It's no secret to anyone that the physical format in video games is on its way out. The transition to digital has accelerated dramatically, and some companies are taking the inevitable step that will signify a radical change. The signs are everywhere, and everything indicates that we will soon experience a shift that will forever shape the video game industry, although there is a faint glimmer of hope on the horizon for those who cling to the traditional model and enjoy having discs or cartridges. What will happen? Let's see below.
THE MAJORITY OF AAA GAMES WILL BE DIGITAL IN THE NEXT FEW YEARS
One of the biggest surprises in this gaming news big season was the revelation of details about Alan Wake 2, a highly anticipated sequel. However, what no one imagined is that the announcement would unveil the ongoing change. The game by Remedy Entertainment is made possible thanks to its partnership with Epic Games, one of the commercial giants in gaming, and a mutual agreement that it will only be released in digital format.
"There will be no more discs, no more cartridges, a trend that will accelerate over the next 2 years, and by 2028, the majority of games of this kind will only be available in digital format."
The news spread like wildfire, and numerous questions, critiques, and analyses emerged. According to Mat Piscatella, an analyst at Circa, we are entering the era of AAA games that will forgo the physical format. There will be no more discs, no more cartridges, a trend that will accelerate over the next 2 years, and by 2028, the majority of games of this kind will only be available in digital format.
Digital only AAA releases are here. Over the next 2 years this trend will accelerate, and by 2028 or so I think it'll be the norm for most Xbox and PS releases. Nintendo likely won't move as fast, but then again it's Nintendo and they're always full of surprises.
— Mat Piscatella (@MatPiscatella) June 10, 2023
We know that this could happen sooner rather than later for franchises like Call of Duty or FIFA, but it could also extend to beloved titles such as God of War, Assassin's Creed, Halo, Gears, The Last of Us, and all those big productions that struggle today to achieve significant figures compared to the overwhelming weight of service games and online multiplayer. Additionally, Piscatella believes that the change will be more noticeable in PlayStation and Xbox, while Nintendo will take a bit longer as the Japanese company tends to adopt trends only after finding a way to seamlessly integrate them into its business model.
The crucial point here is the decision of one of the involved companies. It's said that the digital focus for Alan Wake 2 is due to improvements in the development process and the ability to release it at a price lower than $70 USD. However, it's clear that Epic Games took a step that some were hesitant to take, as they could have opted for disc distribution but chose not to.
That being said, it's inevitable to recall the moment of excitement when the PlayStation 5 was unveiled, and weeks later, Take-Two took the opportunity to announce that NBA 2K21 would cost $70 USD. The message was clear: a major company dared to increase the price to set a new standard, and soon others followed suit, despite criticisms from some quarters. Therefore, it's not far-fetched to think that the same will happen with the gaming format issue. The big companies set the path to follow, whether we like it or not.
THE SIGNS OF THE END OF THE PHYSICAL FORMAT ARE EVERYWHERE
In addition to the case of Alan Wake 2, there have been some related controversies that have been making headlines in recent days. We refer to the physical availability of Like A Dragon Gaiden: The Man Who Erased His Name, a new installment in the Yakuza series, limited to that format in Asian markets. There's also the controversy surrounding the announcement that the collector's editions of Starfield and Spider-Man 2 won't have a disc. While it's supposed to cater to owners of Xbox Series S or digital PS5 consoles, the reality is that anyone interested in the definitive physical version will have to purchase both products separately. Moreover, it was revealed that the Batman: Arkham trilogy for the Switch will only have the first game on the cartridge, while the others will have to be downloaded, a common practice for some games on the hybrid console.
Gradually, publishers are starting to suggest the possibility of saying goodbye to the physical format for various reasons. With Final Fantasy XVI Square Enix recognized that the game was close to being released on 2 Blu-ray discs, but the development team managed to compress everything onto a single disc. If it had been different, manufacturing costs would have increased, and development times would have been affected, as they would have needed to have the master with the final version ready much earlier to begin the printing and distribution process of physical copies. This all implies higher costs because, even if we forget sometimes, every part of creating a video game, no matter how small, incurs expenses.
Precisely, the recent release of Final Fantasy XVI adds to other major releases this year, like Star Wars Jedi: Survivor, which failed to reach the initial sales numbers of its predecessors in physical format in important markets like the UK and Europe. This doesn't mean they sold less overall or were unsuccessful; in fact, they are selling more and performing better in the market, but the majority of copies were acquired digitally, making physical sales insignificant compared to digital ones.
