplace in digital storefronts, as compared to physical stores. Due to lower production costs, publishers would often offer discounts on games on digital platforms, with prices much cheaper than physical copies. These discounts drive in more customers and successful sales drive further discounts to draw in more customers.

Digital-Only Future?

Is the future of gaming going fully digital? By 2028, we might see a majority of AAA releases only be available in digital format – at least that is according to a prediction by Mat Piscatella, a video game industry advisor and analyst at Circana. That said, the future is unknown.

Physical games may become less prevalent, but when there is demand, there is supply. There are still a lot of gamers who prefer physical over digital for a myriad of reasons, from wanting a sense of ownership to the preference of trading and reselling their games. To a lot of people, physical games hold sentimental value, they love collecting their beloved titles, which is why Collector’s Editions are a rare commodity.

As such, I believe physical media will likely gradually become niche but not completely phased out for a while. However, the games industry will continue to shift their focus to digital distributions and we would likely see fewer and fewer games being released physically.

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