The Digital Revolution

Digital downloads were the talk of the Games Developers Conference last week.

At the event Sony discussed releasing PSP games ‘simultaneously’ through retail and PSN, a new digital console called Zeebo was unveiled, and cloud-computing service OnLive grabbed the headlines, with certain corners of the media calling it ‘the future of the video games industry’.

All of this followed a period that saw GTA IV: Lost and Damned break Xbox Live records and Warner release its Watchmen movie tie-in exclusively through PSN and Xbox Live.

All too often, digital distribution is viewed as a bolted on incremental revenue stream rather than an integral part of the product’s distribution plan,” says Games Domain International CEO Roger Walkden.

The reasons for this have varied from publisher to publisher, but what is undoubtedly true is that most publishers are rapidly migrating digital distribution plans higher up the ‘to do’ list than two years ago.

Our partners with a strategic focus on digital distribution are telling us that today 15 per cent of their PC revenues come from download – two years ago, this would have been negligible.”

Long seen as the enemy to retail, the digital market is fast becoming a friend to the High Street. GTA IV on Xbox 360 enjoyed a significant upturn in sales following the release of GTA: Lost and Damned, while gamers often visit stores in order to buy points for MMOs, Xbox Live and Wii.

People do say to me ‘when will Halo X be download only?’ but I don’t see the packaged goods business declining,” insists UK head of Xbox Neil Thompson.

What I do see is the growth of the download and digital content market – but it is complementary to packaged content and services. We offer retailers the chance to get involved through points and subscription cards. Wherever we can we like to make sure that retailers have an opportunity to be part of the Xbox Live ecosystem.”

Mastertronic’s operations director Dermot Stapleton adds: We’ve been selling our specialist simulation products for over four years by download. We don’t see this as a ‘digital versus retail’ battle, rather we can complement the work retailers do for us by adding extra catalogue that they can’t support due to space issues.”

Overcrowding has been a topic of contention for the games industry over the past 12 months. The DS and Wii software market has become particularly flooded with SKUs, and retailers have been unable to stock all the games hitting the market every week. So publishers are increasingly turning to digital in order to get their products in front of the consumer.

Retail has a limited amount of shelf space and they de-list products quickly,” explains Metaboli’s business director for Northern Europe Paul Howes. Some e-commerce sites also tend to de-list after a nine month period. But we can stock everything forever.”

Indeed, the long-tail advantage of digital is another attractive prospect for games firms. Not only will titles remain available indefinitely, publishers are also able to delve into their back catalogues and earn extra revenue re-releasing software through the likes of Steam, Xbox Live, PSN and of course, Nintendo’s Virtual Console.

The Virtual Console on Wii is a great way to allow older Wii gamers to get access to classic titles they remember from their younger days,” says Wii senior product manager Rob Lowe.

It also makes it easy for a new generation of Nintendo fans to try classics such as Super Mario World and Street Fighter II for the first time.”

The digital marketplace has also made the budget games sector a more profitable arena than before, as Howes explains: If you look at the economics of a budget game, with titles going for 2.99 or 4.99, it doesn’t make sense to put a game in a box, on a truck and ship it in and out. So I think the boxed budget sector will, in the long term, be affected by digital.”

GamersGate CEO Theodore Bergquist agrees: With no cost for putting product on the shelves, the price of getting the game to the consumer is minimal. It’s a win-win situation. Publishers can sell old or budget games at no risk and consumers get a better spectrum of titles and products to choose from. The long tail represents a significant part of GamersGate’s revenues and older games are an important chunk of our portfolio.”

However, the digital sector is becoming far more than just a home for retro software, DLC and niche titles that retailers won’t stock. Publishers such as Warner and EA are going much further, releasing new, big-name titles exclusively through digital platforms.

We are beginning to see the emergence of digital only products, especially within the core PC category,” says UK head of marketing for IGN Entertainment Rich Keen.
A recent example is Red Alert 3: Uprising, which capitalised on the established online community that surrounds the Command and Conquer franchise and their openness towards digital distribution to ensure success.”

THE DIGITAL FUTURE
Although the download market is growing rapidly, it is still a long way from being the alternative distribution channel publishers are looking for. The film industry has long benefited from the multiple distribution networks of cinema, DVD, Blu-ray and digital, so what needs to happen before downloadable games become mainstream?

More publishers and developers need to build content specifically for the digital channel,” explains Telltale Games’ CEO Dan Connors, who released the download-only title Wallace and Gromit: Fright of the Bumblebees last month.

Right now many companies treat digital distribution as incremental revenue for their retail SKUs, without understanding online consumer behaviour. As a result, the products don’t take advantage of the strengths of the medium.

There also needs to be more quality content going through the channel, so more gamers will get used to being a digital consumer and will understand the benefits. There is a large enough install base of paying customers to make digital distribution a viable alternative channel for publishers.”

Paul Howes concludes: To push digital further into the mainstream, a combination of things need to happen which are starting to occur. It’s about distribution, which we’re managing, it’s about publisher initiative, which is starting to happen, it’s about pricing, as we need a least parity with box.

Lastly, broadband is key, and Virgin and BT are investing in these areas pushing out faster speeds. Once all these elements come together, I feel that will be the tipping point for digital.”