In 2007, console gaming saw its first day-and-date digital release. The sci-fi war shooter Warhawk for the PlayStation 3 was sold as a Blu-ray Disc in stores, but was also available for digital purchase on PSN. The game is mostly forgotten today, but it was the first domino to fall in the slow but inexorable conquest of console gaming by digital.
Seventeen years later, the way big video game companies make money has completely reversed. Whereas revenue once came from boxed sales at GameStop and Walmart, it now largely comes from digital download sales on console stores. Publishers like Electronic Arts don’t even make the majority of their revenue from game sales at all, but rather from “recurring revenue,” aka microtransactions in online multiplayer and free-to-play games like Madden and Apex Legends.
“Back in the day, before PlayStation 4, you could be lucky to get 5-10% of digital sales for a AAA game,” Daniel Ahmad, director of research and analytics at Niko Partners, told Kotaku in an interview. “Now, depending on the title, it can be as high as 80%, but it can be as low as 40%.” He noted that while the average split is heavily in favor of digital downloads (with platforms like PlayStation seeing annual digital revenue shares above 70%), it can still vary significantly on a case-by-case basis.
In its annual report this yearCapcom has revealed that around 89% of the games it sells are digital copies. It expects that figure to rise to nearly 94% by 2024. The report also highlights how much more profitable these sales are. Kunitsu-Gami: Path of the Goddess, a new $50 Capcom game without a physical release, illustrates this shift. As a result, the company has actually been asked whether it will continue to produce physical games for its last annual shareholders’ meeting this week.
“Given that a significant number of end users are demanding physical games, we have no plans to eliminate physical products at this time,” the company said. That statement echoes a view expressed by Ubisoft senior vice president Chris Early last year. “Some people will still want to own the physical disc,” he said. said in a question-and-answer session on Activision Blizzard’s cloud gaming deal with the French publisher. “I don’t think that deal is going to go away. Do I think physical sales are going to go down over time? Sure, but is that deal going to go away completely one day? I don’t think so.”
Aggregate data can sometimes mask small but important aspects of popular 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 slice of a big pie can bring in a lot of money. According to an infographic from GamesIndustry.biz According to Newzoo data, only 17% of console gaming revenue in 2023 came from boxed games, but that still accounted for $9.5 billion. In other words, that’s still more than the Top 10 global box offices last yearincluding Barbie, Oppenheimer and the Super Mario Bros. movie, combined.
“In terms of absolute value, Sony still sold 286 million games last year,” Ahmad told Kotaku. “Even at a 70% ratio, that still means 85 or 86 million of those games are physical, right? So, yes, it’s a small share, but it’s not tiny by any means.”
Games like God of War Ragnarök go against digital trends
The market for physical copies of some first-party games, for example, remains surprisingly strong. One of the pieces of data that apparently leaked as part of the malicious Insomniac Games hack was the Total number of digital downloads for PlayStation Studios games until June 2023. 2018’s Spider-Man and 2020’s Miles Morales have been downloaded a total of 13.6 million times, less than half of the 33 million sales reported in 2022. God of War Ragnarök had apparently only been downloaded 4.2 million times compared to 11 million sales reported in January 2023.
According to Ahmad, physical sales on the Nintendo Switch are still stronger despite the general trend towards digital. Nintendo still reports that about half of its software revenues The difference between physical sales and digital spending, which includes digital-only games and add-on content, is even more stark when comparing the split between physical and digital sales for games that have retail copies. By its estimates, Switch owners purchased physical copies over digital copies 60% of the time in the first quarter of 2024.
“In terms of digital sales overall, it’s absolutely huge,” Ahmad said more generally. “But if we just look at the physical/digital split for games that were released physically, then yes, it’s lower than that 70% number and two, it’s definitely higher for AAA and first-party games, especially during the holiday season where gifting is a big part of it.”
And while some big games like Baldur’s Gate 3 and Alan Wake II initially eschewed physical copies at launch, smaller games and indie releases that were previously digital-only are partnering with companies like Limited Run Games to get physical editions printed and in the hands of their most loyal fans. “I think there’s always going to be a demand for physical media,” Limited Run CEO Josh Fairhurst told Kotaku in a recent interview. “We see with music, it started to feel like everything was going to be digital, and then vinyl exploded because people started to see the downside of buying digital without actually owning the music.”
He said the biggest audience for the game is certainly on Switch and the smallest on Xbox, estimating that for every Xbox version of a physical Limited Run game sold, two are purchased on PlayStation and 10 on Nintendo’s platform. In addition to the physical connection fans feel to products dating back to the NES and PS1 era, he believes concerns about the lack of digital preservation are also driving physical collectors.
“I think this is going to happen more and more over time and more and more services are going to shut down for one reason or another because there’s always going to be something newer, bigger, better that comes out and eventually disappears, regardless of the current distribution model,” Fairhurst said. “I think people are going to be frustrated when they see their digital purchases disappear.”
That’s not necessarily the case for Xbox, where the majority of console sales this generation have already been for the disc-less Series S and millions of people subscribe to the Netflix-like Game Pass rental service. Fans now regularly share photos online of almost entirely digital Xbox sections at stores like Target and Best Buy, where cards with download codes have replaced plastic game cases. Big first-party releases like Senua’s Saga: Hellblade II have skipped physical editions, and earlier this year, a number of physical editions of smaller third-party games appeared to have been canceled. Meanwhile, leaked plans have indicated that Microsoft was at one point working on a disc-less mid-generation upgrade for the Series X.
Earlier this year, Microsoft Gaming CEO Phil Spencer told Game File that the company has no plans to ditch physical media. “I will say that our strategy is not based on people going all digital,” he said. “And getting rid of physical is not a strategic thing for us.” But all analysts believe that the Xbox will be the first console to ditch discs entirely. Circana analyst Mat Piscatella tweeted earlier this year that he expected Microsoft to go all-digital soon, followed by Sony after that, and Nintendo to have at least two more generations of hardware with physical media.
“As long as there are disc drives on the console, physical drives will never completely disappear. There will always be demand for those drives, as long as they are part of the console package,” Ahmad said. “But if, for example, Xbox decides to exclude a next-gen disc drive, as we saw with the all-digital Series X, it is unlikely that it will see a significant negative impact on its profits, given the niche nature of physical sales on the platform today.”
And even as companies continue to support physical formats, their advantages continue to erode. Whereas discs and cartridges used to be plug-and-play, they now have to be installed on the console and often require massive updates on day one. It can take weeks or months for major bugs to be fixed or for highly requested game features to be added in post-launch patches. “In that environment, a lot of people will say, ‘I’ll just go with the digital version,’” Ahmad said. “It’s exactly the same thing, but more convenient.”