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Will Digital Downloads Kill Video Game Stores?

Will Digital Downloads Kill Video Game Stores
The software industry has been slowly moving away from traditional physical media and in-store purchases. Downloads, legal and otherwise, have all but wiped away the music industry's business model, and the Internet and video-on-demand services have hurt DVD rentals and sales. The software industry (and especially the video game industry) foresaw the future of distribution and started moving towards selling downloadable content.

The question at hand concerns, then, how this will impact video game retailers. Sure, outlets like Toys'R'Us and Wal-Mart offer plenty of other profitable products, but the GameStops and EB Games of the world rely on the sales of boxed software. These days, Sony, Microsoft, and Nintendo all sell downloadable games for their consoles. Sony is even making its PlayStation Portable (PSP) portable gaming system a download-only device. And later this year, a company called OnLive will launch a service designed to stream high-quality, 3-D games to your PC or Mac via a Web browser, or to your TV via a low-cost, set-top box. OnLive would not require a powerful gaming PC, and would instead run games on servers, only streaming the visual portions of games and your control inputs over the Internet.

Of course, this digital distribution is nothing new. Valve Software, creator of the venerable 'Half Life' series, has been selling electronic-only copies of its games (and games from other publishers) via its Steam platform since 2003. Steam currently offers almost 700 PC games, and its catalog is growing everyday. OnLive has struck deals with some of the biggest publishers in the industry, including Electronic Arts, THQ, Epic Games, Eidos, and Atari.

Michael Pachter, an analyst with Wedbush Morgan Securities, told Reuters that digital downloads currently account for about 2-percent of worldwide video game sales, but he expects the percentage to roughly double every year. According to Pachter, digital downloads could account for 20-percent of game sales within the next five years.

It's likely only a matter of time before GameStop and its ilk go the way of the Virgin Mega Store and Tower Records. But, can GameStop prevent itself from sliding into complete irrelevance by finding a niche in the digital download market? Or will it stubbornly persist until it has no option but to close up shop completely? [From: Reuters]

Tags: digital distribution, digital downloads, DigitalDistribution, DigitalDownloads, online gaming, OnlineGaming, onlive, steam

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