GAME talks up 2017 – Black Friday, Switch, Scorpio and its play for PC

GAME recently published its financial results for the six months up to January 28th, including the key Christmas period. We all know that last year was tough for retail, as a number of key titles failed to chart over the key November release period, and more recently Ukie reported that the market for boxed software had fallen by 15.2 per cent in 2016.

Black Friday is often named as the bugbear of the November launch window, and there’s no denying that the now established price-cutting event is somewhat inconveniently timed for the boxed games market. 

GAME CEO Martyn Gibbs is clear on the event: “Black Friday is here to stay, and we need to evolve as an industry around that as a major event,” he says. “I think it’s for the industry to really think about how and when we are releasing titles over the peak period.”

That’s a clear call to publishers that the current release schedule isn’t working for retail. And with key titles last year – including Watch Dogs 2, Titanfall 2 and Dishonored 2 – being slashed in price within weeks of launch, it’s hard to argue with.

“Black Friday is here to stay, and we need to evolve as an industry around that as a major event”

Martyn Gibbs, GAME

Gibbs did suggest some alternative strategies: “If you launch in the week of Black Friday then there’s no expectation of discount, which Nintendo has done, that can work.” Or alternatively that “the opportunity [exists] for publishers to time titles so that we have a launch period nowhere near peak and then are able to go back to people to sell real volume. Uncharted 4 did well with that.”

We suggest that every year we have the same discussions about spreading out the release schedule. “Yes, and then we do it again,” he replies. But maybe Black Friday settling in for good will actually be the motivating factor the industry needs to start think creatively about release dates. Could we see the results of that this year? 

“Potentially, I honestly don’t know on release dates, because I think there’s still a lot to be determined by publishers,” says Gibbs. “But, yes, I would hope that we’re sensible as an industry and take into account Black Friday.”

Black Friday can’t take all the blame, though, Gibbs notes: “Physical software sales were soft and there were certain key titles that underperformed, the year-on-year line-up of games wasn’t as strong.” 

It’s a kind of chicken-and-egg argument whether poor sales then predicated Black Friday price cuts, or whether consumers awaiting Black Friday didn’t buy games they may have otherwise, just to find that they were discounted.

It wasn’t just mint software that was hit, either. Ukie reported that pre-owned software sales over the year were also down 3.3 per cent – and Gibbs says that’s a result of poor mint sales.

“[Pre-owned] was also challenged, because obviously the pipeline for pre-owned is predicated on a strong mint market. So if you have a softer mint market on key releases, it has a direct knock-on to pre-owned, though it would be unfair to say we’re disappointed with that pre-owned performance.” 

MARGIN CALL

The failures in boxed software are all the stranger when we consider that the number of installed consoles are impressively high.

“We’re still seeing the cycle [being] ahead of the last generation, if you add PS4 and Xbox One together, versus PS3 and Xbox 360 at the same time, we’re still seeing we’re distinctly ahead of that,” Gibbs tells us.

However, that increasingly saturated hardware market means that prices are forced down and the margins on PS4 and Xbox One were significantly reduced in 2017. Taking those lower margins out of the equation, GAME’s fall in GTV (Gross Transactional Value) over the year is reduced from 6.9 per cent to just 0.5 per cent.

Despite that, hardware isn’t to blame here. A large base of installed devices should have sent software sales soaring to compensate for any drop in hardware profits.

SUPPLY LINES

In fact, the hardware issue was identified and is being mitigated in part by the release of mid-cycle consoles such as the PS4 Pro – and later this year, Project Scorpio. However, that effect was limited by stock issues with some of last year’s hot new devices.

“The market was constrained on stock last year, PS4 Pro was very successful but there wasn’t the stock to satiate the appetite, so we’re just starting to see stock of some of the things we were constrained on over Christmas coming back into the market,” Gibbs explains.

The same applies to Sony’s virtual reality headset: “We’re just starting to see stock come back through,” he says and agrees when we suggest that with limited stock to date, it’s hard to judge how successful the headset will be in the long run.

“It’s all going to depend on content, as much as availability
of hardware, from our perspective the line-up of games is looking pretty strong, I think we just need to get consistency of supply,” Gibbs opines.

SWITCHING IT ROUND

While some still have their doubts about the commercial viability of this first generation of VR headsets, the comparatively low-tech Switch has shot out the door – gliding on the tailcoats of The Legend of Zelda: Breath of the Wild.

