The Future of Gaming Is Digital

At this week's Electronic Entertainment Expo, most of the attention has been focused on the next generation of video gaming. Both Sony and Microsoft revealed more details about their upcoming consoles, while Nintendo tried to rebuild some excitement around the faltering Wii U by announcing a handful of new games to feature the company's beloved trademark characters such as Mario, Luigi and Donkey Kong.

In November 2012, Nintendo rang in the next generation of gaming with the release of the Wii U, and albeit the fact that Nintendo's consoles have a different target group than the group of hardcore gamers Sony and Microsoft are after, the weak sales of the Wii U shouldn't be taken lightly by officials at Sony and Microsoft. Many experts argue that the upcoming generation of consoles, namely the Xbox One and the PlayStation 4, will be the last generation of dedicated game consoles as we know them. Video games are currently shifting from traditional (physical) distribution to digital distribution. Multi-purpose devices such as smartphones and tablets have become viable competitors to consoles and independent game developers compete with major studios for a fraction of the costs.

The annual industry report published this week by the Entertainment Software Association (ESA) confirms this trend: Since 2009, consumer spending on boxed computer and video games has declined 46 and 34 percent, respectively. Meanwhile spending on other delivery formats, including mobile apps and digital downloads among others, has jumped 43 percent. In 2012, U.S. consumers spent more money on gaming content from non-traditional channels than on new physical games ($7.7 billion vs. $7.08 billion). As a consequence, video game unit sales have declined much faster than overall consumer spend (-35% vs. -9%), because the increase in spending on digital content has offset some of the losses in physical sales.

It remains to be seen how the new generation of high-end consoles will perform under the circumstances. Sony's decision to open up the PlayStation Network to independent developers is a clear sign that the company knows it's operating in an altered marketplace.