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Forecast for Online Sales of Video Games

JupiterResearch forecasts that online sales of games � both digital downloads and shipped package media � will rise from 8 percent of sales today to 19 percent by 2010, which could spark friction between game makers pushing direct sales and traditional retailers.

The U.S. video game market reached $6.8 billion in 2005 on sales of software used by consoles, personal computers and mobile phones, so an 11 point shift represents big money. "People keep thinking of this in terms of one distribution method versus the other, but we don't think that's appropriate," says JupiterResearch vice president and research director Michael Gartenberg. "We think online sales will spur incremental revenues that will grow the entire business, and will clearly benefit retailers. Also, as titles and platforms proliferate, retailers won't have the shelf space for low selling titles that are better suited for online sales anyway."

Online sales have two components. There's mail order shipment of packaged games, plus the same games can also be delivered via download to cell phones and personal computers. Since new generation consoles Xbox 360 and PlayStation 3 come equipped with built-in Internet access, they can easily receive downloads.

Digital delivery allows game makers to directly fulfill consumer orders, thus garnering higher profit margins than selling the same title through retailers. Retailers currently take 5-15 percent of manufacturers' suggested retail prices.

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