Gibbs has no doubt the console will continue to perform, saying the Switch “will be the biggest growth area in retail for 2017.” Though again, stock could be a limiting factor for its success, with Gibbs admitting, “If you tried to buy a Switch from me today, you wouldn’t be able to.

“But the great thing from an industry perspective, is that whilst I’m a retailer and want to sell lots of things, I love being in a position where there are more consumers wanting to buy a product than there is product available. It really shows there’s a good appetite building for the Switch console.”

We ask if a mobile device, that takes a cartridge is a better fit for boxed retail? After all, the ability to buy the game and play it there and then is quite an attractive one, while cartridges have a perceived greater value than a disc. 

“It’s got a different model to Xbox and PlayStation, it’s not got an enormous hard drive, and you won’t be able to download too many games to it. The cartridge format for us as a retailer is great, we’re working very closely with Nintendo on every aspect of the proposition,” Gibbs answers.

A STRONG START

Switch is a big part of why Gibbs is so upbeat about 2017, but things were looking up even before it launched at the start of March: “In terms of our current trading, the GTV is up 20 per cent in the first seven weeks of the second half.” 

That figure does include Resident Evil VII but not Horizon Zero Dawn, so there’s plenty more good news to come based on the charts. Gibbs agrees: “We believe the UK market will remain positive in the first half of 2017.”

"We believe the UK market will remain positive in the first half of 2017"

Martyn Gibbs, GAME

Beyond strong software sales and Switch, there are some big launches later in the year that aren’t part of the usual annual updates, such as Red Dead Redemption 2. Then there’s Project Scorpio, which looks to be a bigger step beyond Xbox One than its PlayStation 4 Pro sparring partner was.

Gibbs continues: “Later in the year, we’ve got Xbox’s Project Scorpio, so that’s something for us to really focus upon, and we’re encouraged because there’s a strong slate of titles due to release.”

BELONGING IN PC

While consoles and console games remain the core business for GAME, the company has shown an impressive ability to diversify beyond that. The tentpole of this expansion is its Belong gaming arenas, which provide dedicated spaces for in-store competitive multiplayer. 

Riffing off the increasing success of eSports, Gibbs is more than happy with the results so far, both for the arenas, and for the associated stores. “There’s a general uplift across all the arenas. We’ve seen a 14 per cent uplift versus chain just on the core business,” he enthuses.

That’s a considerable boost in sales for every store that contains a Belong arena, and a definite reason to build more – and GAME is, creating 20 more such spaces this year.

Gibbs talks about the recently-launched Soho store: “It’s fair to say that the Belong arena has surpassed our expectations, in terms of how quickly people have come to know it’s there and are participating. At its peak, we’ve had a couple of events where we’ve had 60-70 people downstairs. We’re really pleased with that, we’re still in the infancy with Belong, but [the Wardour Street team] there have really aided our thinking in what,
when, how and why from a gaming perspective.”

Building a community in a physical location and engaging their particular tastes isn’t something you can force to a universal plan, and Gibbs agrees: “If you look at some of the initiatives the arena manager has put into place, [relations with] local universities, bringing in local celebrities, such as Grime artists, he has real autonomy in terms of what is right for his community.”

While the arena is equipped with PS4 and Xbox One consoles, it’s the PC rigs that really work with the overall strategy. 

“In terms of the broader story at Wardour Street we’re seeing a real upside in terms of PC hardware sales,” Gibbs tells us. That’s mainly been peripherals for now, but GAME has moved towards whole PC systems, too.

“We’re in the real infancy again,” says Gibbs. “It was only really our Manchester Trafford store that did the original trial with Overclockers, but what we’ve learned is that we have a right-to-play where we have a Belong arena, we’re relevant and credible to PC gamers, so we’re just rolling that out beside Belong, which is PC hardware, PC accessories and our PC digital offer.”

GAME ON

With profits up in Spain as well and a short lease strategy allowing for flexibility in its bricks and mortar outlets, GAME looks to be not only on a sound footing but also looking forward to a very bright 2017. 

2016 wasn’t great, but the company clearly understands why and is taking what action it can to alleviate those issues over the peak season this year.

Gibbs concludes: “We’re going to continue to innovate and invest in new growth categories, such as Belong, and I think in summary we have a clear strategy. We’ve got plans to address long-term structural changes in the games market, and we remain confident that we’re well-positioned to capitalise on those opportunities ahead.”