Digital Distribution - Dark Days Ahead

So typically I limit by blogs to game development, and MMO's I might currently be playing.  You know, things I feel at least moderately qualified to talk about.  But you can't be a part of this industry for as long as I have without also noticing how things tend to shift about, and occasionally commenting on them.  Today is one of those times.



This morning I'm going to chat about the digital distribution market for games - most specifically for PC games - and the changes I think are coming.  I honestly doubt I'll say anything that most of you reading this blog probably aren't aware of already, but I do think it's helpful to sort of draw the various parts of the discussion together, and to see if we can speculate about where this is going.  For a long time now, there's been pretty much one player in the PC digital distribution service - and that's Steam.  To compare Steam to the rest of the market is actually quite a bit like comparing World of Warcraft to the rest of the MMO market back around 2008 or so.  You really couldn't do any meaningful comparison because the differential was just too great.

However though, that's all going to change.  It's changing now, and the change is going to only accelerate.  I read a comment recently along the lines of "Steam is taking over..".  It is my opinion, however, that exactly the opposite is true.  Steam already has taken over.  They took over about 5 years ago.  And right now, what you're going to see is everyone else struggling to take it back.  And the players involved here have deep pockets. They realize (belatedly) just how much is actually at stake here, and so they're going to fight pretty damn hard.

What's Happening Right Now
So let's take a look at the players involved.  Well right now, of course we all know Valve, and their service - Steam.  But whom else is looking to get into the picture.  Well Gamestop recently acquired Impulse, and is busy right now integrating their service into the Gamestop revenue stream.  Gamestop makes a huge portion of its revenue from used game sales currently, but they've seen the writing on the walls for brick & mortar stores of all digital media (goodbye Borders). They've heard from both publishers & consumers, and know they need to be a player in this field.  Gamestop brings some pretty serious retail clout to the arena, and I can't believe they'll be content with allowing Impulse to continue to be a second-rate player in the digital field.  And when you look at the opportunity to combine their retail and digital distribution channels - something Valve doesn't have - you have to respect them as a player.  Additionally, Gamestop has also acquired Spawn Labs, a digital streaming technology company.  More about that later.

Additionally, Gamefly recently acquired Direct2Drive.  Why?  Because Gamefly is already running a pretty successful physical media game rental service - in fact, probably the only real player in that market - and they too are looking to add digital distribution to that service.  Again, rentals is something Valve isn't doing currently, and you can be damn sure Gamefly is going to be going directly the route that Blockbuster is doing with their online service - allowing you to rent digitally.  Digital rentals is a pretty attractive service, but the race to the bottom in terms of game pricing may stamp that out before it can ever take a hold.  But that's a different blog.  Point in fact, you have another player with a pretty good track record, and something else to offer in terms of product, entering the fray.

EA has recently jumped into the arena with Origin.  And guess what?  They've pretty much pulled all of the EA products from Steam.  Smart, really.  And even if EA only ever puts EA titles on Origin (which I would highly doubt), that's still a pretty damn big chunk of the major PC games you're likely to buy.

And let's not forget Microsoft.  They've made a few half-hearted, abortive attempts at the industry thus far, with Games for Windows Live, but with Windows 8 they are seriously looking to revamp all of that.  When your operating system comes with a clean, curated marketplace for purchasing titles online and smoothly integrates all of the purchase, installation, dependency checking, etc., into one single credit card purchase - are you seriously not going to use that?  Probably the single biggest thing I'm looking forward to with Windows 8 is that App store, and to see just how well they can pull it off.

So., in short, all of the major publishers are looking to get into the fray, as well as the major distribution chains.  And all of them have their own plan and are working like hell right now to bring those plans to market.

Why You're Going to Hate It 
What you like is convenience.  You like being able to buy your stuff from one location, all the time.  Thus far, your desire for convenience has even prevented some of you from even bothering with lesser distributors, because the major player, Steam, has pretty much owned distribution.  Sadly, what you like, and what the publishers like - which is for you to buy directly from them, and not through some almagamator, are directly opposed.  So in the near future (next 2 to 4 years, tops) you will see every major publisher & distributor setting up their own distribution channels, and all kinds of incentives and deals being made for you to use their service over someone elses.  But you won't be able to buy from just one.  Not for a long time.  EA isn't going to put their stuff on Steam.  Microsoft XBLA/PC ports will quickly become available only through the App store.  Gamestop and Gamefly will make distribution deals with mid-tiered publishers that can't afford their own channels, while scrambling for increasingly hard to find exclusives with the big publishers, whom are using their own channels.    And developers suffer as well.  Because every service has it's own infrastructure that they (the distribution channels), will want you to support.  Their own friends list, achievements, leaderboards, social networking integration, etc.  And implementing that support is expensive and costly for a small developer.  So developer's probably aren't going to try to support all of them, but rather whichever one their publisher has the most lucrative deal with, and that's it.

In the days ahead, digital distribution is going to explode - and not just in popularity, but in where you have to go to get it.  We see this exact same thing occurring in TV and movie media right now.  Netflix, an almagamator, is losing distribution rights because the publishers of those distribution rights have suddenly realized how big this market is, and they want you to come to their site, and view their ads, to watch your favorite shows and movies.  So say goodbye to one-stop-shopping for your shows, and say hello to having to go to Starz.com, and Hbo.com, and ABC.com to watch whatever you want to watch - oh and to have to watch it with commercials.

Why in the end it's a Good Thing
Despite all the doom saying I'm doing about what's coming in the near future, I actually believe though, that it's a good thing.  For the past five years or so, Valve has pretty much had a monopoly over PC digital distribution.  And in the long term, monopolies are almost never actually good for the growth of an industry.  Remember how for about ten years there was only one browser?  Well it took awhile, but other companies created competing products, and out of that we got superior browsers.  Same for music distribution.  For a long time, iTunes pretty much owned music digital distribution.  But other companies came along, and actually created competition for iTunes by changing the way the business model worked.  Companies like Pandora and Spotify changed how we view music ownership, or even just consumption.

And that's exactly what you see happening with streaming services like Galkai and OnLive.  These companies want to carve their niche in digital distribution by changing what it means to use software.  Treating it more like a service, than you do a product.  It's hard to estimate how successful these endeavors will be, but it'd be foolish to dismiss them.  And there you see, obviously, what Gamestop is planning to do with Spawn Labs, and why they got so pissy (stupidly) about an OnLive promotion appearing in their boxes.  And while I personally vastly prefer to think of games as products and not a part of some monthly service, I recognize that I"m a curmudgeon that way, and that for millions of consumers, in the same way they have for Spotify and Pandora, may find this to be exactly to their liking.

In the end, I think we'll end up in a good place.  There will ultimately be a shake out, and it will settle down (as it always does) to a few major players.  And those services will have better features, and be more responsive to customer's needs, than any single distributor ever would have been, as a result of that competition.

But before we get to that place, you should hold on to your hat kiddos, because it's going to bumpy ride.