In 2007, console games received the first digital day and date release. Sci-fi war flick Warhawk for PlayStation 3 was sold as a Blu-ray disc in stores, but was also available to buy digitally on PSN. The game is largely forgotten now, but it was the first domino to fall in the slow but relentless digital takeover of console gaming.
Seventeen years later, the way major video game companies make money has been completely turned upside down. While it used to be revenue from sales of boxed copies at GameStop and Walmart, it’s now overwhelmingly from sales of digital downloads at console storefronts. Publishers like Electronic Arts don’t even make most of their money from game sales, but from “recurring revenue,” AKA microtransactions in online multiplayer games and free-to-play games like Madden and Apex Legends.
“Back then before the PlayStation 4 came out, you’d be lucky to get five to 10 percent of digital sales for a AAA game,” Daniel Ahmad, director of research and insights at Niko Partners told Kotaku in an interview. “Today, depending on the title, you know, it could be up to 80 percent, but it could also be up to 40 percent. He noted that while average splits heavily favor digital downloads (with platforms like PlayStation reporting annual digital revenue split above 70 percent), they can still vary widely on a case-by-case basis.
In this year’s annual report, Capcom revealed that roughly 89 percent of the games it sells are digital copies. It expects that number to reach close to 94 percent in 2024. The report also highlighted how much more profitable these sales are. Kunitsu-Gami: Path of the Goddess, a new $50 Capcom game with no physical release, exemplifies this movement. As a result, the company was effectively asked whether it will continue to make physical games during its latest annual shareholder meeting this week.
“Given that a significant number of end users require physical games, we currently do not expect to eliminate physical products,” the company said. The statement echoed a view expressed by Ubisoft SVP Chris Early last year. “Some people will always want to own the physical disc,” he said in a Q&A on French publisher Activision Blizzard’s cloud gaming deal. “I just don’t think it’s going to go away. Do I think physical sales may decrease over time? Sure, but will it ever go away completely? I do not think so.”
Aggregate data can sometimes obscure small but significant wrinkles in known trends. While it’s true that physical games have become a niche market in the broader gaming landscape, a shift accelerated by the pandemic, Early also pointed out that even a small piece of a large pie can mean a lot of money. According to a GamesIndustry.biz infographic using Newzoo data, only 17 percent of console gaming revenue in 2023 was from boxed games, but it still reached $9.5 billion. Put another way, that’s still more than last year’s top 10 worldwide box office hits, including Barbie, Oppenheimer and The Super Mario Bros. Movie, together.
“When you actually look at the absolute values Sony still sold 286 million games in total last year,” Ahmad told Kotaku. “Even with a ratio of 70 percent, that means 85 or 86 million of them are physical, right? So yes, it’s a small part, but it’s not small by any means.”
Games like God of War Ragnarök buck digital trends
The market for physical copies of some first-party games, for example, remains surprisingly strong. One of the data that was apparently leaked as part of the malicious Insomniac Games hack was total digital downloads for PlayStation Studios games through June 2023. 2018’s Spider-Man and 2020’s Miles Morales were downloaded a combined 13.6 million times, less than half of the 33 million sales reported in 2022. God of War Ragnarök was apparently only downloaded 42 million times. compared to 11 million sales reported in January 2023.
According to Ahmad, physical sales on the Nintendo Switch are even stronger despite the overall trend towards digital. Nintendo still reports that roughly half of its software revenue comes from physical releases versus digital spending, which includes digital-only games and add-on content. But the difference is even greater when you compare the splits of physical sales to digital sales for games that have retail copies. Based on his estimates, Switch owners bought physical copies over digital 60 percent of the time in the first quarter of 2024.
“When it comes to digital sales as a whole, it’s absolutely massive,” Ahmad said overall. “But if we just look at the physical vs. digital split for games that are physically released, then yes, it’s lower than that 70 percent number, and two, it’s definitely higher for AAA and first-party games, especially during holiday season. where the gift is a visible part of it.”
And while some big games like Baldur’s Gate 3 and Alan Wake II have skipped physical copies at first, smaller games and previously digital-only indies are partnering with companies like Limited Run Games to get physical releases. printed and in hand. from their die-hard fans. “I think there will always be a demand for physical media,” Limited Run CEO Josh Fairhurst told Kotaku in a recent interview. “We see that with music, things started to feel like they were going all digital, and then vinyl exploded because people were starting to see some of the downsides of buying digital, not actually having the music.”
He said the audience for this is arguably the biggest on Switch and the smallest on Xbox, estimating that for every Xbox version of a physical Limited Run game sold, two are bought on PlayStation and 10 are bought on Nintendo’s platform. In addition to the physical connection fans feel to products going back to the days of the NES and PS1, he thinks the fear of missing digital storage also drives physical collecting.
“I think that’s going to happen more and more as time goes on and more services end up shutting down for whatever reason because there’s always going to be something newer, bigger, better that eventually comes out.” from the mode, regardless of the current moment. the popular distribution model is,” Fairhurst said. “I think people will be disappointed to see their digital purchases disappear.”
That’s not necessarily the case so much for Xbox, where the majority of console sales this generation have already been for the disc-less S Series and millions have subscribed to the Netflix-style Game Pass rental service. Fans now routinely share online photos of almost all-digital Xbox sections in stores like Target and Best Buy where cards with download codes have replaced plastic game boxes. Major first-party releases like Senua’s Saga: Hellblade II have skipped physical releases, and earlier this year a number of physical releases of smaller games from third-party publishers appeared to have been canceled. Meanwhile, leaked plans indicated that Microsoft was at one point working on a mid-generation discless refresh for the Series X.
Earlier this year, Microsoft Gaming CEO Phil Spencer told Game File that the company was not planning to abandon physical media. “I will say that our strategy is not dependent on people going all digital,” he said. “And getting rid of physics, that’s not a strategic thing for us.” But all analysts think the Xbox will be the first console to do away with discs entirely. Circana analyst Mat Piscatella tweeted earlier this year that he expected Microsoft to go all-digital soon, with Sony following suit after that and Nintendo having at least two more generations of physical media hardware .
“Physical, as long as there are discs on the console, it’s never going to go away completely, there’s always going to be demand for it, as long as it’s part of the console package,” Ahmad said. “But if, for example, Xbox decides to exclude a next-gen drive, as we saw with the all-digital Series X, they are unlikely to see a material negative impact on revenue given how important sales are physical on the platform today. “
And even as companies continue to support physical formats, their advantages continue to erode. Where discs and cartridges used to be plug-and-play, they now have to be installed into consoles and often require massive day-one updates. It can take weeks or months before important bugs are fixed or highly requested game features are added in post-release patches. “With that in mind, a lot of people will say ‘I’ll just get the digital version,'” Ahmad said. “It’s the same thing, but more convenient.”