Downloads stoking game-industry growth for next decade - Analyst

Wedbush Morgan Securities' Michael Pachter assesses gaming biz from top to bottom; expects World of Starcraft, high-def Wii by early 2011.

The last 10 years have seen a tremendous amount of change in the gaming industry. In 1999, the Dreamcast took console gaming online out of the box for the very first time. The next year, Electronic Arts and The Sims spearheaded a wave of gaming audience expansion that continues to this day. Meanwhile, mobile gaming evolved to mean more than just the Game Boy, with cell phones, iPods, and Sony's PSP all jumping into the mix.

Michael Pachter.

The next 10 years will prove to be equally transformative, if an industry-spanning report from Wedbush Morgan Securities analyst Michael Pachter proves prescient. In particular, Pachter is very bullish on the prospects of digitally distributed games and content, which he expects to grow exponentially.

"In our view, the video game market is likely to grow at or above a 7.2 percent rate for the next 10 years, at least doubling over that time," Pachter said. "We envision digital downloads to account for all of the growth."

A decade from now, Pachter expects the typical console to include a terabyte of storage and suggests that full-game downloads will be the norm (although packaged goods will still make up a majority of the market). The analyst added that publishers who perceive used-game sales as undermining their retail revenues are pushing particularly hard for digital distribution. In the meantime, the emphasis will be placed on digital content and episodic gaming.

"We think that the poster child for this scenario is Grand Theft Auto IV on the Xbox 360, a game first sold in physical form, with additional levels sold periodically thereafter through downloads," Pachter said. "Notably, after a tepid embrace of its first downloadable 'episode,' Take-Two decided to offer the first and second 'episodes' in a combined physical package, with the two episodes allowing full game play without the purchase of the original GTA IV game disc."

Those were by no means the only predictions in the 210-page report. Pachter also said he expects to see Activision Blizzard launch a World of Starcraft massively multiplayer online game by early 2011, preceded by a new version of the Wii hardware capable of displaying high-definition graphics in late 2010. (He dubbed the speculated console 'Wii Plus.')

As for more general trends, Pachter noted that the recent growth in the in-game advertising market has stalled. He also labeled the mobile phone gaming market a fad, saying the increase in the number of games sold thanks to the success of products like Apple's iPhone is being offset by the ever-falling price of such titles. Finally, he took a dim view of mergers and acquisitions in the near term, saying the major media companies are taking a cautious approach to the industry, and there are few attractive candidates in the market outside of Ubisoft.

184 Comments

  • rezpatriot

    Posted Aug 21, 2009 3:25 pm PT

    I wonder what the odds are for World of Starcraft to come out perhaps 10-1 right now with them barely releasing Starcraft II. Three Starcraft games to come and he expects there to be a world of starcraft overlap. Then at least there should be a world of Diablo. It doesn't take an expert to realise that everything will be digitilased in the future. Take a good watch of the Battlestar Galactica new series 'Caprica' to expect where we are headed. But by no chance we are able to predict the future. Who can say what and won't happen. I mean we still don't know if Apophis is going to destroy our world in 2039. Such a rush to get things done. That is the only certainty.

  • Humorguy_basic

    Posted Aug 6, 2009 8:44 am PT

    WHAT A LOAD OF BULL****!!!! (the above article from a so-called 'expert'!)

    Anyone can be an expert, there are no 'guilds' to join, no certificates needed, you just need to say you are.

    So today, I am an expert: There will be no more consoles, just add-on's and upgrades from the current machines. Games will therefore stabilize in the costs to bring them to market and profits for the publishers will remain, which all console companies need. Of course, with no new consoles, there will be less need for PC to be upgraded, as console will still be on the market 8 years on, and what PC couldn't run a game written for 8 year old technology?

    So everyone can benefit. But if this guy is right, we will actually see a console market half the size it is now and no PC market at all. So i really hope what he is saying is wrong, despite him thinking his comments are positive!!!

  • gam3r3OOO

    Posted Jul 23, 2009 8:20 am PT

    @brana666: "I can see the comming of the time when games like wow will be forbidden in organized societies. It is terrifying to watch the faces of children who play wow." You have a good point. Maybe kids should not be allowed to play MMOs until they reach a certain level of maturity due to their addictive (life stealing) qualities.

