Develop 09: Is Digital Distribution The PC Saviour?

By Kieron Gillen on July 20th, 2009 at 11:59 pm.

Look at us pretend to be a shitty business journal.

Yes! Next panel.

It was a panel whose title (“Is Digital Distribution The Saviour Of The PC Game?” non-shortened version fans) didn’t exactly promise much which anyone who hadn’t been following the PC recently didn’t already know – but in actual fact, it proved to be the most relevant and interesting session of the entire of Develop for me. High information bandwidth, basically, with Charlie Barrett (Kalypso Media), Dorian Bloch (Chart Track), Richard Keen (Direct2Drive), Mark Morris (Introversion) and David Nottingham (Lucasarts) chewing over the issues and revealing a lot of sexy speculation, anecdotes and numbers.

It was Dorian Bloch who provided the majority of the latter in an opening ten minutes where Chart Track voluminous selection of sexy graphs were thrown in all direction. Getting the Chart Track numbers is a real joy. People inside the industry get them, and pay for them. Even a non-statistician’s glance down their end of year numbers gives enough information to add real weight to a half-dozen articles.

The position is that Chart Track basically want to bring as much digital distribution information into the actual charts as possible. They already do it with music, so this is logical – and, for the PC, probably necessary to give an idea of what the real information is. The majority of what Dorian showed was their best analysis of what they think markets are – so, yes, these aren’t hard and sure. But these are people who are good at this, and I think it’s worth rolling with them.

We started by looking at European sales figures, between 2005 and 2008, where the total videogame software market moved from 5.5 to 8.6 billion euros. And – Christ – seeing the rise and fall fascinates

(PS2 going from 2.522 to 0.885 billion, for example. As is how actual rise of new consoles. Later on, we see the rise and fall of new consoles arriving and old ones leaving – and from the 90s onwards, there’s always a year in the UK sales where PC is comfortably higher than either the departing system or the new comers… which makes the actual tactical decision of when to launch a next gen console game – or abandon an older one – all the more interesting. Also, apply that to making a PC-version alongside it to mitigate the chance that new console market hasn’t developed enough yet… but I’m really wandering)

The PC market across the years went from 1.262 to 1.265 to 1.326 to 1.125 – which is a fifteen percent decline from its 2006. That’s enormously held up by the German market, which now makes up 41.3% of all PC sales, and has declined by 5%. While UK is second and France is third, it’s actually clear that in terms of retail, Germany is singlehandedly holding up the PC market. It’s the last year which has seen the biggest decline, which is where Bloch argues Digital Distribution really kicked off.

We take a step to the world stage. 13 Billion dollars is the entire PC games market in 2008. In terms of the split, Chart Track believes 24% is retail, 46% online revenue services (i.e. Subscriptions, micro-transactins), 22% is digital distribution and 8% is ad-revenue. Of course, this is world-wide, and individual territories tell a different story. Asia, for example, where only 4% of the revenue is from boxed sales. All this compares to 32 billion dollars from all console sales.

Chart Track believes there’s 250 million PCs which are “gaming PCs” – which leads to the question what an actual gaming PC is anyway – which is about equal to the total generation of consoles. And, in a real way, with digital distribution, broadband penetration equals the market. In which case, 450million broadband accounts is hefty. The market is being powered by three things – the growth of digital distribution clients (i.e. Steam and friends), the growth of virtual item games (i.e.Battlefield Heroes, Travian, any of the free to play stuff) and – the one of the three which I suspect most people reading this site overlooks – the growth of game-cards sold in non-game retailers. This is primarily kids without credit-cards.

How big is digital distribution? In terms of the core-market – that is, gamers like us buying on clients like Steam -they estimate 600 million dollars for the NA market. They believe it’ll break the billion – 1068 – in this year. The real question is why aren’t these in the charts. The problem is that while some retailers are interested in it – especially certain individual companies – others are more reticent. Since most of the individual publishers have their own direct download solution, you need more than a few token ones to avoid skewing the chart. I approach Bloch after the panel to ask when he thinks people will move this way – Valve’s reluctance to release actual hard data is something that regularly frustrates me – he believes it’ll work similarly to how digital sales worked in the music industry. That is, a gradual uptake, with a give and take of information – a little at first, and when nothing terrible happens – a little more. Soon we’ll reach the point where it becomes clear that not giving up numbers leads to less publicity compared to those that do. In other words, it’s a slow natural process and we have to wait for it to work out.

