No, digital isn't cannibalizing retail - NPD

It's been over a year now since The NPD Group kicked off its digital games tracking service for the US. It was a monumental task to get the major players to actually participate in digital reporting, and during the five years leading up to the launch of the service, NPD was frequently criticized for not presenting a complete picture of the market. NPD has soldiered on, adding more companies to its digital panel, and now it's revealed to GamesIndustry.biz that it's expanding into new territories with a digital pilot program in the Americas, starting with Brazil and Mexico.

The Latin American video game market is a burgeoning one worth more than $4 billion according to Newzoo, and more and more companies are looking to leverage the populations of not just Brazil and Mexico, but Colombia, Argentina and others. Joanne Hageman, NPD's U.S. Video Games president, told us that NPD has the data for each country and "is rolling [it] up into the appropriate region. As we work with the data, we will look to show more detail by country."

"The strong majority of full game sales still comes from packaged retail, and will be for some years to come"

Ultimately, the aim is to not only go global, but to offer weekly rather than monthly reporting. "We are working with the publishers on understanding the data over the next six months and then will determine next steps for releasing the data," she said. "Our ultimate goal is to move to a weekly digital service. However, it is not something we are prepared to do in the short term."

The digital panel for the pilot in the Americas is largely similar to the one providing data for the US market: Activision Blizzard, Bandai Namco, Capcom, Deep Silver, Electronic Arts, Microsoft, Sony, Square Enix, Take-Two Interactive, Ubisoft and Warner Bros. Interactive. All are providing full-game sales, and Bandai Namco, Capcom, Deep Silver, Square Enix, Ubisoft and Warner Bros. Interactive are also participating with the DLC component of the Americas pilot. The one big exception currently is Sony, where Sony is participating with US DLC, but not the rest of the Americas. Of course, that can change over time.

People have expressed frustration over how long it initially took NPD to get digital tracking up and running, but just getting companies on board is a challenge and throwing territorial differences into the mix further complicates things. "There are significant technical challenges to overcome in a project such as this. Digital gaming, for example, has no UPC coding," noted NPD analyst Mat Piscatella.

"I simply don't see digital and retail competing in a zero sum game for full game sales"

"Every title must be mapped, by hand, to a hierarchy. Naming conventions often change across territories. Different languages may be used in item descriptions, leading to further challenges. In addition, global publishers often have a regional structure with additional layers of key stakeholders and necessary approvals. It's actually extraordinarily complex. Thankfully, the members of the publishing community have been excellent partners in overcoming these significant challenges and we are moving forward as fast as we possibly can while maintaining the integrity of the data."

He continued, "Once we have a data set with integrity... well, the rest becomes analysis. And, at that point, data is data. We can look at high level or dive deep into the detail. It's getting the data from a vast number of sources with no universal coding that presents the biggest challenge to the analytics."

Do a deep dive into the data, and you may be surprised with what you come up with. The prevailing thinking from many in the business is that retail is teetering on the brink of extinction, that the continued rise of digital is ultimately going to eliminate boxed video game sales. Interestingly, while retail has certainly taken some hits, its days are far from numbered in the short-term, NPD found.

"As for some critics calling packaged NPD data 'irrelevant' well... the strong majority of full game sales still comes from packaged retail, and will be for some years to come," Piscatella commented.

"I've been looking at the interplay between digital and retail sales data for years now, and the data suggests to me that digital is more incremental than cannibalistic to full games sales -- meaning that I simply don't see digital and retail competing in a zero sum game for full game sales. Yes, more digital games are being purchased, and the overall share of digital is increasing, but that's not leading to direct offsetting declines in the retail space.

"The data suggests to me that digital is increasing the size of the overall pie, and that both retail and digital are vital parts of the new ecosystem"

"The data suggests to me that digital is increasing the size of the overall pie, and that both retail and digital are vital parts of the new ecosystem, and will be for some time. We have data that suggests, for example, that millennials and Gen Z game buyers have the highest purchase incidence rates of packaged retail games, likely driven by the way young people use packaged retail games as a form of currency for purchasing new games later when they are sold or traded in. It's quirks in the video games market like this that will keep packaged retail in the forefront of full game sales for at least the short to mid-term future."

Digital now represents nearly three-quarters of the entire US games market, but a big chunk of that revenue comes from mobile and PC gaming, so it's not an indicator that console retail is failing, Piscatella stressed.

"I can't see (and have never seen) any evidence in the data that increases in Mobile and PC spending have had any direct negative correlative impact on console or physical retail," he said. "Spending on console is where any digital cannibalization of retail would occur, and the growth in full game digital spending has not been met with anywhere near a corresponding decrease in packaged spending at retail. Changes in retail spending correlate much more closely to changes in the number of packaged games that publishers are producing, and don't correlate at all with changes in digital spending.

"We also have storied franchises like Pokemon and Final Fantasy selling more physical units at retail with their new releases last year than ever before (at least since we started tracking in 1995)."

As NPD moves forward with both retail and digital reporting, the firm is hoping to become more efficient. "Feedback [on our digital tracking] has been quite positive. But of course, folks want to see more detail, more countries, faster release time from the end of a particular month... all of those things that we ourselves are striving to achieve," noted Piscatella.

Needless to say, getting things out to clients and the public more quickly would be welcomed, but time is a tough commodity to wrangle. "The biggest obstacle has been time. It always takes a little longer than you originally plan," acknowledged Hageman.