  • gam3r3OOO

    Posted Jul 23, 2009 8:10 am PT

    I like Steam. If I download a game I can always have it redownloaded and reinstalled anywhere. One copy can be played in LAN on multiple computers. I like it more than buying a game on DVD because I don't have to go to the store, the game isn't in limited quanities online (unlike physical copies), you can never 'lose' your game.

  • brana666

    Posted Jul 14, 2009 6:46 am PT

    On the contrary, everyone who bought through ea downloader or steam or anything similar will never do that again. To own dvd for which you pay money is the only right buy.
    Gaming comunity is increasingly suffering from big game companies, titles are worthless and with feble minded content, followed by retarded console platforms (all of tham).
    I can see the comming of the time when games like wow will be forbidden in organized societies. It is terrifying to watch the faces of children who play wow.

  • willclinton

    Posted Jul 13, 2009 11:56 am PT

    @ BtmnHatesRbn

    Gee sorry smartboy. Didn't know you're the only one who had the facts and figures to base your certainties upon. Think about that when you're working as the door greeter at Walmart in 2019.

  • wbezuidenhout

    Posted Jul 8, 2009 6:02 pm PT

    A lot of people here apparently haven't bought any digital downloads before (vf21x and Deano come to mind). I don't blame you for your lack of info though, I was of the same opinion before I did.

    Try buying something through Steam, after the download you have the option to write the game to disc (So no re-download and you can uninstall and delete the copy on your drive). Sure, it's not retail packaging, but you have a copy of what you bought on a DVD nonetheless.

    Granted I will always prefer having a boxed copy of a game, if the game isn't available I'll see if I can find a digital download for it.

    I'd say that digital downloads will inevitably grow the gaming market (I, and I believe a lot gamers today already consider the "expandability through DLC" of a game before buying), so yes DD will have an impact, but as long as there's a clear difference between digital download sales and "physical" retail numbers I don't think the companies will risk abandoning retail.

    There is a major risk though imho, if the other companies start following EA's example (Sims 3 anyone? In case you don't know, you get to buy the game for the full price, then get to buy the rest of the content through micro-transactions. Content included with the "original" is abysmal) we are going to be in trouble. I really hope this "micro-transaction" fad vanishes quickly, I'm all for single-transaction DD where you get a whole game/expansion, not this "buy it piece-by-piece ad infinitum" crap.

  • Humorguy_basic

    Posted Jul 6, 2009 2:38 pm PT

    I'll repeat: downloading will lead to the end of AAA PC gaming and the end of video gaming as we currently know it. The combination of DRM and no physical copy, along with little in price saving will not turn off ALL gamers, but will turn off enough that selling your retro games will now make you a millionaire, as that's the only types of games that will sell as you can still get hard copy. Ebay has seen it's retro section grow by 500% in 3 years as more and more gamers go back to older games that had real gameplay value.

    Sure, XBox Live and Sony Arcade will exist, selling you those same retro games for a couple dollars. STEAM and GOG.com will still be around to sell you retro games. But new AAA $10-40 million budget AAA games will disappear on the vine. To compare 4gb video/computer gaming with 0.99c music is to misunderstand the market totally. If anything it's closer to movie downloading - and we certainly don't see that taking off, do we? Mark my words, an entertainment industry with no high street presence will be an industry 50-70% smaller. The public won't trust downloading huge amounts of data not knowing if it will work or not. Whether on console or PC people generally won't spend $50 without owning anything and not knowing if it will be supported. We are being brainwashed about the internet generally. All news of it's expansion into every corner of life and exponential growth is always seen as 'good' when it's not.

  • khh121388

    Posted Jul 3, 2009 4:57 pm PT

    Blizzard is working on a new mmo, but it's already been stated that it is a new IP in another article. Source: http://arstechnica.com/gaming/news/2009/05/unannounced-blizzard-mmo-to-be-a-new-ip.ars

  • Richard7666

    Posted Jul 2, 2009 11:32 pm PT

    Hmm...I'd only ever consider buying games online if they were less than half the current retail price. I like the 'collecting' part, which is part of the appeal. Having something tangible.