Then we went into the panel generally, where opinions came thick and fast. Monkey Island deluxe being a debut game for Lucasarts was – in David Nottingham’s words – a no brainer. Perhaps generally speaking, the most characteristic comment was from long term industry veteran Charlie Barrett who stated simply: “I wouldn’t do it if it wasn’t a viable business”

Mark Morris, the indie-man-out on the panel, had a selection of classic Introversion stories. You’ve heard the one about them deliberately padding the Uplink file size with an enormous file of Chris Delay playing Guitar. Back in the pre-broadband days? Making it take a couple of hours to download was their only copyright protection. Chris was also somewhat wry over their initial worry about taking Darwinia to Steam. Since they received the full price from their website, and less after Valve’s fees were taken from Steam, they were worried they were going to canalise their sales. “Thank fuck we didn’t make that decision”, he says bluntly, after they sold more Darwinia in the launch weekend than they had in all the time up to that point.

Perhaps a key point was the difference between just selling off your own site and selling off a portal. What you’re actually giving up for that slice of the profit is an actual footfall and visibility. When people go to Introversion’s site, they’re not actually looking to buy the game – they’re looking to find out about it. Rich Keen thinks this is key. People come to sites with purposes in mind. If you’re at Direct2Drive, you’re there to buy. It’s a sales environment. Shops get people browsing, and create a synergy between products. Since all users sales are tracked, Direct2Drive know they’ve sold 1000s of units to people who have never bought an indie game before. A portal is about presenting a game to a new audience which may have not previously considered it before.

Particularly interesting is Rich’s talk about directed mail-out to gamers. There’s a weekly ebb and flow of sales, which a mail-outcan play to. As the weekend approach, people start to think “I’m going to game” and an e-mail with an exciting sounding option has a great effect. With a bank holiday, it’s even more pronounced. Keen also notes that while there’s much in Digital Download which is similar to trad retail – placement, etc – there’s also other opportunities. For example, pre-ordering in shops normally means putting down a fiver. In games, it’s often paying the whole price, which gives you Beta Access or similar. This can lead to enormous first week sales.

How digital distribution helps retail – as in, they’re not actually environments which entirely replace one another – is another key point. Barrett talks about how Bejewelled was the casual-game king, and such a digital distribution champion that you wouldn’t think they’d be a market. However when focus took it and marketed it at retail at a fiver a shot, they cleared up. He also noted that the online discounting feeds retail sales. When Steam does a 50% sale, retail goes up. Fundamentally, gamers talk to each other. When they find something good, other people will know – and buy at a venue they feel comfortable with.

There’s also the simple fact that people just want the box. In introversion’s case, twenty-five percent of the people who buy want it. It costs a lot to do it, but they’d still want that. There’s also places for direct sales with a hardcore fanbase to make some unusual merchandise money. Introversion have these foam Darwinians they use to throw into crowds. They started selling it from shops. Eventually, since there were three colours, people started asking if they could buy a specific colour. With an evil cackle, Mark said no. The biggest problem with Direct sales for a retailer, however, is actual basic credit-card fraudsters. This isn’t a sign that they’re big gaming fans – it’s that they use sites to check whether a card is still active. And it’s the developers who suffer – they have to refund the money and actually pay a fine. Not having to do this when you go through a portal is another advantage – though Mark argues that for a relatively low amount of sales, it’s worth the hassle. On that first day of sales, when the reviews all hit, getting all the money rather than a proportion of the money is worth all the hassle. In Introversion’s case, their financial director does the retail stuff in his spare time.

One final note which stood out. Obviously, conversation turned to piracy, with talk of how members try to prevent it. Introversion’s tactics – multiplayer codes being used to try and make sure the actual real buyers get a better service than the illicit ones – are well discussed, but there’s a number which stood out. Introversion believe they have a 100:1 pirate versus purchased ratio, which they estimate via their number of patch downloads. Which is a number that’s easy to attack, with some individuals downloading more than one patch. Conversely, it’s a number you could raise for those people who simply don’t download a patch. I suspect you’ll have to do some serous massaging to get it even to the 9:1 ratio which is a regular sight when an indie developer makes an estimate of the amount of piracy they experience.

