Opportunity for studios when digital delivery overtakes retail, says Sony as it reveals 40% of PS3 owners download games direct

Sony heralds developer-driven download era

Digital distribution will be the ruling force in games within the next decade – and the PS3 will be the centrepiece of that new online era – but the games industry must not ignore the serious issues which faced the music industry and lose out during the transition, Sony’s David Reeves has warned.

The president of SCEE last week outlined Sony’s bold predictions for the network distribution of games at its DevStation developer conference in London, saying that “the disc-based delivery system will fall as the power of the network base rises” within the next decade, ushering in a ‘golden era of video games’.

Sony predicts that within the next five years digital distribution will equal the value of games retail, and that PS3 will have a keen part to play in this industry transformation – providing plenty of opportunities to games developers.

“The PS3 install base is growing faster than PS2’s was at this point in its lifecycle,” said Reeves, adding that in time he expects the PS3 to eventually outsell the PS2’s 100m installed base.

“We see the future in the video games industry, certainly in terms of software sales, as continuing to grow – new markets, new demographics, and new games appealing to new sectors of the industry,” said Reeves.

“And the key to the future is the PlayStation Network. Games put straight onto the PSN are the big opportunity.”

Games like Gran Turismo HD were a good example of what’s possible, Reeves said, saying Sony was “staggered” but by recent internal figures which showed over 40 per cent of PS3 owners download games direct to their machines.

Reeves told the assembled developers that new revenue streams including episodic content, sales of in-game items and in-game advertising were adding up to create a rich environment for both players of games and the people making the content.

Imminent new PS3 online and community features such as Trophies, PlayStation Home, and commerce functions on the PlayStation Store were helping draw those things to PS3 – but he admitted that publishers face increased QA, localisation and content demands.

“We’re trying to face up to these issues – and we do not have all the answers yet,” he said. “The next five years are going to be turbulent but I think that is going to be the most exciting period that we have ever seen in the past ten years of video games.

“The current revenue streams we have are quite simple – we have hardware sales and packaged media. But that is the old model. The new model is such that our income streams will change – packaged goods sales and hardware sales are still there, but already we are getting into the era of network sales of full games.”

He added: “We have not got our heads in the sand. To some extent the music industry did –we are trying desperately to not make the same mistakes. We do believe that the disc-based delivery system will fall as the power of the network base rises. At the same time the overall industry growth will continue to go upwards as we push out into emerging markets. What we don’t see is an overall decline in the market. This is a golden era of video games.”

So just what will help build a golden era for games? Reeves covered a number of subjects in his keynote to outline what lay in store for the PS3…

ON SECURITY FOR NEW BUSINESS & NEW CONTENT: Reeves said that titles like LittleBigPlanet represent just the beginning of Sony’s push behind user-generated content, while recent in-game advertising deals with IGA are helping raise the value held in each SKU released. “We will also be licensing out our own IP to other devices – not necessarily Sony devices,” added Reeves. “This requires a comprehensive DRM solution, which we are working on as a corporation within Sony.”

ON NON-GAME APPLICATIONS: Although games are the main focus for the PlayStation 3 and PSP, Reeves reminded DevStation’s attendees that developers and publishers are able to add their own non-games services to its platforms, following on from the upcoming SCEE video download service put together in collaboration with BSkyB. Said Reeves: “You’re going to see more of those partnerships – and those partnerships are an opportunity to the industry.”

Said Reeves: “We really welcome all industry competition. For one cycle Nintendo will for one or two years have an impact and will bring people in, in the following few years it could be Microsoft, the next two or three years it might be Sony and PlayStation – but whatever happens we are all going to do well. We should celebrate the growth of the industry and the competitive situation that we have is what fuels that growth. People are really trying to prove their mettle to do better and better and bring new people into this industry.”

“We still live and breathe PS2 in many markets,” said Reeves, pointing out that there is now a booming PlayStation 2 market in areas like the Gulf and Eastern Europe, while more titles are being localised into languages such as Arabic, Polish, and Slovenian. “These markets are driving the PS2 market – and in five years they will still be driving the market,” added Reeves, pointing out that the format still has a very strong attach rate, saying in some territories the attach rate is over 10 games to every console.

ON THE POWER OF THIRD-PARTIES: Sony’s business is “highly dependent on third-party publishers for our business model and we fully intend to keep it like that,” said Reeves, saying SCE wants to make sure first-party games account for just a third of all those available for PlayStation formats to “give third parties an opportunity and a good business model to make money”.

ON THE PLASTATION PORTABLE: PSP hardware and software sales are exactly on target, said Reeves – and the format has also helped the PlayStation push into emergent markets like Russia. But he added: “There is a piracy problem on PSP. We know about it, we know how it’s done – and we’re not happy about it. Actually it sometimes fuels the growth of hardware sales –but on balance we are not happy about it and we would like to stop as much of it as we can,” added Reeves, promising the attendant developers that Sony was working on new ways to combat piracy in the coming months.

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