  • kejigoto

    Posted Jul 2, 2009 12:34 pm PT

    Not even going to read what dribble this man has to say this time, I just saw World of Starcraft and laughed. Yes, Blizzard wants to launch an MMORPG that will compete with its own highly successful MMORPG World of Warcraft.

    We all really need to stop caring about what this man says, especially after his nonsense of "BEST OF E3 IS TWITTER AND FACEBOOK OMGZ!!!!"

  • TripSe7en

    Posted Jul 2, 2009 10:19 am PT

    Im not tripping. If people would have said ten years ago that you could buy a song on "the internet" for .99 people would have thought you were tripping back then, when albums were selling for 15.99 and up. Now I can go on itunes and buy an album for 9.99 or goto best buy and buy it for 13.99 and up... I dont need the disc since I listen to my music in my 2002 jeep (with a tape deck) with an fm mod for my iPhone.
    I am not saying the games are going to be $20-30 cheaper, but I would predict that they will get back to the $50 price point...
    We as gamers have nothing to worry about, its the brick and mortar stores that should be getting worried...

  • fazedjb

    Posted Jul 1, 2009 10:57 pm PT

    in 10 years the average will console will have more yhan 1tb of storage. you can get around hlaf that as an upgrade already!

  • YoJim8obaJoe

    Posted Jul 1, 2009 8:26 pm PT

    well if i had a credit card id DL more digital format games but no way in hell im getting one during a recession and sony are to dumb ATM to release pre-paid cards in England and well i gave up on my 360 reading discs years ago.Its like it doesnt want to admit its a 360 as it tells me to put the disc in a 360 console.Then again if i was made by MS id be in denial.

  • Deano

    Posted Jul 1, 2009 4:59 pm PT

    I still prefer buying a disc. What's the point of having a download only copy if my HDD fails, do you think I want to go download 20+ games I have all over again.

  • Glade_Gnarr

    Posted Jul 1, 2009 4:22 pm PT

    Pachter says all kinds of crap.

  • ElectrolightSH

    Posted Jul 1, 2009 3:10 pm PT

    Title should read "Corporate rip-offs, the rest of the game you just bought, and over priced microtransactions to drive all industry growth for next decade - Analyst"

    Oblivion's Horse Armor, Halo War's Strategic Options pack, and Xbox 360 themes and gamer pictures and how EA, Microsoft and others abuse this system is a perfect example of what is wrong with downloadable content.

  • Humorguy_basic

    Posted Jul 1, 2009 2:12 pm PT

    This prediction might as well had a headline say 'The end of hardcore gaming!'. I despair of the future described above and now that this will mean the end of everything we knew about gaming 5, let alone 10 years ago. to quote a phrase 'They know not what they do'.....

    And you think STEAM sells tons of games,and yet they always have casual, indie or retro games in their charts,and if they were selling the latest games, why is their chart not similar to NPD's? We are being told lies folks. Lies.

  • thenephariouson

    Posted Jul 1, 2009 1:39 pm PT

    The Downloadable distribution of games will be as popular as downloadable music in a few years, we are practically there now, with MS's announcement that they will be offering a back catalogue of games on demand (AC1, Gears 1, etc), it is simply proven technology and an accepted method of obtaining your product. There are obiously hurdles to be overcome before DL distribution is more widely accepted (xDSL speeds, Storage capacity, etc), however each of these hurdles is by no means impossible to overcome.

    I'm not being arguementative, these are simply my thoughts, but for each concern there is a resolve:

    1, Storage Space.
    I believe that if the manufacturers should allow DL's to be stored on external sources USB HDD's, NAS, etc

    2, Cost.
    It is in the devs interest to make a game cheaper by DL, or we simply would'nt do it, they need to provide an incentive.

    3, DL duration time
    Me personally, i would simply set the DL to run, which lets me get on with other stuff i want to do, not an issue, for me anyway.

