With GAME Group plunged into financial crisis, Richard Hayden and Marcus Mac Dhonnagáin look at the company’s problems and at what the future holds
The UK’s largest gaming retailer GAME Group, comprising the retail brands GAME and Gamestation, is currently undergoing a massive financial crisis. We take a look at how the company got into trouble and what the ramifications of its failure might be both in the UK and globally.
How did GAME Group get into this mess?
GAME Group’s financial difficulties began when it experienced a poorer than expected trading season over Christmas. Like many retailers, the game chain needed a strong winter to help support it through the leaner spring and summer.
The legacy of that weak few months of trading was that GAME Group was forced to renegotiate financial support from its principal lender, RBS, a British bank. This bought the company some time to put its house in order (that is, begin a program of store closures and overseas asset sales). Crucial to the long-term survival, however, was the renegotiation of supply contracts with publishers.
This has not gone well. EA, Nintendo and Capcom have all refused to meet to retailers’ request for more favorable credit terms, meaning many new titles are not available in GAME or Gamestation stores.
Most high profile of these absentees was BioWare’s Mass Effect 3, published by EA on March 9. The much-anticipated RPG shooter went on to become BioWare’s most successful UK launch and easily top the country’s sales charts. However, there are two sides to every story. Capcom’s Asura’s Wrath, also released in the UK on Friday and also unavailable from GAME, failed to make the Top 40 chart at all.
Are the publishers having revenge?
While most publishers would prefer to have a dedicated game store on the high streets of the UK, they are less happy that these same venues are also extremely focused on the used game market, which sees no remuneration for the publishers. GAME Group is a strong proponent of used game sales and has often been accused of using its dominance in the physical market place to refuse to meet publishers’ concerns on the subject.
So, is it a case of what goes around comes around?
Paradox Interactive executive Fredrick Wester told GamesIndustry International that “GAME has basically been bullying people around and now it comes back to bite them on the ass.”
It could be reasoned that Capcom, Nintendo and EA have decided to take a short-term hit to encourage GAME Group’s collapse. Wester thinks so, ”It’s been abusing the situation in the UK for a long time but it always come back to you. Look at EA and Nintendo, they’re not even willing to help. They will take the hit just to get rid of GAME and start over.”
Historically, GAME Group has been unapologetic about its stance on the used game market and in-store purchasers of new games will generally be advised when previously owned copies are available. Of course, this is because the retailer wishes to maximize its profit and used games pays better than the new ones.
This is an international retail issue but GAME Group’s prior position of strength in the UK market has often led to accusations of particular intransigence in any debate about used game sales.
In response, many publishers have instituted the online pass model, a system that allows them a revenue stream from secondhand sales. While the method is unpopular with many fans, it does mean that the publishers have partially solved their problem. The effort required to do so, however, and the residual consumer resentment that the system engenders will not improve publishers’ attitude to GAME Group, whom many feel could have done more to address publishers’ concerns.
What could GAME Group’s demise mean for the UK market?
Bad things. The group is almost completely dominant in the physical market place. There is no other national chain of dedicated gaming stores in the UK. While not a monopoly in its other territories, it holds a large proportion of the consumer base in Ireland, Spain, Portugal and the Czech Republic, and has a footprint in many other European countries and also Australia.
Outside of the UK, the other specialist retailers will almost certainly pick up GAME’s disenfranchised customers. In the UK, however, there is no other choice. All that remains is a smattering of independent shops – which are currently heavily suppressed by GAME’s 1000+ outlets – general electronics retailers, supermarkets and internet stores.
One tiny glimmer of hope for those who wish to see a high street gaming specialist in the UK is that the US giant GameStop has been linked with a purchase of the beleaguered chain. So far, rumors have only linked it to GAME’s Iberian stores but reports in the Sunday Times that the UK chain is now openly offering itself for sale may escalate the American company’s ambition.
However, if GameStop does not step in now or after the seemingly inevitable administration period, could this trigger the end of traditional bricks-and-mortar gaming retail in the UK? Would a new brand expand to fill the vacuum left by GAME Group?
Who else is affected by GAME Group’s troubles?
All of this sounds like it’s just Britain’s problem. Should those outside Europe even care? Emphatically, yes! A dramatic change in the UK market could have global implications.
Research shows that, in 2010, the UK video game sales market (hardware and software combined) was worth £4.5bn, having, in 2009, become the second largest market in the world, overhauling Japan although still trailing far in the wake of the US. This means that publishers will be watching closely to see what points of sale remain in the UK once the dust has settled.
Sure, big hitters like Activision and EA will not be too concerned as their franchise hits are self-selling; easily found in non-gaming retailers such as supermarkets. Smaller publishers like, for example, THQ have a bigger problem. Many of their titles are not household names so will not routinely be stocked by the remaining retailers, interested only in shipping product that requires no marketing or expertise from them.
GAME may be a flawed company but it represents the only place consumers can physically visit to ask for advice, buy or order non-mainstream games. Without them, the mainstream becomes smaller, holding only the very biggest and most successful franchises. In a small marketplace, this would be a nuisance. However, the UK’s huge client base (many of whom are still moms and dads buying for little Jonny and Jane) would suddenly be lost to them. Can a company like THQ, with its own huge debt to service, survive the sudden and extreme loss of the UK market?
Ultimately, GAME Group in its current form looks doomed. Most UK-based gamers, and some small- to medium-sized publishers, must be hoping for an international buyout. However, such a savior would have to institute a brutal program of cuts and streamlining. Whatever happens, gaming stores in the UK shall soon be far fewer in number.