At the back end of last week rumours started to circulate that the largest video game retailer in Europe, the Game Group, had lost its credit insurance, meaning publishers selling games to the company would have to take risks on games that do not sell, something they are normally unwilling to do, leaving Game in a position whereby they would have to pay cash in order to secure stock. In total it is believed that Game owe suppliers around £295m. That's a lot of cash to suddenly have to rustle up. This kind of situation is often the first sign that a company in about to head out of business. If you can't secure funds to buy stock then it won’t be long before you start to run low, profits then fall and finally you end up going out of business. Luckily by Friday, Game Group announced that they had managed to make a backroom deal to secure revised terms with their lending banks-the proviso being that in return Game looked at selling its overseas arm. However whilst this deal secures Game's immediate future long term, analysts believe they will have to acquire sustainable working capital in the run up to Christmas.
All of this might sound a bit dull and dry, but the wider point is what would be the impact on the gaming industry if Game were to go under? With HMV also in trouble, theoretically by the end of this year we could be in a situation where there is no video game retail presence on the high street. With the growth of internet shopping and the digital market some would say good riddance to bad rubbish, an opinion borne out by the majority of comments left on sites like Eurogamer, but would such an occurrence really be good for the industry.
When the story first surfaced about Game's troubles, EA CEO John Riccitiello was quoted as saying the following about a major European retail partner:
"We are concerned with the financial condition of one of our major European retail partners, which could lead to both increased bad debt and lost sales,"
If one of the largest publisher in the industry are concerned about how any failure of Game's business might affect them what about smaller publishers and developers.
When it comes down to it, whilst internet shopping and digital sales account for a growing percentage of video game sales, bricks and mortar sales still provide the lions share, especially during the key fourth quarter. To suddenly see a large chunk of that sink beneath the waves would be pretty damaging for the industry. All you would be left with are the supermarkets and as they only tend to stock the best-selling games you can say goodbye to anything that isn't mainstream enough to sell in the millions. Publishers and developers could theoretically go out of business as the UK currently sits behind the US and Japan as the third largest video games market.
It's pretty scary stuff if you think about it and that's why it saddened me to see so much glee expressed on message boards and comment threads when the news first broke. Game provides a vital service as for many they are the only point of contact they have with the industry and to see that disappear would be a massive blow for everyone: publisher, developer and consumer. This isn't to say Game deserve a free pass. Some of its business practices leave a lot to be desired, especially their belief that selling games at RRP in the face of major competition is the way to build a solid business, but lets hope that this serves as a wake-up call to the company and that Game are able to turn it around and continue to provide a much needed source of income for the industry. If not we could be in for a rough ride.
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