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76 Comments »

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  1. Paul Moloney says:

    “The reason why territories like Germany – apart from its size – is so huge for PC games is because consoles don’t have as much penetration.”

    I suppose the question is – why don’t consoles have much penetration there? Is it _because_ people prefer PC gaming or is there another reason?

    P.

  2. Rich_P says:

    NPD never claimed that PC gaming was “dying.” They release useful retail sales numbers that clueless bloggers then use as proof that PC gaming is in trouble. The problem is not with the data — it is in fact a good representation of U.S. retail sales — but the misuse of it.

  3. jackflash says:

    Derek, the original Red Baron box!! That made me smile.

  4. cord66 says:

    Hi, I’m from the US, and I’m a little shocked by some of the comments here. Very short sighted, especially the console lovers trying to prove PC’s are dead, or the retail/amazon lovers. :)

    Personally, I’ll take Steam over ever other method. Valve games auto patch, and preload new games and patches. I hope other games auto patch, but since I’ve been mainly playing MMO’s of late, I haven’t paid enough attention to notice yet. I know that I bought FallOut 3 for $25 a month or so ago, just by checking Steam for a couple weeks waiting for a sale weekend. Got L4D for $25 when they did a sale on that last year, got Bioshock for $10 on D2D as well. And I don’t mind D2D, but Steam is much better when you would like to reload a game.

    And, if I have the option, I will always take steam over retail. one simple reason. No disc to loose/damage. For example, I had 2 copies of Diablo2 and at least one of the expansion back in the day. Last year, my wife was playing the Mythos beta before Flagship went under, and I wanted to load up D2 for her. Couldn’t find the darn discs. 2 copies! no discs! ugh. Ended up trying to get a “pirate” version since I’d already paid my money twice. Got a nice virus for my efforts. Had D2 been a Steam purchase, you know how hard it would have been to reload?? Open Steam, click D2, select install, play. THAT’s why I love Steam. Sure there are limitations, but for most purposes, between Steam and D2D I get what I need, any time, no need to trek to Best Buy, Gamestop, WalMart etc., find it not in stock, or has a bad disc (had that happen a few times over the years). I can uninstall when i want and reinstall, anywhere I am, no need to have discs handy if I get an urge to play an old game.

    Go to a lan party, decide to play CS:S which I haven’t played in a long time, let it download, and join in. Simple and easy. And to say digital isn’t taking a lot away from retail, you must live in the 80’s still. At all the stores I can get to, just outside of Washington DC (large metro area, millions of people, tons of stores), I might get 2 shelves of PC games and 20 of console games. So there isn’t any selection on PC. Go online, I can get most anything.

    And as for saving $10 on amazon, and getting it the next day, you ignored the $6.95 shipping fee, so you saved $3 to wait a day rather than have it in 30 minutes (free shipping takes 3-7 days, not overnight). I can understand doing that if you don’t have a 20MB pipe like I do, but unless it’s a 4 hour + download, what was the point in saving $3??

    Steam et al is about convenience and options. Retail is dieing for the PC game, not the market for the games. Tower Records is gone. Waxie Maxies is gone. Just about every record store from the 80’s is gone. Yet music isn’t. IPod’s and digital distro of music is everywhere. That market didn’t vanish, just the brick and mortar sellers did. Gaming is following the same general path.

    If you really want a measure of PC gaming health, just look at sales of 3d cards and cpu’s, and usage numbers for MMO’s. And remember, plenty of MMO players get tired and need a break, and go play something else for a bit then come back when the next WoW expansion comes out. When Crysis came out, plenty of gamers were upgrading just so they could play it well. that’s the history of PC gamers. I’ve been doing that since 1993 when playing Wing Commander I-V and the X-wing games, etc. There’s a reason nVidia and ATI put out new GPU’s every year, they are making money :) … off gamers, not basic pc sales, but us crazy gamer types ;)

    The PC is still alive and well, just adjusting to a changing world.

  5. Paul Moloney says:

    (On a tangent, to me, will consolization have an ironic knock-on affect of less games programmers in the future? As a kid with a Sinclair Spectrum, I picked up Basic by osmosis. As a comparison, my nephew knows how to switch a console on and off.)

    P.

  6. jackflash says:

    @Derek – I am not talking about individual sales numbers, I am talking about gross revenue. And valve does own that number.

