What directors need to know about the video games industry
The correct answer may surprise you – although probably not if you’re under 30.
It’s Grand Theft Auto V. That’s right, a video game. Although a video game that made $6 billion just from game sales alone.
The sprawling crime saga is set in the Los Angeles inspired city of Los Santos in the fictional state of San Andreas. Players can play as one of three main protagonists as they shoot, rob, fly and steal vehicles, change clothes, own a pet and even spend time on an in-game social media network and internet.
There is also a thriving online version of the game that allows players to purchase additional virtual gear for their character – clothes, houses, vehicles etc – using real world currency. The market for virtual property that doesn’t physically exist has never been stronger.
The intersection between the virtual and the physical is a fascinating dichotomy and one that has us scratching our heads about one recent piece of business news.
The news that Sports Direct are completing a £52m takeover of Game Digital does not compute in a couple of ways.
True, Game Digital saw a 20.3% rise in pre-tax profits in the previous six months to January 2019 along with increased profits of £14.8m, up from £12.3m on the previous period a year before.
This is a great example of how a business can use administration correctly – to restructure itself properly and come back fighting fit and ready to make profits. When Game initially went into administration in 2012, it was overleveraged and uncompetitive. Now it’s a high-street success story.
Martyn Gibbs, chief executive of Game explained how they did it: “Exclusives on new game releases, sales growth in higher margin categories and focusing on our multichannel and specialist customer offerings helped to offset a weaker console hardwear market and the continued structural decline of the preowned market.”
He added that Game’s flexible lease policy had enabled the retailer to gain rent reductions from landlords on retail spaces, which enabled it to deliver “considerable cost savings” across its stores.
This is a significant point as while the gaming industry is experiencing a shift towards digital purchases and use, Game are investing more in physical property – specifically their Belong Gaming Arenas which allow players to come into the property and play linked online tournaments and games either with friends next to them or to compete with other teams and players in other Belong arenas across the country.
They all host weekly events and are available for party hire and corporate team bonding days, if your idea of a good team bonding day is dropping 100 employees onto a remote island, arming them to the teeth and returning only when the last one is left alive.
Increasingly turning up at a store to play with your friends or even buy the game on a disc is a minority experience. 80% of the UK games market is now dominated by digital and the latest edition of Microsoft’s Xbox gaming console is a purely digital model without a DVD disc drive.
Google are launching their Stadia gaming service in November which will allow games to be played via their streaming Chromecast technology without the need for a console or device apart from the controller you hold.
So why have Sports Direct done the corporate equivalent of purchasing a physical game when the rest of the market is going digital?
Gaming is spilling into every other area of life offline and if you’re a gamer then games are increasingly becoming the brands you want to identify with and display their allegiance.
Whether it’s wearing clothing worn by characters in games, owning replicas of weapons and equipment or even cooking food based on the provisions found within – you can now integrate your hobby even deeper into your life.
Game Digital understand this – as much floor space is given over to merchandise and collectables as is given to actual games and paraphernalia.
While it’s hard to imagine Mike Ashley relaxing in a gaming chair with a VR headset and haptic gloves, he does understand retail and might have spotted a sweet spot between the digital and physical worlds.
Sports Direct first announced a plan to open e-sports areas into some of its stores after first acquiring a stake in Game Digital in 2017, and while this didn’t immediately transpire, Sports Direct now have plenty of spare capacity across the group including House of Fraser so a dedicated destination for young gamers and their parents might make sense.
Extra lives not Game Over
As gaming becomes the mainstream lifestyle of choice for many millennials and younger consumers, and older customers with more disposable income that were raised on everything from Space Invaders to Sonic the Hedgehog; from Mortal Kombat to Mario to Minecraft get tempted to re-enter the virtual world by the amazing next generation of games like Cyberpunk 2077 starring a-list superstars like Keanu Reeves then having a foothold in the new world makes sense.
Most games let you save your progress as you continue and give your extra lives. Administration, used properly to restructure an otherwise solid business, can be the extra life you need, when you need it most.
Contact one of our expert advisors to arrange your free initial consultation. We can discuss all your available options and what you can do to protect your business. Delay too long and it could be game over for real.