    Ultimately, i dont think this will completely remove the need for a 'Physical medium' as the manufacturers need to mainatin a broad audience, as some people dont even have xDSL, so i dont think there anything to worry about, they must keep their audience happy, that means YOU : )

  • Dragdar

    Posted Jul 1, 2009 1:04 pm PT

    @vf21x
    "You are tripping dude. Do you really thing that these greedy comapnies are going to lower the cost of games, just because they will no longer be on discs and stores?? Dream on. They see it as lowering their costs and the ability to generate more profit!!!"

    unfortunately the man speaks the truth... just look at Steam the prices are the same as retail and youre not even getting the physical media!
    How greedy can they get! they could have made the gamers happy but nooooo

  • Poison_1vy

    Posted Jul 1, 2009 1:02 pm PT

    Yah...Right

  • ZedX-14Pilot

    Posted Jul 1, 2009 1:00 pm PT

    This guy is a total tool. Why do they still report on this idiots predictions? Prices WILL NOT DROP! The game companies are crying about the console development costs right now, all they will do is pocket the money. The only ones that would gain from this transition are the game companies. Don't let this idiot fool you, or YOU fool yourself. They only want MORE of your money, they have no desire to save YOU money.

  • Pete5506

    Posted Jul 1, 2009 12:56 pm PT

    I am going to stick with the CD's

  • onthe_dl

    Posted Jul 1, 2009 12:54 pm PT

    hopefully not, i just downloaded burnout paradise for ps3 and i've been waiting soooo long to install it then install all the updates, seriously i've been waiting over two hours

  • vf21x

    Posted Jul 1, 2009 12:37 pm PT

    @TripSe7en,
    You are tripping dude. Do you really thing that these greedy comapnies are going to lower the cost of games, just because they will no longer be on discs and stores?? Dream on. They see it as lowering their costs and the ability to generate more profit!!!

    As for digital content, I am not to excited because when hard drives fill up, you have to erase to make room for more. You loose money because you can't sell it and who wants to bother to keep old games in an external drive that will cost money to buy.

  • Autolycus

    Posted Jul 1, 2009 12:30 pm PT

    pass the bong... cause this guy is obviously using one.

  • tommyc555

    Posted Jul 1, 2009 12:23 pm PT

    Gamers can predict things better than analysts

  • TripSe7en

    Posted Jul 1, 2009 12:12 pm PT

    Bring on the age of digital distribution! The costs of games will go down foregoing the distribution along witht he disc and packaging costs! The variety will increase due to freed up capital. And we will be able to access our libraries anywhere! No more lugging around games and memory cards. Not to mention waiting at home for a game to be released at midnight instead of in front of some store!
    I know and respect how some people fear and distaste for this concept, but for me, I think this is great!

  • TripSe7en

    Posted Jul 1, 2009 12:10 pm PT

    @ alkaline_DnB

    Renting digital media is already here on Xbox and Apple Tv and more than that I am sure. You rent the product and once you start it, you have x amount of days to use it. No Late Fees, No Extra Cost. And I am sure you will be able to buy it when you are done if you would want to...

  • EvrenDawn

    Posted Jul 1, 2009 11:34 am PT

    Blizzard, please don't ruin Starcraft with "World of Starcraft"! WoW is bad enough. I'm very happy with it staying an RTS. I don't want a firebat to get killed by a broodling just cuz the broodling was level 60.

  • thenephariouson

    Posted Jul 1, 2009 11:24 am PT

    hajjjustin,

    "well one thing is sure no one said there is going to be a price cut" Fair enough on the 'Price cut' point, although it will be likely that the software will be cheaper via the DL route, in the same way as DLing Music is (iTunes).

    "plus what if the game sucks well you cant sell it back to the middle man cause there is no middle man"

    Thats what 'Demo's' are for. "and i'm pretty sure they make kits that can buff out scratches in discs."

    Not always, and certainly not garaunteed.

    Rather than continue in this fashion, i merely indicated that this is simply 'Technological Evolution', thats not to say this will 'Take Hold' next Week, Month, Year, however i strongly believe that EVENTUALLY downloading will be the most common method of obtaining new media (Games, Music, addons) for your console.