    Also, unless you can point to a contract clause covenanting valve not to release individual product numbers, I bet they could do that if they wanted to. You would know, though, you’ve experience with such, to say the least. The real issue here is that valve’s contracts are all private so nobody really knows.

  7. Nalano says:

    Best Buy has better shelf space devoted to PC games than Gamestop, but we all know that.

    I think what they’re saying with the reticence against releasing numbers what with Steam/D2D and other broadband DL services is that there are a lot of squirrely naysayers ready to declare the death of the medium without letting it get off the ground.

    The turn-around time from Wright Brothers to scheduled airliner has become practically nothing in comparison, but that isn’t quick enough for the “just the bottom line” short-term investors (not to mention chicken littles like UK_John here) so they’re withholding the numbers so that every week’s little bump and jolt doesn’t make them bolt and run.

    After all, this is a new medium and we are in a recession.

    I have faith in Valve; nothing they’ve done makes me worry about their motives, their planning ability or their common sense for the PC gaming market. M$, Sony et al, on the other hand…

  8. The_B says:

    Henatzu: It’s a good point, but even the hassle of having to wait three days for the game as opposed to downloading it and having it by the end of the day can be even more appealing than waiting even one day.

    Solip – I have no idea about Amazon, but it can be anywhere between £3 to almost negating the saving again. Most places like Amazon & Play have a three day one for free though.

  9. Magnus says:

    @Derek Smart:

    I’d happily take about 30-40 of those games off your hands, seeing the likes of Crusader, Dungeon Keeper, Delta Force, System Shock, Deus Ex, Mechwarrior etc. etc.

    What a fantastic collection!

  10. Magnus says:

    @DSmart:

    Of course by “take those off your hands” I do mean pay for them!

  11. Kadayi says:

    @Derke

    Kudos for all of the useful infos about retail and PC games. It does very much seem to be a case of deliberate marginalisation in order to concentrate on sure fire profitable ventures.

    Do you think the lack of high street retail presence for non multi-platform titles is going to detrimentally impact upon future PC titles, or do you feel that the PC buying public are sufficiently digitally inclined these days (both through portals and etailers such as Amazon & play) that the market is really just transitioning?

  12. Premium User Badge

    solipsistnation says:

    Oh, another bonus fact about video game retail– publishers must pay “slotting fees” to get games placed on shelves in stores. That’s right, in addition to actually manufacturing the game and advertising and so on, in order to get games in stores, they pay tens or hundreds of thousands of dollars to get games into stores.

    No wonder retail is being eaten by digital distribution… (Although I bet Steam also charges slotting fees too, publishers don’t have to duplicate media, print manuals, ship boxes, and so on.)

  13. Premium User Badge

    solipsistnation says:

    Following up myself– I asked somebody who has more of a handle on the business than I do, and he says no, they don’t charge a slotting fee, since that would just put up more of a barrier to smaller developers adopting the platform. That makes sense.

  14. ComVlad says:

    I must say that while I love having an actual box and cd for the games I buy digital distribution does appear to me to be the “saviour” of the pc (in as much as it needs saving which is debatable) for the reasons j c’s posts mentioned-games. When I finally bit the bullet and after much resistence to steam, d2d etc. and popped over to gamers gate the first time (sots complete edition finally broke my bullheadedness) seeing things like their vast 1c catalogue (A.I.M. and starwolves 1 in particular) when previously I had all but given up ever legally getting some of these games was a huge revelation, to say nothing of GoG selection (ever try to find Hostile Waters before gog came online?). In my opinion selection contributes just as much to DD popularity as convinience and that trend will probably continue to increase since its a lot easier to maintain a back-order list when you don’t actually have to spend money on warehouse space for older titles.

  15. AdrianWerner says:

    @Kadayi

    I think PCgamers are generally self reliant. I mean plenty of games sell well and yet when was the last time we saw a big advertising campaign for any PC game? PCgames also get shunned by mainstream gaming sites. And somehow we manage. Heck… even casual gamers are like this, those games sell like crazy despite close to zero advertising or any info/reviews/previews at major gaming sites.

  16. Kadayi says:

    @Adrian

    For now. But my point is will that self reliance continue to hold up over the next 5 – 10 years against a retail environment that seems determined to erase it? I don’t think one can naturally assume that people who aren’t presently active PC gamers are going to find themselves clued up or clued into a market place that we are presently aware of.

