On Gaming's Future: Digital Distribution's Many Challenges

Sorry for the dead air the last while but getting sick combined with a crazy sudden boom in freelance work ate up most of my time. I seriously only got to start Skyrim yesterday, that should inform you on the severity of my time constraints. But things have calmed down somewhat so, back to blogging!

The first topic I’m going to discuss on the future of video games is digital distribution and the challenges it faces. Of the many revolutionary changes that have happened in recent years, the ability to procure games (and most other media as well) in an all digital manner is probably the biggest one. The rapid advancement of this technology is changing the entire business model of the industry and mostly for the better. It’s good for consumers because it allows us to get games much quicker and without the need to track down a physical product. It’s good for publishers because it eliminates the need for expensive physical discs and packaging and cuts out the greedy brick and mortar retailers. And it’s perhaps best for small indie developers. Digital distribution has revitalised this amazing niche of game development and finally given it a large audience and that’s amazing. Some of the great smaller titles like Braid, Limbo and Super Meat Boy likely never would have happened were this means of distribution not available. The problem is that while many say it’s the way all gaming is going, there are a number of challenges that stand in its way and a few things which can make it a headache for consumers when it’s not handled properly.

Many press people, analysts and even many indie developers say that the video game industry will eventually go all digital. That means that you will never buy games on physical discs, rather every title will only be available digitally. This will eliminate middle men like GameStop and Best Buy who take a cut of new game sales and also heavily push used games, ultimately resulting in more profit for the game makers and fewer game boxes cluttering up your space. As examples of this in action, they point to platforms like PC where digital distribution is already a major force and platforms like iOS and Android where it’s the only way to buy content. Services like OnLive and Gaikai which run the games on servers and just stream you a video feed in real time have also come along and are slowly gaining momentum. Many predict that the next generation of home game consoles will be the last ones to use physical media and that the generation that follows will be digital only. There’s a lot of evidence that indicates this to be a possibility and on the surface, it seems like a win for everyone but let’s look at some of the world’s current realities.

Firstly, even in this connected generation, only around half the people who own game consoles connect them to the Internet. That’s millions upon millions of people who don’t play games online, don’t buy them online and were it not for game discs, would have no way to play anything on them. Given that the PS3 and Wii have wireless built-in and it can be added relatively cheaply to the Xbox 360, it isn’t hard to put them online but fully half don’t bother. There is an argument to be made that connecting entertainment devices to the Internet is becoming more commonplace and that with the mainstream success of smartphones and services like Netflix, more people are making the leap all the time and eventually, this won’t be an issue. While those are good points, I think we overestimate the level of complexity mainstream consumers who just want to play a game occasionally are willing to endure. Even after all these years, it’s still a complicated endeavour to setup a wireless network in your home if you’re not technically inclined. Of the 50% of people who have a console today and don’t put it online, how many of those do we think would be willing to endure the headache of doing so in order to be able to play games at all? What about all the young kids who don’t have credit cards to buy them with? There are solutions to both of these problems but we have to remember that we “hardcore gamers” are not the majority audience here. Connecting your console to wi-fi is trivial for us and we know that if we don’t have a credit card, we can easily go out and buy a points card to get content. Getting a soccer Mom to do that may not be so easy and if this industry is going to continue to grow, we need people like that playing games.

Secondly, we have the continuing problems of broadband penetration and dealing with greedy large telcos which control most of the first world’s connectivity. Broadband is getting more prominent all the time but we’re still a long way away from it being ubiquitous. Large portions of the first world still don’t have high-speed access, either because it’s not available or voluntarily (several people I work with who just don’t have Internet access at home) and many press and analysts forget that a lot of the game industry’s business comes from outside North America and western Europe. These numbers are improving all the time but growth is starting to plateau and world governments are doing little to encourage rolling broadband out to non-urban centres. This effectively cuts those people out of a digitally distributed future. On top of that, we have the growing problem of big telcos imposing incredibly low usage caps on consumer connections at a time when bandwidth requirements are only going up because of digital distribution. These companies are desperate to protect their overpriced media offerings and the obsolete business models attached to them and are trying to lock out digital competitors by imposing limits so low with overage fees so high that consumers largely can’t take advantage of digital options. People are mounting good fights to this and are meeting with some success but there’s still a long way to go. When the prospects for getting a game are paying $60 for a copy on disc or $60 plus potentially $10-$20 more if you run over your cap for the month, people cool off to digital purchases quickly. Compared to other media industries such as movies and music, the video game industry has largely been embracing digital distribution rather than trying to fight it off. They do have significant lobbying ability and if anyone could help mount a defence against greedy telcos, they could. If they want an all digital future though, they have to get on this now or risk having the future they desire stopped before it really even starts.

