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Can't touch this or why digital distribution is gaining ground

First of all, thank you all for the warm and fapulous welcome to this great community in whose bowels I'm about to plant the fruits of my mind loin (note to self: rephrase that before posting). Hope you enjoy my first real blog entry, let me know:

Since digital distribution gains more and more influence in gaming, taking a closer look won't do any harm.

What's digital disti...distribution?:

As most of you already know, digital distribution is the practice of delivering digital content (Games, Music,...) without the use of phyical media (CD, DvDs, BlueRay,...) typically by downloading via the internet (a series of tubes).

Why should I care?:

The NPD, a group analysing the gaming industry, released a sales report on digital distribution last year. It showed that 29% of all games were sold digitally...that means almost every 3rd game was purchased on one of the many distribution platforms like Steam, XBL, PSN, etc.
Especially on PC more than 50% of game sales took place that way...and this only includes full games. Add to that, the money spent on micro-transactions, add-ons, downloadable content, etc. and you'll see what big an influence digital distribution has by now.
Considering how new the concept is (as far as I know it started with Steam in 2003) the growth in that sector is enormous and doesn't seem to decline any time soon.

Phil Harrison, former president of Sony Worldwide Studios, said: "...It's also a market going through some challenges, going through reinvention as it changes from packaged goods to an online digital market. And that transition is going to be painful, it's going to destroy value in some companies and create value in others.".
And that guy has to know something about the matter. Granted, it primarily changes things for developers, publishers and retailers...but in the end also we, the consumers, have to deal with the effects.

The good news:

1. convinient: Admit it, you leave the couch as unwillingly as I do. Making games downloadable means you don't have to leave the house anymore...ever. Especially when the weather is bad or you live far from the next games retailer being able to download games is a huge advantage.

2. cheaper games: At least in theory. It's more cost effective for publishers to sell content digitally. The profit margin of traditional retail is about 10-20%. Steam, allegedly, offers a profit margin of 60%. It basically means the publisher gets more profit per sold copy.

3. accessibility: You are able to download and play games from any location with internet access at any time. Retailers are restricted by their limited draw area and their business hours.

4. space-saving: I know, we like game boxes...but seriously, I don't know where to put them anymore.

5. eco-friendly: The production and recycling of physical copies wastes rescources and energy...and we only have limited amounts of those.

6. piracy reducing: The music industry showed, many people are willing to pay for downloads given the opportunity. I'm not saying that it will completely replace game piracy but to some extend it might help to prevent it. Especially when it comes to DRM, it's not helpful when the pirated version of a game is superior to the retail version. I look at you, Ubisoft. (see next point)

7. more userfriendly DRM: DRM (digital rights management) is fancy talk for copy protection. Ubisoft recently droped the ball in that regard. Games like Assassins Creed 2 weren't playable because the copy protection system required constant access to their servers,...which conveniently went down. That's a no go. Distribution platforms can't afford that kind of thing...and therefore won't.

8. no trade-ins: At least so far. The game industry seems to suffer hard due to Gamestop and other second-hand retailers...and when the industry suffers, the games suffer...and when the games suffer WE suffer. Besides, Gamestop practically skims their customers with profit margins of almost 50% on used games. Retailers of new games usually take 20%.

9. no disk changes: It's also a matter of convinience...who wants to get up and change the disk in order to play another game. By now, every PC and console has a harddrive and their capacity is rising fast. I'm pretty sure the next console generation will have harddrives with several terabytes of memory to store games on.

10. innovative/creative games: Making games is an expensive endeavor, so developers have to work with publishers like EA or Activision to get their games financed. The big publishers usually consider innovative games as too high a risk and don't approve them. Digital distribution platforms allow independend developers to sell their games for low costs (no producing/storing/shipping costs for physical copies) without a publisher interfering. For example, indie developer 'Introversion' was saved by the money they made on Steam sales, otherwise they would have had to file for bankruptcy.

11. cloud computing: The concept is rather new and means that data like save games and settings are stored on a server and therefore accessable from every terminal you can log into your account with. 'OnLive' takes it one step further, the service runs the whole game on own servers so you can even play it on the slowest computer. The downside is the need for a high-bandwidth internet connection. To me that seems too far ahead of its time, though.

12. social aspect: All the big distribution platforms seem to have one thing in common, a well-conceived social aspect. The sense of community and the ability to easily play games together on the internet becomes more and more important.

13. large choice: Storage room isn't cheap, so retailers focus on games that promise high sales figures. Digital copies only take space on a harddrive, which is considerably cheaper. That means digital distributers are able to have a far higher selection of games on offer.

The bad news:

1. internet access mandatory: I had to experience it myself, when our internet access failed for several days...internet accessibility is almost vital these days, when it comes to work, social life, gaming, etc.. Too high a dependence never is a good thing.

2. bypassing retail sector: First of all, digital distribution won't completely replace physical media within the foreseeable future. Almost 20%-30% of all US american households don't even have internet access and in many other countries this number is much higher. To completely abandon physical copies would reduce the customer base. It merely represents an additional trade channel. That doesn't mean retailers won't have to adapt to the new situation. They already cut exclusive retail deals with publishers. For example, you only get certain in-game items, if you buy the game at a certain retailer...that sucks, customers should get a complete game no matter where they buy it.

3. no customer advice: Those of you, reading this most likely won't need advice from some customer consultant at a games store. Many less experienced customers may find it difficult to purchase games digitally without advice, though.

4. no trade-ins: I know, this point is already on the good side of news...but it's kind of an double-edged sword. From a gamers point of view you should be able to resell your property. On the other hand, publishers are already working on concepts to limit that ability. EA, for example, will release an online pass that only allows the initial buyer to play online. The buyer of a used copy will have to get another online pass for 10$. Also, you will probably see more and more subscription based online multiplayer even for shooters like Call of Duty. That means the value of your physical copy will drop anyways.

5. monopoly: Steam has a market share of almost 70% when it comes to digital distribution on the PC market. Other providers have a hard time to establish themselves and compete with that. Valve, the company behind Steam, so far does a good job resonably pricing their games, even though they could charge far more. We just have to take a look at Sony's PSN shop, those games are unreasonably high priced...they can only do that because they are the only provider of digital copies on the PS3.

The conclusion:

Even though there are some downsides to digital distribution, all things considered to me the advantages outweigh the disadvantages. I'm using Steam for years now and purchased about 40 games during that time. So far, no complaints form my side. Over the years, Valve earned the trust of their customer base and by now they have over 30 million active users. In this article I often take Steam as an example because of their huge success. That might sound a bit I listed some viable alternatives when it comes to digital distribution.

Homepages of the biggest digital distributers:
Playstation Network
Xbox Live
Wii Ware

What's your take on the situation? Do you think digital distribution is the future of gaming? Do you have more pro/contra arguments, not listed here?

Next up: Beyond the scares or why survival horror games frighten us
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About Sonntagskindone of us since 11:01 AM on 01.15.2011

Me, myself and I:
- 26 years
- student of industrial engineering
- German
- determined beard-wearer
- budget gamer
- long-established PC gamer
- Xbox360 owner
- plays games of every genre
- likes RPGs most
- frequent GamesCom visiter

recent favorites:
- Mass Effect 2
- Super Meat Boy

looking forward to:
- Mass Effect 3
- Deus Ex: Human Revolution
- The Witcher 2
- Guild Wars 2
- Portal 2

hang out spots: -> Sonntagskind
Steam -> Sonntagskind
Twitter ->
Steam ID:Sonntagskind


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