Video games can be about creativity, passion, fun, and anything we want, but they are also a business, and numbers always influence the path to produce them. In this case, looking at what's happening in major companies gives us an indication of what's to come.
In the last 10 years, Electronic Arts has experienced a significant rise in its revenue and profits from digital sales, while physical format sales have declined. During and after the pandemic, the percentage of physical and digital copies shows a proportion of 20% physical and 80% digital. That is, out of every 100 copies sold, only 20 are in a disc or cartridge. We know that this is not relevant for FIFA, Madden, or any annual sports release, but let's not forget that EA also has Star Wars Jedi, Mass Effect, Dragon Age, Dead Space, and other traditional-style franchises that could opt out of physical releases in the future.
"Capcom and its striking 90% of digital copy sales versus 10% on disc or cartridge."
Capcom is another prominent example showing the impressive change in consumption trends. The Japanese company is experiencing its most successful moment in history, and the data confirming this is the striking 90% of digital copy sales versus 10% on disc or cartridge. With Capcom, we're not talking specifically about service games or annual sports releases but rather about Resident Evil, Devil May Cry, Street Fighter, and Monster Hunter, franchises that many players like to have physically in their collections, but many others opt for the digital copy.
While these particular cases unfold, there's a trend that could influence publishers' decisions regarding the physical format or even limit it to a niche and change the business model. The reality of gaming today is that it is dominated by service games and online multiplayer experiences, while traditional titles are on the decline.
According to an analysis by PricewaterhouseCoopers, casual and social video games generated over 70% of revenues and profits in the US gaming market in 2022, while traditional games contributed only 26.7%. At this moment, traditional gaming, represented by titles like Zelda, ELDEN RING, Final Fantasy, Halo, and others, remains a profitable business with that percentage. However, projections indicate that by 2027, the proportion of service games and online experiences will increase, while the traditional segment will continue to decline.
Less revenue, less profit, and higher business risk could raise doubts among the increasingly profit-driven gaming companies, making them consider whether it's worth releasing a physical game in the market.
WHAT WILL HAPPEN WITH DISCS AND CARTRIDGES?
The expectation regarding this apocalypse of the physical format in video games is that it will happen in the next 5 years. However, there is a glimmer of hope that may not be satisfactory for those who prefer their games on discs. The degradation process that the physical format in gaming has undergone is terrible; the days of an attractive package with a captivating cover, a back cover that invited immersion in the game's world, a manual with instructions, art, and story, and a beautifully printed disc that evoked excitement are long gone. For many years, entire generations spent hours just admiring every part of this package until the industry took that dream away.
First, the manuals lost their color, then the number of pages was reduced, and eventually, they disappeared altogether. Packaging underwent changes due to environmental regulations, and disc printing became increasingly poor. Covers still exist, but they are less spectacular, and back covers are filled with legal information. In short, companies are simply meeting a market quota, and perhaps they would be more satisfied if they didn't have to do so.
Interestingly, this is where the only glimmer of hope emerges at the end of the road. We think that the future option for video game companies, either directly or through third-party licensing, will be to release physical editions, emulating what happened in the music industry with CDs and vinyl records. Currently, vinyl records generate more revenue than CDs, and both bands and solo artists find them to be a constant and significant source of income in the digital age.
Something similar could happen in the video game industry with proposals akin to those by Limited Run Games and other companies seeking to take on the responsibility of keeping the physical format alive. However, it's certain that this will come at a higher price, as we should not expect them to remain at $70 USD because their goal will be to cater to a niche audience that will become increasingly smaller. This won't happen in all cases, so the number of games available in physical format will be much lower than what we have today.
Will Physycal Games Die out?
Like it or not, gaming is changing, and new trends in publishing, sales, and consumption are emerging. The digital format is not an incarnate demon; it has its pros, such as portability through user accounts, constant promotions, and being an attractive market option. However, it's also subject to its reality as a product: it's only paying for a license's use, with the risks that implies for the future.
Today, despite everything, many physical editions of video games are version 1.0, playable from start to finish without updates. That disc or cartridge withstands the dependence on internet connectivity of consoles and fuels the sense of ownership of a product because it can be touched and manipulated. It's also where nostalgia comes into play, reminding us that this tangible player-game relationship is coming to an end. Unfortunately, data and trends show that companies are on the verge of taking the most feared step, leading to a future where most video games will be digital. It's just a matter of time and nothing more.
What are your thoughts on this transition in the gaming world? Which format do you prefer? What pros and cons do you find in the physical and digital formats? Would you be willing to pay much more than $70 for a physical edition in the future? Don't forget to share your thoughts in the comments and continue with us on LEVEL UP.
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