OPINION: Retail vs Steam

I have read with interest the article ‘Retailers blow off Steam’, as the topic is one I have been focussed on for some time now.

Three years ago, I requested of that the 1C management team negotiate and retain the digital rights to all our titles, even when we sell on the boxed rights to other publishing houses. They agreed and for the last two years this decision has born major dividends for 1C.

The reasons behind the decision were numerous, but one of the large driving factors was the fact that in the English speaking territories – especially in the UK and USA – we saw a massive decline in the way the PC market was being supported by the bricks and mortar retailers.

Shelf space was being reduced on an almost monthly basis in favour of the latest twitch kids console title and it was becoming more and more difficult to get titles listed in any depth – even when those titles were securing review scores of over 80 per cent.

It’s not surprising that PC gamers turned to different methods of distribution, and Steam filled that need perfectly. Not just providing a well stocked distribution platform, but a whole social network for enthusiast gamers who were not getting supported elsewhere as their hobby went mainstream.

HIGH STREET OUTRAGE

What is more surprising is the reaction of retail now. I have read it described as the reaction of a small child who threw his toy away because he no longer wanted it, but started screaming as soon as another child picked it up to play with. The metaphor works perfectly, especially in the light of the excuse I heard on numerous occasions.

‘There is no demand’ went the mantra. But is this really true? Not in our experience.

I remember fondly the meeting in my office with a red-faced publisher who was explaining why their initial order from a major retailer for one of our new releases was just 30 units. At the time I had my browser open on the Steam product data page, which updates sales numbers every few minutes.

They have taken one unit for each of their top 30 stores” he told me. There is just no demand from their customers”.

I glanced at my screen, hit refresh and advised him: In the time it’s taken you to tell me that there is no demand, Steam has sold 45 units”.

Steam is selling decent numbers of our titles. They are really cool to work with, have a refreshing, knowledgeable developer mentality, and never bully or threaten their suppliers.

And for a company such as ours, there is much more to it than that. There is the financial model, which is so often overlooked.

Since 1997, when 1C’s gaming division was founded, the company worked on a model whereby a title developed and sold by 1C in Russia was then sub-licensed to our great publishing partners.

As a generalisation, retail would pay these guys a maximum of 40 per cent of what they made. So on a 29.99 game the publisher would receive about 12 (and on a sub-licensed deal, we would then only get about 4.25 of that) – minus return, write down and consignment costs.

When would we get that money? Well, payment would be by the end of the quarter.

So, let’s say 10 per unit sale goes to the publisher, 3 to the developer/sub-licensor, and it’s in your bank five months after the customer has paid out 30.

Compare that to the digital model. On a 29.99 sale, the digital partner will pay the publisher – or in many cases direct to the developer – between 60 and 70 per cent, by the end of the month following the sale.

Wow. To recap: on a sale over the counter today, we can have our 3 by the end of March, or on a digital sale, we can have 20 by Christmas.

Remind me why we should choose to go with retail and decline to let Steam sell the game?

DIGITAL DIVERSITY

Whilst the specific MCV story referred to Steam, there are a large number of other digital partners. 1C deals with 26 of them, who report and pay monthly sales varying between hundred and tens of thousands.
Steam may be very dominant, but I do believe there is room for innovative and creative partners like GamersGate, Impulse/Stardock, Direct2Drive, GreenMan Gaming and GetGamesGo/Eurogamer to find a customer base who prefer their particular offerings.

Unlike at retail, the dominant players in the digital market do not get, nor do they ever ask for, better terms than the other players.

So what else, apart from better support, better sales, no inventory, no returns and much better payment terms, have the Romans ever done for us?

Another advantage is the ability to boost sales with promotional prices – and you’ll often see an additional sales upturn after returning to the full price.

For example, if you run a game of the week promotion, you can sell maybe 20,000 units of your title in that period.

You now have 20,000 new users enthusing about your game, which even when the title returns to full price, causes a very obvious knock on effect that can happily double your sales.

This creative working of pricing, promotions and catalogue is something I am convinced retail can learn and benefit from. It frustrates me greatly that once a game is six weeks old, it is written off and consigned to the bargain bins, never to rise again. We have a 10-year-old simulator title that still sells regularly on digital platforms.

This brings me to a quick recommendation. The Long Tail by Chris Anderson is an essential read for anyone who wants to understand the differentials and opportunities offered by the digital platform.

In the book, Anderson talks about one outlet that turn 90 per cent of their titles only once a month – but as they stock two million titles that once a month equates to 1.8m sales.

Retail has just delivered $360m sales on first day for Black Ops. Those are impressive numbers. Will they really not stock Black Ops 2 next Christmas if it has Steam features included on the PC SKU?

Add those numbers to the sales, longevity and depth that digital can offer, and surely we have a decent market model that can work alongside each other without the need for threat and recrimination?

Steam is here to stay. Retailers needs to communicate and work with publishers, rather than dictate and pontificate to ensure the same can be said for them.