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Death watch: GAME unlikely to survive current problems

Thursday, 2nd February 2012 13:36 GMT By Patrick Garratt

With GAME’s business looking increasingly unsustainable, is the writing finally on the wall for brick and mortar retail in video games? Maybe not entirely, but GAME’s time is up, says Patrick Garratt.

GAME is in serious trouble, and it’s likely it will cease to exist in the near future. It may have negotiated stock for releases this week, but what about next week? And the week after that? It will be difficult for GAME to be able to navigate these problems quickly enough to survive.

Don’t pretend you’re shocked. In the past two days, a report of GAME’s difficulty in maintaining credit insurance has been backed up by a statement confirming the UK retailer is in talks to secure lending. The well-known high street chain has also said it may sell off overseas concerns.

Questions are now being raised as to whether GAME has a future at all. If a retailer’s credit insurance fails, it will ultimately mean it’s unable to stock new products. This would have a serious affect on GAME being able to operate in any way.

Speaking to MCV yesterday, GAME moved to assure that it’s working with separate publishers to ensure flow of stock. But while Metal Gear Solid: HD Collection, Final Fantasy XIII-2 and Soul Calibur V will be sold in GAME stores tomorrow – the games vanished from the firm’s website yesterday – there can be no doubting the company is facing a serious test of its ability to remain viable.

To illustrate the seriousness of the matter, EA said in its Q3 earnings call last night that it was concerned about the situation, as it’ll lead to decreased sales and increased debt if GAME’s trouble becomes terminal.

The larger question is whether or not time is finally up for specialist high street games retail. GAME is not the only one under potentially fatal pressure. HMV admitted in six-monthly results at the end of 2011 that general economic malaise “may cast significant doubt on the Group’s ability to continue as a going concern in the future,” reporting both wider losses and a double-digit revenue drop.

While it may be comforting for stores like HMV and GAME to blame international depression on what’s happening to their businesses, anyone with even a passing professional interest in media retail knows it’s not the whole story. And in the games space specifically, it may very well be that time for the specialist brick and mortar boys has finally run out.

Those with loaded guns, and those who dig

The problem is hardly revelatory: people are shopping in increasing numbers on the internet. We are in a transition period between a man walking into a shop and buying a video game, and a man buying a video game from a website. This has nothing to do with whether or not discs have a future in games going forward; it’s about where people are buying discs right now. There’s no question: the internet is winning.

Total retail sales in the UK were up 3.65% last year, while online sales grew 14%. While the trend is general, the situation in the games trade has clearly become untenable for GAME.

GAME is now apparently unable to offer publishers credit insurance. By way of explanation: when a store like GAME stocks a product, the publisher of that product is normally insured. Soul Calibur V is out tomorrow, for instance. If GAME cannot offer Namco credit incurance on the stock it intends to sell, that means Namco has no guarantee it will be paid for its games. If GAME goes bust next week, and the credit on Soul Calibur V’s GAME stock isn’t insured, Namco will lose a great deal of money.

The issue of credit insurance in games retail is of particular importance for two main reasons. Firstly, there are the license fees publishers have to pay platform holders, such as Sony and Microsoft. Secondly, developing a triple-A video game is extremely expensive. If, for example, HMV can’t supply credit insurance on stock of a music CD, the risk to the publisher is nowhere near as acute as it would be on a video game. As such, any sign that a retailer has failed to secure credit insurance will stop supply of games stock very quickly. Especially in the current climate, risk on a stock large enough to supply 600 UK stores could easily kill a mid-range publisher, and even the very biggest – EA, Activision, etc – will take a very dim view.

Show me the exit

No stock, no business. GAME does have some options, although they’re essentially futile. It could close stores and fire staff. This is only a short-term solution that could be made in an effort to balance books, and doesn’t fix the fact that it’s clearly failed to manage the transition from high street to internet. While the packaged goods business is declining and online sales are increasing, GAME.co.uk has failed to gain enough market share to prop up the business. GAME faces particular difficulty in this area as it doesn’t ship from Jersey, as do Play and Amazon, meaning its consumer-facing costs are generally higher.

Merging GAME and GameStation into one brand? This is basically the same as closing shops and firing staff.

