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Why retail doesn’t give a toss about Steam

By on November 15, 2010
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I have spent the last few days genuinely puzzled over a story that UK retailers are threatening to “demand that publishers remove Steam from their games, or they will not sell them in any form.”

MCV broke the story, under the headline Retailers blow off Steam (at least that was the headline in the print edition). It quoted several senior sources, from publishers and rival distribution services, claiming that Steam’s strangehold on the market was dangerous. One retail digital boss said “If we have a digital service, then I don’t want to start selling a rival instore.”

I’m not entirely surprised that people have woken up to the dominance that Steam has over the PC market. Six months ago, I wrote Five reasons why Steam will destroy the PC games industry warning that we were sleepwalking into a de facto monopoly. (Don’t get me wrong: I love Steam, and how it has kept PC gaming alive – I just worry about any company achieving market dominance).

The odd thing is that I didn’t think that retail cared. I am a PC gamer by nature. I grew up playing games on the PC like Darklands, X-Wing, Command & Conquer, early (and excellent) Star Trek point and click adventures, X-Com and Jagged Alliance. I’ve watched as retailers like GAME and HMV drove me to Amazon and Steam through their rubbish support for the PC platform.

And I wasn’t surprised.

PC is rubbish for retail

PC games just don’t suit retail. They are often complicated to explain (compared to console titles). They are often bugged or difficult to install, leading to customers wishing to return them. They are easy to pirate. They are niche titles (with the occasional exception) compared to the high-budget, mass-market console titles with huge marketing support. Perhaps most importantly, they can’t be reintroduced to the retail channel through pre-owned.

About three years ago, I walked into the PC section of Zavvi in Piccadilly Circus, one of its largest stores. I stood in an under-stocked, underwhelming PC section and thought to myself “What am I doing here – no staff who understand PC games; no reviews, videos, trailers or opinions; hardly any stock or variety.” I decided there and then that there was no future for PC physical retail, but that online stores like Amazon and Play and download services for Steam were where I would buy all future games.

So this bleating about Steam from retail seemed bizarre to me. Why do they even care? The PC market isn’t that big and it has been a low-priority for retail for a decade. What’s going on.

One small reason and one big reason

The small reason is simply that the PC is where innovation happens. It’s not controlled by Microsoft or Sony, Apple or Facebook. It allows new content to flourish.

And new digital distribution systems.

The PC is a great place to trial new services. Streaming. Social gaming. Digital downloads. Recommendation and lead generation engines.

Valve experimented, built a brilliant service and has built a dominant service in a platform that retail had written off. More importantly, retail know that digital (and I mean digital, not Steam) is a fundamental threat to their very existence. Belatedly, they realised that they had allowed Valve to eat their lunch.

So they are, petulantly fighting back.

It’s got nothing to do with Steam

But it still made no sense. Until I realised that the furore had nothing to do with Steam.

It’s all about the console.

You see, it can’t have escaped retail’s notice that Microsoft and Sony are getting pretty successful with XBLA and PSN. XBLA makes about $1.2 billion a year. DLC is getting more prevalent. Retail is beginning to worry that the console manufacturers don’t need them.

Of course, the console manufacturers do need them. They need them to sell consoles, Kinect, Move, controllers and add-ons. Without retail, it would still be very hard to launch a new hardware platform.

So this war on Steam isn’t about PC. It’s not about the few PC titles a year that make a meaningful difference to the cash registers at GAME and GameStop.

It’s a warning shot. A reminder to Microsoft and Sony that they need retail, and to slow down on the race to digital.

It’s an attempt to hold back the tide of digital that has engulfed music, and parts of gaming, from swamping the console. Because of the console manufacturers need to retail to shift boxes, it might work.

For a while.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve:
  • I found that article a bit odd in that no-one was willing to go on the record about it and it was all anonymous sources.

    It does make more sense if the complaints are more about XBLA than Steam, because no-one is going to want their name appearing in an article about how they will pull MS console titles off the shelf.

  • I think that you are right. Every retailer I know is product-centric. They are structured around databases that manage stock, and inventory, and pricing.

    The web is customer-centric. Retail needs to realign its priorities to being customer first, product second, not the other way round.

    This is very difficult. It’s why Steam is winning. I agree that retail could make the switch.

    I’m just not sure that it will.

  • I understand why retail sees the growth of Steam as a potential future threat. But this is more than that. I think the main fundamental difference in point of view is that retail thinks that they own the consumer.

    But they are not. And it must be tough (from retail point of view) to watch that a consumer make different choices than a few years back and that the importance of retail in that buying process is getting less important. But instead I think retail could look at what their strengths are (for the consumer) and use that in their favour.

    In the end it’s the consumer who decides, not retail by itself.

    On a side note; maybe retail could strike this against the revenue they get from second hand, on which the developer/publisher does not see their cut. 😉