The challenges of tracking Aussie digital game sales

Last week, the Interactive Games and Entertainment Association (iGEA) revealed that the Australian retail games industry slipped 12.8 percent in revenue in the last year, dropping from A$1.7 billion in 2010 to A$1.5 billion in 2011.

However, this figure--tracked by independent market-research group NPD Group Australia--represents only the retail market, that is, revenue generated from console hardware, games software, and gaming peripherals sold only at physical retail. The data does not incorporate sales generated from Australia's ever-growing digital market: online retail, downloadable content, online games subscriptions, in-game microtransactions, and mobile games.

The omission of digital game sales is mirrored around the world. While NPD figures from January show a 34 percent drop in the US retail game-sales market from the previous month, it was noted that expected sales outside of the physical channel amount to an additional US$350 million to US$400 million in revenue in addition to January's recorded US$750.6 million.

The lack of tracked data in the online retail section of both the local and international video game markets continues to remain a problem. So why does digital continue to be ignored?

A growing market

At the Gametech conference in Sydney last year, Ubisoft Australia head and chairman of the iGEA, Edward Fong, highlighted the importance of tracking e-commerce sales in the fight to remain relevant in a growing online space. But just how big is this space?

Last year, the Commonwealth Bank released a report into the online spending habits of more than a million CBA cardholders, revealing that e-commerce in Australia has increased by 126 percent in the last calendar year, with Gen Y and Gen Z displaying the most rapid adoption of the trend.

Looking more closely at the gaming market, technology firm Telsyte estimates that Australians will spend over A$450 million on online gaming subscriptions and in-game purchases this year, accounting for around 20 percent of overall digital goods and the online subscriptions market.

Telsyte's analysis was the result of two annual digital consumer surveys, conducted over a period of two weeks with 1,010 Australian participants aged between 16 and 85 years. Each survey was designed around digital-adoption trends, with categories spanning digital purchases in the areas of music, TV, and games, all the way to in-game purchases and virtual goods.

"If you look at digital spending in Australia, it's clear to why it's on the rise," Sam Yip, a senior research manager at Telsyte, says. "There's increase in mobile penetration, and more and more people are spending time online. I think the key challenge for retailers is to find the value of buying offline if they want to survive--utilising things like gifts with purchases, pre-orders, and in-store exclusives, for example."

Yip thinks it's crucial for the gaming industry to begin measuring online expenditure.

"When you think about games, you have to think about platforms, and digital is a growing part of the gaming world."

A global system

With this mounting consumer interest in online retail, downloadable content, and mobile games in Australia, the need to account for digital sales in the total revenue of the local games industry is becoming more apparent by the year, both as an accurate representation of what consumers are buying and as an indication of future industry trends.

According to iGEA CEO Ron Curry, there's no doubt that current revenue numbers are misleading.

"We know that people are spending their money in a much wider capacity with gaming, whether through buying apps, making in-game purchases, online subscriptions, and so on," Curry says. "All that is adding to the revenue. Then we also have indirect revenue to think about; advertising, freemium models, etc."

Measuring the retail market is a relatively simple procedure: retailers provide their sales data, and a market-research company like NPD simply aggregates and reports on it. But these numbers tell only one side of the story. According to Curry, the reason digital isn't accounted for in current revenue data is the simple fact that there are too many different revenue streams in the digital market, presenting a clear problem in the way these streams are accurately measured and reported on.

"What do we measure?" Curry asks. "Do we include subscriptions, advertising, in-game downloads, and purchases? And how easy is it going to be to get those numbers from suppliers? It might be easy to get them from Xbox Live or PSN, but what do we do when we move on to apps? Should Apple give us that info? Or should the publishers of those apps give it to us?"

"The other thing is, we need to consider that a lot of these are new businesses that might not want to impart their sales information because of competitive advantages and so on. Retailers in Australia are very mature right now, but there was a time when they refused to provide this kind of data."

NPD, the market-research firm responsible for tracking local and international video game industry sales, says it is not ignoring the growth of digital. Echoing Curry's words, NPD Australia says that the primary difficulty in beginning to measure digital game sales comes from aggregating the data of so many different sources, most of which are reluctant to share revenue numbers.

Globally, NPD has already begun to implement several strategies for getting around this. Last year, NPD and video game research and consulting firm EEDAR joined forces to begin collating both boxed retail sales and digital sales; in the UK, NPD announced a new service with the aim of tracking sales across both retail and digital, including digital downloads, downloadable content, mobile games, social-network gaming, used video games, rentals, and subscriptions across several European countries.

According to NPD Australia, the goal of the company worldwide is to implement a global system that successfully tracks and reports digital sales data for the games sector. Speaking to Industry Gamers from NPD's New York office last year, the company's president of games, David McQuillan, reiterated NPD's aim to begin providing a monthly digital chart, but acknowledged the difficulty in convincing digital retailers and other companies to participate.

"We are on-boarding digital retailers with the goal of having a tracking service that's going to incorporate both the physical format and the digital format to present a holistic picture of the market," McQuillan told Industry Gamers. "For various reasons, that's been a slow, gradual process."

According to both McQuillan and NPD Australia, the other challenge for the company is coming up with a unified model that successfully categorises different types of data and can be easily applied to different territories.

"As digital becomes a more significant piece of the overall spending gaming pie, I think the natural pressures of the market are going to dictate that information get shared out in the same way that it is for physical. Total market tracking will be a reality. One of the things we're doing is defining the market. We're putting clear definitions around what's new physical, what's used, what's digital, what's in subscriptions, what's in social-network gaming, what's in rental, what's in mobile, etc."

Looking ahead

While NPD is working on its global strategy, so too are organisations like the iGEA. Curry says the iGEA is working with its international counterparts--the ESA in the US and UKIE in the UK--to come up with a solution for tracking digital sales in both global and local video game markets.

"The UK industry has already begun measuring PC digital sales, so we're keeping an eye on how they're doing it, and what successes they're having with a view of implementing it in Australia in the future," Curry says. "We want this as soon as possible, and we know there's an increased demand for it. But we're not just going to do it for the sake of getting data; it has to be meaningful and correct."

Dr Jeffrey Brand, associate dean and head of the School of Communication and Media Studies at Bond University in Queensland, believes that retail and e-commerce will find a way to grow together, strengthening both Australia's game-sales market as well as the local game-development industry.

"I expect online commerce to be integrated organically into virtual worlds where the context is right," Brand says. "I also see a growing desire for Aussie games and Aussie business, but that's not to say just because it shouldn't be competitive. Australian developers, publishers, and retailers can't rest, and need to attract gamers with the right mix of innovation, quality, and price."