With PS4 and Xbox One, digital is finally a viable revenue generator for publishers

The inevitably that digital will replace physical games didn’t really come to fruition with the Xbox 360 and the PlayStation 3, but it looks like it has a much better chance of doing so this time around.

With Xbox One and PlayStation 4 offering digital releases for every major game the same day these hit retail, the gaming industry managed to generate $851 million in spending in July, according to intelligence firm SuperData Research. That’s up 6 percent from the same period in 2013. Downloadable content on consoles and PC reached $247 million, which is up from $201 million year-over-year. That number grew despite, as SuperData points out, a lack of big new releases for the month. One of the potential reasons for that is that more people are turning to digital on consoles than ever before because of bigger hard drives and improved network infrastructures on the new consoles.

“Major publishers’ transition to digital is in full swing,” SuperData analyst Joost van Dreunen said. “Several of the major Western publishers released their quarterly figures, showing an increased reliance on digital channels.”

FIFA and Battlefield publisher Electronic Arts in particular saw significant digital growth. In July, GamesBeat reported that EA is finding that digital now represents between 10 percent and 15 percent of the initial sales for all of its new games. Previously, that number rarely ever exceeded 10 percent.

The company is also generating more revenue than ever from its downloadable add-on content.

“Electronic Arts benefited from the worldwide attention for soccer [during the World Cup] as FIFA Ultimate Team drove the success of its digital category,” said van Dreunen.

While we don’t know how much more a company like EA makes on a $60 digital game versus a $60 physical game, the publisher is making more from digital.

“[EA] provided an answer to the question of whether digital distribution improves margins by posting a record-breaking 70 percent gross margin for the quarter,” said van Dreunen.

EA isn’t the only publisher benefiting from a focus on digital.

“Competitors Activision and Take-Two Interactive also posted higher than expected digital revenues,” said van Dreunen. “With this indicating that the major publishing houses in the West are well on their way toward a predominantly digital publishing model.”

SuperData points out that even Ubisoft, which is behind in terms of digital revenue, managed to generate $112 million during its last fiscal quarter ending July 31.

“That’s largely because of the success of Watch Dogs,” said van Dreunen. “Nonetheless, the publisher has still some work to do if it’s going to catch up on its peers.”

For August, SuperData actually expects digital spending to recede slightly compared to 2013 (despite the release of Madden NFL 15), but it anticipates that spending to come roaring back by the end of the year.

“As the market ramps up for the holiday season, we anticipate a drop in August after which spending will climb to an estimated $1.2 billion in December,” said van Dreunen.