Digital Distribution or Network not Found?

Everywhere you turn, digital distribution of content is changing our lives; from replacing the daily paper to buying the latest music single, the process is creating new business models and destroying the old. Although music and to a lesser extent movies have experienced growing pains as they adjust to digital distribution, video games have for the most part been untouched by this trend. Why have video games not gone digital and what are the prospects in the future for digital distribution (of console game content).


There are 2 basic tenants that seem to drive digital distribution: content can be easily subdivided and or content can be consumed in a short period of time:


1. Subdivided Content: Ex- buying single tracks off a music CD
2. Short Time Frame: Ex- renting a movie (viewing time 3-4 hours)

Video games do not really fall into either of these categories: for the most part a game is a single entity that is difficult to divide into smaller packets and they take on average 15-20 hours to complete. Even for games that appear to be easily dividable (like Rock Band’s Track Packs or the latest version of SingStar), digital distribution is not taking off on the consoles; why do video game players continue to shell out $30 for extra songs (many of them they may not want) when they could spend far less to get just the ones they desire? Part of the answer to the digital divide for video games is pricing (publishers still charge too much for individual tracks) and connectivity (many players fail to connect their consoles or lack a high speed connection).

In addition to pricing and connectivity, many consumers prefer traditional cases and discs due to the value they can get out of them selling them back when they are done. Why would someone pay $50 for a digital copy (which can not be sold back to the store) when they can pay $50 for a physical disk and trade it in for $20 in store credit (when they are done with the game), making their actual game cost closer to $30 (a 40% discount). Unless publishers significantly discount digital versions of games, there is no incentive for users to buy them; this also explains why computer games are much more apt to be downloaded since there is no secondary market for used games (and therefore no trade in discount).


It appears the planets are not aligned for digital distribution in the sort run, but longer term where will it play out for video games. One area that digital distribution should flourish with is older content; older games offer a potential significant revenue stream for publishers but are a burden for retailers (and their over crowded store shelves). I like what Nintendo has done with their virtual console and using digital distribution to release older or niche (small market) games; Microsoft has also done a nice job here with X-box Live fostering smaller independent titles that would never be released through standard channels (i.e Braid). Pricing is key for digitally distributed content though, if publishers set the price too high the market could disappear of stagnate; Valve is doing a nice job keeping games available at inexpensive prices through Steam. Another area that should benefit from digital distribution is micro transactions: buying new costumes, new levels, or additional characters for a standard release. Micro transactions should also benefit publishers by forcing players to keep their original discs (not trading them in), thereby taking a little bite out of the used game market. Again, pricing here is critical as well; charging $20 for new maps or $10 for a costume upgrade that should have been put on the original disc is not going to cut it.

Unlike movies and music, video games are not easily dissectible or rentable, making them less likely to be downloaded; combining this with the vibrant used market for used video games will force publishers to heavily discount digitally distributed content and thereby most likely slow its adoption. Although full game digital distribution for new video games is unlikely in the near term, publishers can use this method for older or niche games and small in game additions: such as costume upgrades or new levels. In the end I see digital distribution making up a small portion of publishers revenue (10%) but done right could open up additional revenue streams and foster customer loyalty.

Are Video Games Collectible?

It is human nature to collect, if something exists, someone WILL want to amass large quantities of it. There are the standard collectibles that have an established community (with websites, price guides, auctions …), like baseball cards, wine, art, and antiques (to name a few) and then there are the not so standard like belly button lint and socks. As video games continue to grow, so does the sub segment of users who both play and collect; I guess this puts them somewhere around stuffed animal heads on the collecting spectrum. The video game industry has even bought into the trend and started releasing “Limited Edition” (LE) versions of some of their premium games; any Halo fan who bought the legendary edition and lives in a small apartment is probably cursing Microsoft as we speak. Does the collectible trend in the industry bode well for publishers and developers or are we heading down a dark path that could set the industry back years (remember the comic book implosion in the early to mid 90’s when the collecting craze took off).

The proliferation limited collector’s edition version of games is a significant trend in the gaming industry, more games are being released with high end versions and the publishers are adding more goodies to the mix. Ten years ago you might have gotten a bonus CD (with music from the game) if you ordered early or maybe even an extra game disc that had a playable version on an older game (i.e. Legend of Zelda: Ocarina of Time shipped with LOZ: Wind Waker), but now you get t-shirts, action figures, posters, and life size replica helmets (thanks Mr. Softy). This is a win-win for everyone: publishers get the added revenue from the collector’s versions (which usually sell for $10-20 more than the standard release) and players get the much valued swag they crave; or is it? Collector’s editions take up a lot of space on retailer’s already crowded shelves, often time 1 LE version of a game might take up as much space a 5-10 normal games (or close to 50 as with Halo 3’s legendary version). Also the added money that the LE costs, comes out of the finite budget most gamers have; if you buy 2 LE games a year (extra $40), that means you can buy 1 less regular game. Ultimately the LE craze squeezes (from a space and $ standpoint) out other less established product; why would a retailer stock Kororinpa: Marble Mania when they can stock the less risky (but infinitely more bulky) Grand Theft Auto IV Special Edition (for both the 360 and PS3 versions).


The other end of the collecting spectrum is propagated with people who crave rare out of print (OOP) games, usually in their pristine factory sealed condition. If you have played video games long enough, you will eventually hear some second hand story of the person who spend $250 on Ebay for a complete copy of Panzer Dragoon Saga (Saturn) or the guy who plunked down $90 for a used copy of Marvel vs. Capcom 2 (PS2) @ Gamestop (disc only!!); although both games are fantastic (I have spent many house with each), paying 2-5 times retail seems ridiculous (even wasteful). The fact that these games command such large sums of money in the secondary markets, suggests that there is plenty of demand to warrant a re-release or even an updated version on a newer system like Valkyrie Profile on the PSP or Final Fantasy IV for the DS; publishers are throwing money away by letting their old code (games) sit on the shelf and gather dust. The video game industry should take a page from their older and larger brother: cinema; Disney is always re-releasing their animated films, pulling them, and then re-releasing an updated version (with more content), or the multitude of versions of Lord of the Rings that New Line Cinema released (I can think of at least 3!).



In the end I do not like the collectible craze and feel it has the potential (if not already) to substantially damage the video game industry. The LE version of games takes up space on crowded retail shelves and takes significant dollars out of player’s strapped budgets (that could be spent on other games). People will collect video games; there is no way to stop it (like I said before, it is human nature), but the industry should not pander to it. The paraphernalia that comes in LE edition version of games should be given away through the mail to loyal customers (similar to what Nintendo does with their new “Club Nintendo”). OOP games should be kept in print through either digital distribution or several older games packaged together on 1 disk/cartridge (i.e. Square’s Final Fantasy I & II or Namco’s various arcade collections). Collecting is not inherently bad, but the video game industry’s reaction to it is.