In short, GAME is in serious trouble, and it’s likely it will cease to exist in the near future. It may have negotiated stock for releases this week, but what about next week? And the week after that? Publisher have known GAME’s been experiencing difficulties for months, but it’s only in recent days that the severity of the situation has hit the press wholesale. It will be difficult for GAME to be able to navigate these problems quickly enough to survive.

Is this is end for games on the high street? Of course not. Many people still want midnight launches, and they want to be certain of games on day one, but specialists like GAME are being bullied out of relevance in the “event” release space by massive general stores like Sainsbury’s and Tesco. GAME’s niche as a shop which stocks a wide variety of games has traditionally kept people walking through the door for all their gaming needs, but the whole concept is failing. If you want an historic game, do you go to your local store and find it’s almost certainly not in stock, or do you buy it online? You buy it online. GAME’s business of being a catalogue retailer is becoming void. Day-oners will almost certainly go to a supermarket for the next Call of Duty: it’s cheaper and there’ll be more stock. So you go to Sainsbury’s for your triple-As to ensure you get them on time, and you buy Assassin’s Creed II and Halo 3 from Play.com.

And where does that leave GAME?

Someone once told me that for an business to succeed it must be one of three things: faster, cheaper or better. GAME can’t be faster. Day one is day one. It can’t be cheaper on the high street because it’s competing against multi-national giants, and it doesn’t have the set-up to stay below competitors online. A games retailer that doesn’t insure stock will find it difficult to be “better,” to say the least.

Watch the clock. It’s starting to tick at double-time.

Breaking news

27 Comments

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  1. Razor

    Is there a reason why GAME can’t move their online service to Jersey?

    #1 2 years ago
  2. BillyBatts

    Perfect explanation, thanks for that!

    #2 2 years ago
  3. TheBlackHole

    Ouch… Nice piece Pat, but any reason why you felt like you had to kick someone when they’re down?

    You know as well as anyone that journalism like this is inflammatory and generally unhelpful in the wider scheme of things.

    Well written though, and I agree with pretty much everything you said.

    #3 2 years ago
  4. Golden

    Thank you Patrick this is a great article that succinctly describes the situation. I have not been a positive supporter of GAME having received some terribly poor service and equally poor corporate responses, none the less there are many many people whose jobs are on the line right now and this can be deeply destabilising.

    We knew that digital purchases’ of games would be the future but the loss of a major high street retailer in the UK (and Europe?) could speed this along considerably. I can only imagine the impact this will have on publishers who will lose a valuable revenue source.

    Just a final point to clarify, I understand that as of April 2012 Jersey will have to pay VAT so the haven experienced by Play, Amazon etc is coming to an end. Will these companies then see further damage to their income? Could this be the start of a snowball effect for the games retail industry?

    #4 2 years ago
  5. DSB

    @3 Uuuuh….

    Is journalism supposed to be helpful to companies, authorities or individuals?

    FoxNews247?

    #5 2 years ago
  6. Patrick Garratt

    @3 I just wanted to explain the situation. I’m pretty sure most people have no idea what credit insurance is, for instance. I know it’s harsh, but I take no pleasure in it, I assure you. I honestly hope I’m wrong, but it’s not looking good when you add everything up.

    #6 2 years ago
  7. daytripper

    i usually use shopto.net and gamestation for trade ins, just thinking of peoples jobs, its really sad.

    #7 2 years ago
  8. dreamcastnews

    This is why they should have really kept Gamestation as a separate brand, at least they could have sold them off like Blockbuster did.

    #8 2 years ago
  9. drewbles82

    The biggest problem for Game is not digital downloads. Its the Supermarkets and online retailers. 99% of the time any game can be found cheaper else where. Amazon, play being the main ones. Then when its a big game like COD, the supermarkets do better deals, last two years Tesco have done COD for £25 if you buy 2100ms points, still far better deal.
    The staff at my local game are useless, they had the best deal for a kinect bundle which is the first time I bought anything from Game in almost 10yrs.
    Whilst trying to decide what to get with the bundle, a few parents with no clue on gaming, I overheard and basically got them the right package, they even said if it hadn’t of been for me, they would have gone else where.

    #9 2 years ago
  10. Patashnik

    Game haven’t helped themselves with their buying policy either. For publishers selling in to retail, Game are notorious for looking for any excuse not to support anything outside the top core titles.

    Publishers like Rising Star have been vary vocal in their criticism of this rather blinkered policy.