    Everyone reading this thread/site is undoubtedly familiar with Steam & impulse & D2D, but there are plenty of PCgamers out there who either eschew anything but boxed goods, or are blissfully ignorant of these distribution portals (bizarre as that thought may seem).

  17. AdrianWerner says:

    @Kadayi
    Do they get clued by retail today? I doubt that. if housewives could find their way to bigfishgames or popcap, then I think we have nothing to fear in the future.
    Somehow the knowledge will always get through, be it through friends, websites or even banner adds

  18. Smurfy says:

    As we can see, World of Goo’s digital distribution dwarfed its retail sales.

  19. Kadayi says:

    @Adrian

    Advertising and presence is king, don’t think otherwise.

  20. Rich B says:

    Hey Kieron,

    Just wanted to say thanks for reporting back on this. Put the numbers you reported to some work myself.

    http://news.cnet.com/8301-17938_105-10291692-1.html?tag=TOCmoreStories.0

    – Rich

  21. DSX says:

    One distro, in the darkness, to bind them…

    What will save games is when games are made by developers again not marketing company’s.

  22. dsmart says:

    @ Magnus

    I’d happily take about 30-40 of those games off your hands, seeing the likes of Crusader, Dungeon Keeper, Delta Force, System Shock, Deus Ex, Mechwarrior etc. etc.

    What a fantastic collection!

    uhm, hmm, but thats not even going to make a dent. Its just going to leave a gaping hole in my shelf that I’m going to be tempted to fill up – with something.

    Anyway, send email to me at dsmart at 3000ad dot com and we’ll see. My mail is protected by ChoiceMail One. So as soon as you send me email, give it five mins and check your email or spam folder for the challenge/response question. If you don’t respond – to prove that you’re not a bot or something – I’ll never see your email.

    Give me a list of what you want – even if you don’t see it, I probably have it. e.g. I have ALL the Infocom games. Every last one.

    @ kadiya

    Do you think the lack of high street retail presence for non multi-platform titles is going to detrimentally impact upon future PC titles, or do you feel that the PC buying public are sufficiently digitally inclined these days (both through portals and etailers such as Amazon & play) that the market is really just transitioning?

    I don’t think ANYTHING – other than a dearth of good games – is going to affect PC gaming; neither at retail nor online. Heck, even retro games, back catalogs etc are making a comeback. What does that you? It tells me that we’re doing just fine.

  23. AdrianWerner says:

    @Kadayi
    Advertising and presence are kings, just not retail shelves advertising and presence when it comes to PC games.

  24. Kadayi says:

    @Adrian

    Advertising at gaming websites only captures the attention of existing PC gamers, it doesn’t bring non PC gamers into the fold (my concern). PC gaming is a hobby, and like all hobbies people set them aside when the times demand it (kids turn up, more responsibility at the office, yadda, yadda). There is a constant flow of people who come into PC gaming, and those who move onto other things. Quite a few of the people I knew when I was younger and were avid PC gamers, have either crossed over to consoles (because they are less hassle) or just don’t have the time for gaming any more, or just don’t have the inclination to buy back in (state of the art PC). When these people were playing games on the PC, the platform was king in terms of public presence. PC games were widely available and everyone took it for granted that they’d need to configure this and that to get things to run ok. Sure right now, new people get into PC gaming everyday, but as the wider public presence disappears (as magazines disappear off our shelves, and PC shelf space diminishes) the take up will invariably lessen. Certainly I’m not predicting a massive drop off any time soon (unlike some rabid doom mongers I could mention), but 10 – 15 years and a couple of console generations in things might be significantly different in terms of market.

    I think one of the interesting things to consider is, whether the present monopolising of the retail gaming space by the console manufacturers would of have occurred if DD hadn’t happened. What if Sierra had won that court case against Valve and Steam had never seen the light of day? Would we be seeing the PC still being squeezed on the high street, or would the retail market still be healthy, and how would it be faring against the monoliths of the 360 and PS3?

  25. GamerIAm says:

    We definitely believe that Digital Distribution is the savior of PC Gaming. We’ve built GameStreamer 100% around this philosophy and believe things are about to change for the better.

  26. Swuave says:

    GamerIAm i’ve visted that http://www.gamestreamer.com site. Its pretty amazing. Very nice work.