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Fallacies and Myths of the Retail Channel

by Hal Halpin

 

Like most industries, the interactive entertainment business is split into three shares of specialty: Development, Publishing, and Retail. Each of those market segments are represented by trade associations; in order IGDA, ESA, and IEMA. We work diligently on issues relevant to our constituents and generally toward common goals, thus enabling a fostered relationship and relatively open lines of communication. It was during the course (probably the second) of dinner with Jason Della Rocca, my counter part in the IGDA, on the eve of the 2005 Game Developers Conference that I had occasion to bring up my frustration over the disconnects that exist between the development community and the retail merchants. Perhaps it is due to the intrinsic nature of the business, or that we as groups are separated by publishers in the business model, but regardless of the reason the flow of information seems hampered.

Jason readily agreed, and suggested that I write an article to that end; perhaps dispelling the myths that developers tell and are told about how the channel works. Thus, the following is a quick stab at righting the inaccuracies and tempering the fallacies of retail:

"Retailers don't get how cool our games are"

It's not that merchants don't want to buy-in to how ground-breaking your title is - in fact many of the country's leading retail buyers are gamers - what matters is how salable it is. The cool factor is definitely important in selling a game, but ultimately it's just a piece in the puzzle. Marketing, timing, product positioning, word of mouth are other examples of pieces that play a role in how well a title will sell.

"Retailers only display games that publishers pay to merchandise"

This one is a more complex issue in that publishers do sometimes pay for merchandising space at the store level and for a variety of reasons. But ultimately retailers want to display products that will sell. Period. If you create a great ground-breaking game that absolutely no one knows about, it won't sell. Not even if you put blinking neon signs around it. Similarly, critically-acclaimed games that have poor marketing otherwise won't sell. To the best of my knowledge however, a great game with fantastic marketing has never tanked at retail. Shelf space is a valuable commodity. How productive that space is is a determinant factor in more ways than can be discussed here. Developers have a right to be concerned about merchandising and how their games are presented to the public, but there are realities that need to keep those suppositions grounded as well.

"Retailers only stock titles from the majors and don't want independents"

Far from true actually. Merchants want to carry the products that sell. It's becoming increasingly true that we're following the Hollywood model, and that a handful of major publishers will control a lot of the distribution, but that doesn't mean that retailers won't stock your title. It means it'll be difficult to argue against positioning against Big Publisher X.

"Buyers decide whether to purchase my game based on a five minute sales pitch, not the merits"

Publishers employ sales staff and sometimes independent sales rep firms who maintain relationships with our retailers, specifically the buyers. Like any business the sales people visit their "accounts" pretty regularly and therefore only get a short period of time with which to pitch each title specifically. They normally use sell-sheets which have some artwork on one side and encapsulated sales info on the back - quick and dirty basics about the game. Retailers usually get to see the product, and where it is in the development cycle, at E3. They take notes and listen to the updates. Then they're visited sporadically after the show as well. In July each year the IEMA hosts the Executive Summit, our retail purchasing event. We fly in all the key buyers and execs, the publishers purchase suites and meeting rooms to show their products, and the purchase orders are written. Over the next few months until launch the order will be tweaked, and immediately after launch re-orders will be placed. But it is a cumulative process, as you can see. A lot of time, effort, and money goes into the purchasing of each SKU, and the decisions are very well thought through.

"Buyers only care about console games at the detriment of PC software"

We hear this one a lot, and it may stem from the fact that computer games generally represent about 15% of the business, and therefore a comparatively smaller footprint at retail normally. The fact of the matter is that the IEMA retailers quite literally saved the PC games business the way we know it. Several years ago computer games had become so unproductive per square foot, that many of our members were considering dropping the category entirely! We worked with the publishers to come up with the new smaller-sized box you know today, and increased the efficiencies of that same shelf space by over 33%. We later came up with the now-standard PC icon (the platform identification mark) which we license to publishers on a royalty-free basis.