    They, themselves, have diminished choice at their own retailers – look at their piss-poor 3DS selection for example (top ten or nothing).

    Personally, I don’t buy games like FIFA, Call of Duty etc – they’re not to my taste. I have no objection to shopping at game – it’s just that they never stock games I want to buy.

    I have no choice but to shop online or buy from the indies.

    #10 2 years ago
  11. Psychotext

    Poorly run and quite amazingly competent at alienating their core customer base. I wont shed a tear when they’re gone.

    Others will take their place, be it online or on the high street. Maybe those on the high street will have a little more sense than to have four or five stores within 5 minutes of each other.

    #11 2 years ago
  12. TheBlackHole

    @6 Fair enough. I appreciate the response.

    Any way you look at it, GAME going down would be pretty disastrous for the UK industry. GAME account for around 35% of the UK boxed market – that’s a huge deficit for publisher and developer bottom lines. I do feel like they’ve done it to themselves though.

    #12 2 years ago
  13. Chockster

    In answer to #1, the Jersey tax loophole is being closed, so even if they moved tomorrow, GAME couldn’t hope to make enough out of it to sustain themselves.

    edit – forgot to say great read Pat.

    #13 2 years ago
  14. Patrick Garratt

    @14 – Cheers. And thanks for the Steam thing! Will drop you a mail soon.

    #14 2 years ago
  15. Froseidon

    Kinda hoping GAME get out of this. It is my favourite retailer after all.

    #15 2 years ago
  16. NeoSquall

    I just wish they can send my copy of the Syndicate Executive Package…

    #16 2 years ago
  17. tcm2007

    Wow, hope your libel lawyers are well funded. It’s one thing to say there are questions over a company’s future, quite another to say that it’s definitely going down.

    #17 2 years ago
  18. OlderGamer

    Good piece.

    Again.

    Makes me wish the food marts in the states would sell video games. Here GameStop and Walmart have the retail markets cornered. Online isn’t a hell of lot different, same players, same high prices. Very controled pricing.

    Buying online second hand games is a much cheaper venture.

    #18 2 years ago
  19. GrimRita

    GAME stuck two fingers up at PC gamers, then did the same thing to publishers. You simply can NOT shit on your door step and now they are paying the price.

    Good piece Pat as always. Its a shame those at the top dont think about those at the bottom who will be hit the hardest.

    #19 2 years ago
  20. Psychotext

    #17: Opinions… have you heard of them.

    You know, like it’s your (clueless) opinion that this piece is libelous.

    #20 2 years ago
  21. DSB

    @17 Usually judges don’t take kindly to hysterical lawsuits.

    You might want to read up on what libel actually is.

    There’s neither accusation nor defamation in that piece, just Pat Garrats own commentary on the facts as they appear.

    #21 2 years ago
  22. G1GAHURTZ

    I must have spent at least £4K in GAME during this last gen.

    The staff were annoying sometimes, though.

    Anyway, like I’ve said before. IMO, online is the future of gaming, and that includes game sales.

    #22 2 years ago
  23. drewbles82

    @22 online gaming maybe the future but we are nowhere near ready for it. Too many internet companies have daily download limits for a start so already thats a huge portion of people not able to download. Then you got internet speeds which are dreadful in a lot of areas esp in the Uk.

    Example, we have virgin media, 20mb theres a 4GB limit and most games would be almost twice that. If you go over your 4 limit, virgin half your internet speed or in some cases if cut you off for a day or two. Their speeds are crap as we pay for 20mb and I’ve never even seen more than 4mb speed. Prob take me over a week to get one game where as I can order online get delivered the day of release or go my local shop 20min walk and pick it up.

    #23 2 years ago
  24. DSB

    @23 Fair point, but it’s still cheaper for retailers to let you download your stuff.

    Why is it like that with your internet though? I’ve never heard of anything like that in Scandinavia.

    Unless it’s based on the infrastructure and slow government, it should be a no brainer to offer a subscription with no limit and own the competition.

    I can maybe understand it in really rural places, especially in the US where residential zoning was apparently left to (very drunk) european immigrants, but in the UK?

    That’s weird. I dropped my last ISP because the bandwidth was inconsistent.

