The Evolving European Video Game Software Ecosystem - The Video Game Industry: Formation, Present State, and Future - page 210

the distribution chain. Many international publishers, e.g. Electronic Arts
and Activision, have in-house distribution to retailers. Other publishers
choose to license distribution (OECD 2005) and independent game com-
panies typically use specialized distributors for their titles (De Prato et al.
2010). The retailer actually sells the product to end consumers through
physical or online retail sites. In the traditional ol ine value chain, retailers
infl uence the success of a video game through allocation of shelf-space and
marketing in the stores and usually charge publishers market development
funds to cover costs of posters, end-of-aisle space, etc. (Kerr 2006). Tradi-
tionally, retailers were electronic chains, multimedia shops and specialist
shops or chains, but nowadays video games are increasingly sold in general
retail stores like Wal-Mart, the Metro Group or Carrefour. Big retailers,
such as Wal-Mart or FNAC, are increasingly playing the role of distribu-
tors and contacting video game publishers directly. On the other hand, the
increased importance of online distributors like Amazon in many cases
reduces the role of “traditional” retailers (De Prato et al. 2010).
Market Structure and the Distribution of Value
The division of labour and power play out quite dif erently in dif erent
segments in the video game market (PCs, consoles, handhelds, etc.). The
consoles and handheld segments are highly concentrated and dominated
by three console manufacturers (Sony, Microsoft and Nintendo). These
console manufacturers also exercise a lot of power throughout the value
network. They generate revenues not only from hardware sales, but also
from (1) the sales of their own software and (2) the royalty fees from other
software developers that use the console platform (OECD 2005). In doing
so, they act both as game developers and as publishers. Consoles can be
sold to customers at loss per unit, so profi ts have to be earned on the games
instead (game titles presold to publishers). Therefore, console manufactur-
ers also exert a lot of infl uence on which games will be developed for their
platforms. They tightly manage the access to the development tools, which
becomes expensive for developers (Mateos-Garcia, Geuna and Steinmuel-
ler 2008). This also drives the development part of the value network to
become more concentrated as well.
The PC video game value network is less concentrated as a consequence
of the open PC platform. Development costs are lower, partly because
developers are not required to pay royalties to PC manufacturers and do
not have to license expensive development kits. Therefore, barriers to entry
are lower, and the segment is more open to niche players, displaying a
greater diversity in games and interaction between developers and users,
as well as nice markets for add-ons (e.g. user interface devices). To some
extent this is counterbalanced by the strong gateway position of publish-
ers. These are often large international players (as mentioned earlier) who
take on roles of fi nancing and marketing and often have their own internal