"Publishers push for sequels and one-offs because retailers prefer them"

Buyers like predictability in their purchasing. They enjoy knowing that they have a comfort level when putting their neck on the line. So when EA walks in and says we have this year's version of Madden ready, yes, it instills confidence because they know the buying patterns of their customers (how each title or type of game will sell in each store and playing to a demographic of consumer). That said, we agree that too much of a me-too mentality and sacrificing originality for predictability isn't wise. Customers can get turned off to a franchise just as quickly as they became fans. It's an industry issue that we should all be concerned with.

"Renters erode the market and cost developers money"

The rental business has been responsible for a fair percentage of the revenue growth in our sector over the past five years. Rental retailers such as Blockbuster, Hollywood and Movie Gallery buy games from publishers in quantities that make them top ten customers and then rent those products largely to an audience that otherwise might not have been exposed to your game. If all three of them stopped buying games for rental, that $10B revenue number would be proportionally smaller, believe me.

"Digital distribution will supplant retail and developers will deal direct with consumers"

This is a debate that I find myself a part of fairly frequently - especially on panel discussions at conferences. It usually begins with someone telling the audience how their company is going to be the next Wal-Mart of the gaming business through their digital distribution solution. It sounds eerily familiar to the same boastfulness that prior dot com guys expounded five years ago. The deal is that Wal-Mart is going to be the Wal-Mart of digitally distributed games. All Internet sales of all packaged goods games sold last year totaled a whopping 1%. Five years ago, those same people were making millions telling everyone how their new dot com alone was going to have a 30% market share. Digitally distributed games today account for one on-hundredth of that one percent. Is it growing, sure. Will it be much bigger in five years? You bet. But the reality is that customers will be downloading Madden 2010 from a retailer's website, not the developers.

"Retailers don't care about violence in games"

Actually, they care about the violence issue more than you know. In 1998 retailers required publishers to have rated games in order to get shelf space. In 2001 retailers began dedicating valuable in-store merchandising space to ratings signage. In December 2003 IEMA members committed to a voluntary carding policy for the sale of M-rated games, AND mandatory ratings signage in every store by the end of 2004. And this year we are implementing a new policy curbing the display of M-rated content on in-store loops and interactive displays. IEMA retailers have made more commitments and been more proactive than any of our counterparts.

"Merchants are corporate vultures and don't contribute to the good will of the business"

Part of the license associated with the aforementioned PC icon that we give to publishers includes a provision for three finished copies of each game in which they use our trademark. Those games are given to our affiliated charity, Games for Good, which redistributes them to worthwhile causes. You may not be aware of it, but it's entirely possible that your game is comforting a sick kid in a children's hospital, helping a battered woman gain the confidence to start up her own business, keeping an at-risk teen busy in a youth center, or one of many other altruistic efforts made possible through the dynamic described. Believe me, we care and we're doing something about it.

 

What you should take away from this isn't that we believe we're sitting up on high. This business is fragile and still quite young in many ways. We need to keep these lines of communication open so that assumptions and misinterpretations don't become the norm... it'll only grow animosity and become detrimental to the industry as a whole. Jason and I advocate on behalf of our two respective groups and know, first-hand, the issues we collectively face. They are obstacles that are best tackled together and in an informed manner. To that end, we hope that this brief article sheds some light on the alternative perspective.

 

Related Resources/Links

 

Authors' Bio

Hal Halpin

Hal Halpin is the founder and president of the IEMA (Interactive Entertainment Merchants Association), the game industry's non-profit retail trade association. The IEMA member companies account for over 85% of the sector's business, and counts among its esteemed Board members Wal-Mart, Toys R Us, Target, and EB. He manages and runs the IEMA's annual conference and show, the Executive Summit, which is the game industry's premiere senior-level event - exclusive to the top 600 decision-makers in the business. Hal is frequently called upon to represent the industry in mass-media outlets, at conventions and trade shows, and in representing the sector to federal and state government representatives. Hal can be reached at hal at iema dot org.

 

The opinions expressed in this article do not necessarily represent the IGDA.