    Oh, just one more thing, "format wars? is that really that big of an issue for you?"

    Not at all, but it was for MS / Sony (Blu Ray 'war').

  • slipknot61174

    Posted Jul 1, 2009 11:24 am PT

    Actually, I think they'd just have you d/l games that would no longer allow you to play after a certain time, kind of like renting movies off of PSN or Xbox Live. But a d/l-only format would be so fail due to points brought up in earlier posts, like the fact that no one wants to wait 3 hours to d/l a game (if it's something huge, at least). And of course, the dreaded HDD failure that's all too possible. I think the devs should stick to letting us d/l the back-catalog of games from earlier systems; that's an awesome idea, and it works wonders for PSP (in the case of PS classics playable on the handheld). New games should still continue to be the old-fashioned kind that are available in a plastic case, because who doesn't like that new game smell?

  • NICKKELANIUS

    Posted Jul 1, 2009 11:14 am PT

    Micheal Pachter

  • alkaline_DnB

    Posted Jul 1, 2009 11:05 am PT

    so, how would gamers be able to rent games then, if games were all digital? Also, you get no joy from looking at the box art or paging through the manuals...and i'm pretty sure they make kits that can buff out scratches in discs.
    it's just too early to tell if games that you download on current-gen console HDDs now are going to be able to be tranfered to nex-gen consoles of the future...or if all this money you're dumping into downloads now will be obsolete.
    i just see it as a potential waste.

  • hajjjustin

    Posted Jul 1, 2009 11:00 am PT

    thenephariouson
    You Fail to see the down side of eve your postive points 1) cutting out the middle man Ok, well one thing is sure no one said there is going to be a price cut plus what if the game sucks well you cant sell it back to the middle man cause there is no middle man. also without a middle man you cant buy a used game can you.
    2) format wars? is that really that big of an issue for you?
    3) if you HDD fails then you can re-download it. first who even wants to wait and download the game? 2nd if i have a hard copy there will be no Crash in the first place.also not every one has the internet so how will they be able to play, and not everyone has hign speed internet so they have to wait days for a huge download or re-download. not to mention how many DLC games do you think you can fit on your current HD, not to many and if you need more space well guess what people will have to go out and pay for more memory do you think that im going to get paid back by the companies for buying more memory, i dont think so.

  • popki

    Posted Jul 1, 2009 10:54 am PT

    The analyst's credibility goes completely out the window by saying World of Starcraft will *launch* by 2011. Clearly he has no actual knowledge of how game development works. An announcement by 2011, maybe, but a launch? How do these people get paid without actually doing proper research?

  • power-baron

    Posted Jul 1, 2009 10:52 am PT

    @thenephariouson
    Couldn't agree more. Whenever possible i download my games. I wish more were. To be quite honest i don't see why we can't be given the choice. If you want to download then download (paying less), if you want the disc get the disc(pay higher retail).

  • thenephariouson

    Posted Jul 1, 2009 10:47 am PT

    I know its nice to have the 'Physical' disk etc, however, what will happen do you think, if the disk becomes scratched, unreadable, etc, you are buggered as you cant simply replace it free of charge.

    For me personally, the benefits of DLing a game far outways having the 'Physical' disk.

  • Kenaue

    Posted Jul 1, 2009 10:42 am PT

    Physical Copies will ALWAYS be better. That's why I still buy CD's.

  • thenephariouson

    Posted Jul 1, 2009 10:30 am PT

    Well i've been saying this for a loooong time, ultimately there are so many benefits to DL content:

    1, Cut out the middle man e.g. distribution, resellers, etc therefore saving a large amount of 'fat cash'.

    2, No more 'Format Wars', as the media is downloaded to a HDD the format is irrelevant (HD, Blu ray, SD) it simply wont matter anymore.

    3, Resillience, if your HDD fails, you will simply be able to Re-Download' any / all of your previously purchased content (Games, Music, addons, etc) onto your replacement HDD.

    The only issue i foresee is simply HDD capacity, there are a number of avenues here:

    1, Manufacturer provides various capacity HDD options with future consoles (120Gb,>>>>>1Tb).