Next, we have digital game pricing. In my last paragraph, I mentioned how buying a copy of a game digitally usually costs the same amount as buying it on a disc. This is something that absolutely has to change if non-enthusiast consumers are going to embrace this new distribution method. These days publishers are quick to point out that whatever format your game comes on, you’re not really buying the game, you’re buying a “license to use the content”. That’s a problem in and of itself but at least when you have a disc, you always have the game and the publisher can’t come to your house and take it from you. In the case of digital games, we’ve already seen cases of publishers abusing their license agreement and arbitrarily taking away purchases for no good reason. Asking people to assume risks like that with no reduction in price is a tough proposition. For all the current unsustainable trends in mobile gaming (more on that in a future post), one thing they and for that matter, sales promotions on digital platforms like Steam have proven is that lower prices means more sales, often with volume making up for the discount and then some. This speaks to a larger issue regarding game prices in general (more in that in the future as well) but by and large, the digital distribution platforms that have taken off have done so because of lower prices. iTunes made digital albums $10 instead of $20-$25 for CDs, Netflix made movies $9.99 for all you can watch instead of $7 per rental or $30 to buy a DVD, Amazon made buying a book digitally 30-50% cheaper than the physical version. While the games industry has happily adopted digital distribution as a way to cut out the middle men, they’re one of the only industries that hasn’t accompanied that adoption with lower prices, I think predominantly because of skyrocketing development costs (you guessed it, more on that in the future too). Consumers have shown that having potentially limited control over their purchased content is acceptable when they see a reduction in price to mitigate that loss of control but they aren’t willing to accept both limitations and higher prices. Digital distribution also effectively eliminates the used games business which makes many publishers salivate but which can have a significant impact on consumers who rely on trade-in credit to keep getting the latest stuff. If you take that ability away but keep prices high, fewer new sales will be a consequence and that ultimately just replaces one problem with another.

Lastly, there’s the limited control issue which I also alluded to above. Publishers have already met with a hailstorm of criticism in recent years because of draconian Digital Rights Management implementations that treat your paying customers like criminals (and rightfully so). The all digital era has the potential to take that to a whole new level and if it’s not handled properly, it can drive many people away from gaming. There are many people like myself who are rightly concerned about what’s going to happen to all our digital Xbox Live and PlayStation Network purchases when the next round of consoles come around. You can bet that if Microsoft and Sony don’t have answers to those questions when those new systems are announced, they are going to have a lot of angry customers on their hands. With digital distribution comes the inherent problem of control, how much freedom you have to access your content in the future, what happens if the platform holder shuts down etc. For some people this isn’t a concern as they may not care about playing most stuff years down the line but this is an important issue for many “hardcore gamers” such as myself. For me personally, it’s not even about whether I’ll be able to play every game going forward, it’s more that I paid to “own” something and having it available should I want it in the future should be part of that. All of these concerns are things that platform holders can address pre-emptively, most have simply not done so due to a lack of consumer demand. That demand has not existed in mass quantities up to now but I can see this changing soon and it will inevitably become a large part of the discussion when the idea of all digital consoles get thrown out.

Despite everything I’ve said above, I actually welcome an all digital future for games and most other media. From a straight up convenience point of view, there’s simply no question as to what’s better. All of the problems I discussed can be dealt with in a way that benefits consumers while ensuring that the creators of games get the money they deserve. The gaming public simply needs to speak up on what they want and the publishers need to show that they’re willing to work with us. I think this future is coming in some form regardless but I also think that it’s maybe not quite as close as many predict.

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