    #24 2 years ago
  25. Psychotext

    I don’t know what service drewbles is on (I’m guessing ADSL), but on cable Virgin Media don’t have any hard limits. They do throttle if you download too much, but that’s only within certain hours and it only lasts at most 12 hours (and that’s only on the 2mb package).

    http://www.virginmedia.com/images/tm-table-fu-large.jpg

    I don’t really know of any provider in the UK with hard limits, though I’m sure there must be some ultra cheap services that work that way.

    By comparison, I’m using a completely unlimited 100mbps connection… so drewbles’s hardships aren’t universal. ;)

    #25 2 years ago
  26. merson88

    Well let me start with the press are all the same give them a good kicking when there down, it’s journalists like you who think there know what there talking about and in fact are talking hot air, have some respect for the staff “fire staff” yeah that’s someone who has a heart, these are people who have family’s and bills you are talking about, how would you like it if you and your colligues where losing your jobs, and some smart arsed heartless journalists where writing it’s all over no way back etc, it’s the last thing you want to hear especially when it comes from someone who doesn’t know what ther are talking about, I don’t work for Game to set the record straight, but I know what those guys are going through it’s happend to me before and it’s been rough for the company I work for now which is Hmv and we had no support from the press, 90 year old British company and when it gets in a bit of trouble the press get together and kick it down to the ground, we are ok now as universal emi disney and a few other labels have come in to support us, so much for put the dog down and the other stupid headlines the press make, it’s like there enjoying people lose there jobs. Oh and yes I do know what credit insurance is thank you, stop trying to be a smart arse, and yeah the supper markets are cheaper but there only stock 35 copies of mw3 and there out of stock for a week, so people can’t go to super markets and get there game as there don’t stock anough copies, game need to close stores to close to each other and non profiting and try to relocate staff keeping redundancies to a minimum, have a top 10 to 20 chart, focus on pre-owned games, and get customers to pre order those niche games for day release, another good one for game is to have more concessions, cheaper rent and also premoting there products to another customer base, plus the tax loop hole finally been closed which should of been done years ago from our government will certainly help both sides of the business and make it a level plying field for everyone, game and Hmv pay there taxes, amazon, play etc don’t so that’s why the Internet is cheaper, it’s hard for a lot of business out there at the minute and there all need help and support, not kick downs and gloom and doom from journalists like this guy, yes I know some things are more expensive in store but there are lots of bargins to have as well, pop in your local game, Hmv, next, boots store and help support our highstreet and economy, and keep people in jobs and to help create more jobs for people, put it this way no high street thousands up on thousands of people out of work claiming benefits to live and support there family’s which means taxes goes up for those people who work and it would be a huge increase in your taxes more than the £2 to £5 saving from amazon every now and then who haven’t given anything to the British economy, I hope everythig works out for the staff at game and for the company to get back on it’s feet again it would be a sad day to see game gone from the high street.

    #26 2 years ago
  27. GrimRita

    You have valid points merson – but the fact remains that the likes of GAME/HMV/(insert name of out of date concept store here) havent moved with the times.

    For years, HMV blamed the pirates for poor music sales when infact, more and more were turning to digital. itunes lead the way in that field and the same is true of Steam with computer games.

    So instead of blaming something that is beyond your control, HMV/GAME etc should have embraced technology earlier and planned instead of bashing it and keeping their fingers crossed that their PR bull shit assault would work.

    Throw in HMVs shit pricing policy and their so called sales and you have an out of date store struggling. The same is true of GAME. They kicked out the PC Gamer, did the same with publishers titles by focusing too much on pre-owned – hell Gamestation even were about to run an advertising campaign a few years back slapping day 1 releases in the face against the price of pre-owned but thankfully the games industry were vocal and the adverts didnt make it to print.

    All GAME did was expand like Tesco but unlike Tesco, GAME only focus on one area of retail – games and that simply isnt the way to do business.

    GAME more or less have abused their position in the market by charging publishers for retail space, chart position etc etc which was fine before the advent of digital but things have changed and moved firmly back in the hands of the publisher.

    Yes, I feel extremely sorry for those who work on the front line because they will be the ones paying the price for a board room full of total pricks who are running the business in to the ground.

    Retail is on life support because people have changed how they shop. I more or less shop online and hardly ever visit a store because the lack of good service and crowded environment doesnt appeal to me.

    But thats life and businesses need to learn how to adapt, quickly if they are to survive

    #27 2 years ago