Will new rental services revolutionise the video game market?

Forget bills and pizza menus – something much more exciting may soon be dropping through your door. Tim Walker reports

It's the nemesis of the high street video shop and the saviour of film fans everywhere. The DVD rental website Lovefilm has revolutionised the way we watch movies. Now Game, Britain's largest specialist games retailer, is getting in on the act with a subscription online games service inspired by Lovefilm's popular DVD rental model. Gamers will pay a flat monthly fee to rent any two games at once and, when they post one back, a new title will be sent to them from their wishlist.

Game's physical presence may also give it some clout online, where it will be competing with the few established games rental sites, including Boomerang, Game Tart and Lovefilm itself, which offers almost 3,000 games titles alongside its movie catalogue. However, the move will probably be of greater concern to the likes of Blockbuster and other over-the-counter video rental stores, whose decline will only be hastened now that games, too, are on the internet rental menu.

The new rental scheme has been launched in partnership with SwapGame, an internet games rental service that has been around since 2003, and already offers gamers unlimited rentals for between £10 and £19.99 per month (depending on the number of games rented simultaneously). In a mutually beneficial arrangement, Game will acquire the expertise of an established service, while lending SwapGame the strength of its brand.

"Game has been chasing Amazon and Play's market online for years," says Tim Ingham, online editor of games industry magazine MCV. "It's an area the company has put huge investment into. This should give Game a big bump in online traffic, and it was clever to use a third party [SwapGame] to pull all the strings and then stick Game's name on it."

Unlike most other retailers, Game enjoyed a healthy Christmas, posting a 16.6 per cent sales boost for the period. They were helped by the closure of Woolworths, which previously accounted for about a 10th of the games retail market. But the recession will, perhaps, give games retailers an enviable boost: compared with the entertainment alternatives, games can be good value.

"Game prices still hover around the £40 mark, which is amazing considering how many people are involved in making them, and how long a game can last you," says Gavin Ogden, editor of gaming website Cvg. co.uk. "A Premier League football match costs more than £50 for a good seat and is over in an afternoon. But you could be playing Fifa 09 all year round for £10 less." To prove the point, the global games industry boasted record sales figures in an otherwise lean 2008, with UK consumers spending more than £4bn on gaming products. Game sales alone rose 23 per cent on 2007, according to the Entertainment and Leisure Software Publishers Association.

But while the recession may be a blessing in disguise for retailers, games developers and publishers are not so sure. If rental schemes like Game's give gamers a cheap alternative to actually buying a game during the economic downturn, its creators will see less of the potential reward for their work.

This is particularly true for certain game genres. A survey by research firm Rentrak found that of the top 10 rented games of 2008, seven were first-person shooters for Microsoft's Xbox 360, with Grand Theft Auto 4 topping the list ahead of Call of Duty 4 and Halo 3. Multiplayer games for the Nintendo Wii made up the remainder of the list, suggesting that many people rented, for instance, Mario Party 8 as entertainment for social gatherings.

Launching the rental service, Alex Croft, managing director of Game's online division, declared that Game's rentals provide customers "with the opportunity to try games before they buy, and also to explore new types of games they wouldn't otherwise have played".

Not everyone is convinced. Frontier Development's boss David Braben, whose games include LostWinds and Rollercoaster Tycoon, told GamesIndustry.biz that Game were merely using the "try before you buy" argument to "sell it to the industry so it doesn't look too much like they're trying to steal our lunch".

One of the key elements of the Lovefilm model is its "no late fees" promise. Subscribers can keep a film or game for as long as they like, a feature that will be particularly attractive to gamers. "With a game, unlike a film, the interactive and strategic elements mean it's quite good to go away and think about what your next step is going to be," agrees Ingham. "You invest two hours in a film and it's done and dusted, while you can easily invest 50 hours in a really engrossing game. I think rentals will make some developers anxious, especially if theirs is a game that has a specific level structure and is linear in the way you can play it from start to finish. The 'no late fees' factor gives you the leeway to play it every night for seven days, send it back, and never want to play it again. So the developers miss out on the 50 quid being handed over at the tills."

Games rental is a double-edged sword for developers, and for such a high-tech industry they have a surprising amount of catching up to do before it becomes a viable business model to compare with movie rental. Film studios, for example, long ago began publishing two versions of each video or DVD release – the retail edition and the more expensive (and more profitable per unit) rental edition, which rental outlets are obliged to purchase wholesale, as Lovefilm does.

Games have no such industry-supported system in place and, as such, cannot hope to earn much extra cash from the current rental model. In Belgium, games rental was recently banned outright to prevent video stores from buying retail copies of games and offering them for rental. But if games publishers could agree to a system resembling the film industry's established model, with special 'for rental' copies of each game, they might reconcile themselves more satisfactorily – and more profitably – to the idea of games rental.

"I'm surprised the games industry hasn't got a model together," says Miles Jacobson, managing director of games developers Sports Interactive. "The film industry have been doing it like that for 20 years. If we had specific rental copies of games, we would have more control over them. For instance, we could release them a few weeks after the retail release, so that the people who really wanted to play the game would go out and buy it." It may be the only option. HMV is the latest major retailer to start stocking second-hand games at a fraction of the price of new games – with none of the profit from second-hand sales going back to developers.

And as the film industry knows only too well, the technology that facilitates online rental brings with it another set of dilemmas. Piracy is more widespread than ever.

Cheap – and not-so-cheap – downloads are another avenue being explored by a games industry still hoping to turn a decent profit in the digital age. If revenues drop considerably, so too will game budgets. Games prices could rise, but that would only drive more people to piracy. "There were record revenues for the games industry last year, but just this morning I was reading of 270 overnight layoffs at software developers around the world," says Jacobson. "Innovation in games will slow down if there aren't enough people out there to develop them." One answer is to compete with pirated downloads by offering legitimate downloaded copies of games, as the music industry has done. Steam (www.steam powered.com) is just one example of an "iTunes for games", with more than 15 million subscribers worldwide. The site offers cheap downloads of games as well as regular patches and software extras, including Football Manager's "transfer window" update, which is due to be available in February.

But however the computer games industry decides to proceed, it seems as if the people set to benefit from download services, online rentals and the rest of it will be players themselves. Let the games begin.

Console downloads: The lowdown

Xbox Live Arcade

Microsoft's virtual marketplace offers 185 titles for download that cover everything from updated retro titles to demos of the latest games, endless puzzle titles and a collection of card games. Downloads are bought using Microsoft Points with games costing from 200MSP (£1.70) to 1600MSP (£13.60) Marketplace.xbox.com

PlayStation Store

Using the PlayStation Store, PS3 owners enjoy weekly updates of downloadable games, demos, trailers and wallpapers. The PSN service launched in 2006, while PSOne Classics, a service which allows PlayStation 3 and PlayStation Portable users to download PSOne games, launched in 2007. Titles can be paid for by credit card or using a PlayStation Network Card. The average game cost is £6.99 uk.playstation.com/psn

Wii Virtual Console

Part of the Wii Shop Channel, Virtual Console offers gamers classic Nintendo games plus new WiiWare titles. From the Zelda games to the Super Mario series, Sonic the Hedgehog to Castlevania, the idea is to provide the entire Nintendo back catalogue online. Games cost between 500 (£3.50) and 1200 (£9) Wii points, which can be bought online or from stores. www.nintendo.com/wii/virtual