    2, Manufacturer allows DL content to be stored on an External source, therefore giving the gamer a 'Choice' (e.g. External HDD, NAS, etc).

    This is my personal opinion obviously, but i dont think im far off the mark.

    Ultimately, its a matter of technological evolution, MS know it, Sony know it, hell even Nintendo are beginining to realise it.

  • tevic

    Posted Jul 1, 2009 10:19 am PT

    Pachter takes his dreams for reality as defender-in-chief of the gaming-finance-industry.
    Game *publishers* in their meeting rooms would like a downloadable-only business (to have more control on who plays what was sold). The WOW model is their Holy Grail.
    So Pachter says "downloadable games are the future".
    But, as everyone knows (and most *developers* accept because the're also gamers), people like to own what they buy, for example to exchange the game with friends after playing it, or be able to re-sell it in the end.
    The best example is GTA4, as I understand it Take-Two pushed for a downloadable episodes-only model, while Rockstar North were forced into it against their will (what they like is make good games that people enjoy - not stealing people.)
    I'm VERY happy that actually the first GTA4 episode was only tepidly downloaded and in the end both episodes will be available in physical form.
    This bodes well for the future and is a clear sign that recurring fees over the internet come only for online games. And NOT for single-player games. That will hopefully stay a developer's (and Pachter's) dream.

  • hajjjustin

    Posted Jul 1, 2009 10:12 am PT

    this guy has no clue, i mean were does he get his facts, does he even ask people who play games, does he read the forms to see what gamers think. i guess not cause there is about a 1 to 20 ratio of people who would rather have a DL copy than a hard copy. so were does he get this information. i tell you were he gets it , from no one he think that people watch vedios online now and watch TV online so he thinks were going to buy games online now to, i would have no prob renting games online but i would never buy one. This guy is clueless

  • jjdomo

    Posted Jul 1, 2009 10:10 am PT

    A decade from now, Pachter expects the typical console to include a terabyte of storage and suggests that full-game downloads will be the norm (although packaged goods will still make up a majority of the market).

    Please not the last section of that sentence in parenthesis . . . packaged goods will still make up a majority of the market. So everyone stop flipping out over the DLC stuff . . . they will still sell games on discs.

  • rogue81

    Posted Jul 1, 2009 10:09 am PT

    @ alakalin DnB: "downloads don't hold value...you can't resell them years from now."

    Exactly. This is the game industry fighting the second hand game market. Nothing to trade in means no more used games from Gamestop. Everyone will have to buy their games brand new and all the profit goes right to the publisher. There could be a nice upside here. We could see prices marked down sooner since there would be no physical manufacturing costs and no middle man to worry about. That's a big maybe though...

  • shkar

    Posted Jul 1, 2009 10:02 am PT

    This is ABSO******LUTELY a bad idea ........I mean what should the gamers from other countries who don't have a good internet service do???????
    Besides u have to write the game to a DVD by yourself ,,I mean u can't have them all in your Hard drive,,,,,,,,......

  • alkaline_DnB

    Posted Jul 1, 2009 10:01 am PT

    I'm a collector so I prefer discs to downloads...besides, downloads don't hold value...you can't resell them years from now.

  • Frimmel

    Posted Jul 1, 2009 9:48 am PT

    My big problem with download games ASIDE from not getting something I actually own is they don't seem to want to compromise on the price point. They save all this cash not producing and shipping a game but still charge as though they are producing a physical copy.

    When a new game is $60 in physical copy and $35-$40 in DL form then we'll see a move to DL only. When you save by buying the DL what the used gamestore will give you when you go to sell it then games will become DL only.

  • warriorsq

    Posted Jul 1, 2009 9:47 am PT

    I fall into the physical camp here. I just like having a disk that I can play anytime, anywhere, with no downloading. Even if the company goes bust I can still play whenever I want

  • tommyc555

    Posted Jul 1, 2009 9:39 am PT

    Pachter is full of BS

  • chromium42

    Posted Jul 1, 2009 9:23 am PT

    I keep wondering why we don't see more MMORPGs on the current gen of consoles? Why no WoW or Everquest on the 360/PS3?

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