The next battlefield in the gaming market is undoubtedly digital.
Speaking to investors during an earnings call yesterday, Activision Blizzard CEO Robert Kotick said that during the first quarter of 2011, 50 percent of his company's $1.4 billion in revenue was derived from digital sources, lending even more credence to the idea that the gaming market is quickly moving away from the traditional "packaged goods" model.
"We continue to shift our business towards digital delivery of content and establishing direct ongoing relationships with our audiences," Kotick said, according to a transcript obtained from SeekingAlpha. "While this quarter, 50 percent of our revenues were digital, we are still scratching the surface when it comes to the role that digital delivery will play in our products and franchises."
Kotick's comments on digital delivery follow a similar statement made last week by his archrival, Electronic Arts CEO John Riccitiello. Speaking during his own call with investors, Riccitiello said his company is shifting away from the traditional packaged-goods model and toward becoming a full-fledged digital-delivery firm.
"Over the coming years, we will transform EA from a packaged-goods company to a fully integrated digital-entertainment company," he said, according to a transcript posted by SeekingAlpha. "We're transforming EA to a games-as-a-service model."
Even GameStop is getting in on the fun. The boutique game retailer, which relies heavily on packaged goods, made $300 million off digital games during its last fiscal year, ended January 31. It expects that revenue to grow at a 50 percent compound annual growth rate and hit $1.5 billion in four years.
NPD, the definitive source on gaming data, has also finally acknowledged the importance of digital-gaming revenue. In March, the company announced that it would start including digital-games revenue in its monthly sales reports. Previously, the company included only physical-game revenue, leaving out 40 percent of industrywide sales, according to NPD's Anita Frazier.
Prior to the change, Tiffany Steckler, an EA corporate communications executive, said in an interview with CNN that leaving out digital games in monthly sales reports was like "measuring music sales and ignoring something called iTunes."
Looking ahead, just about everyone can agree that the digital market will take on even more importance in the gaming business.
Activision CEO Eric Hirshberg said during the company's earnings call yesterday that the digital market "continues to be the fastest-growing, most profitable part of the industry." And like GameStop, he believes that growth will only continue going forward.
"We estimate the digital sales in the U.S. and Europe alone grew double-digit in the first quarter and we expect a similar rate of growth for the full year, driven by higher broadband penetration, increased consumer adoption and additional content," Hirshberg said.