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Tuesday, February 13, 2007
Digital Distribution: The Dark Side
Part of the idea behind Manifesto Games is, of course, that with the spread of broadband, it's increasingly feasible to distribute games online--even multi-hundred megabyte games, like those that predominate in the industry today. We view that as exciting, becuase the constrictions of the conventional retail market have pushed the industry toward a "best-sellers only" mentality and higher and higher budgets--with the unfortunate result of a virtual end to the creativity and innovation that has been gaming's bellwether since its inception. We view moving online as an end-run around the business constraints that have stifled innovation--and an opportunity to recreate the wild openness and "anything goes" mentality of the game industry's early days. That's the positive vision--but let's look at a potential nightmare scenario for the future of digital distribution--a scenario that is very possible, and has some important supporting forces behind it. The first moves to digital distribution for console games has begun, with Xbox Live Arena and Nintendo Virtual Console. At present, these channels are limited to smaller, less commercial product, with "real" games for Xbox 360 and Wii distributed in the conventional channel--in packages at retail. But it's easy to imagine that, five years from now, the console manufacturers could move to selling most games primarily online. There's a lot of incentive for them to do so, after all; why cut the retailers in for a piece of the pie when you can keep their share yourself? And why undergo the expense of manufacturing goods and warehousing and shipping, when broadband delivery is so cheap? There are problems to be overcome, to be sure--even at cable modem speeds, a 1 gig game still takes a long time to download, but you can imagine Steam-like functionality on the console side, with Firefly-like taste-matching software to make predictions about what games individual consumers are going to want to buy next, with the code for those games downloaded in background, so that most of the time when a consumer goes to purchase, the game is already on the drive. What's wrong with that? Well, at present, we have a complex ecosystem of companies in the game industry: retailers, publishers, console manufacturers, developers. All have some clout. The publishers may depend on the manufacturers' approval to get their games to market, but the manufacturers also know they need support from the publishers to ensure that there are enough good games for their platform to make it a success. In other words, the publishers, manufacturers, and retailers jockey with each other for a degree of control, and that kind of contention is what makes for a reasonably free and open market (if not as free and open as I would like). What we're talking about, in essence, is vastly increasing the negotiating leverage of the console manufacturers--in the first instance at the expense of the retailers (by eliminating them), and in the second instance at the expense of publishers. If publishers depend on manufacturers not only for dev kits and product approval, but also for access to the only path to market for a particular console--their negotiating leverage is vastly diminished. Even today, the manufacturers are the real winners in the game industry. Yes, independent publishers like EA do very nicely, but remember that Playstation is basically what keeps the whole of Sony afloat, Sega cratered with the failure of Dreamcast, DS and GameCube and Wii make Nintendo vastly larger than it would be if it were just a publisher, and even if Microsoft has yet to see big returns on Xbox, if they can supplant Sony as the largest manufacturer, they will, in spades. The manufacturers are the big winners not because they make a lot of money off consoles themselves--typically, they lose money on each unit sold, at least toward the beginning of a new console cycle. (Moore's Law does its work over time, so that by the end, they are making money on hardware.) They make their money off the platform royalty--typically $7 for every game manufactured by anyone anywhere for their devices. That royalty has come down over time, because of competition; back in the day, Nintendo hid the "royalty," instead insisting on being the sole manufacturer of carts for NES and SNES and charging much more than the actual manufacturing cost, but they were earning more like $12 on every game made. If the manufacturers control distribution to their devices, they don't have to be satisfied with $7. They can take basically whatever cut they like. Oh, they still have to ensure that publishers can make money, sometimes--but they can ensure that they themselves earn the lion's share of whatever profits a title generates. In other words, it's possible that digital distribution, rather than freeing us from the problems of retail, will instead concentrate power even more heavily in the industry--concentrating it into the hands of the manufacturers. While this would be good for them, its a prospect that both developers and publishers should be scared about--and an outcome that could only serve to continue the field's descent into mediocrity and imitation. Internet geeks are likely to respond: "Closed systems never win." And that's been true on the net, at least; the commercial online services are dead, and 'mashups' and Ajax and the rest, the whole construct of Web 2.0, is based on the idea of open APIs and allowing anyone to integrate at no cost. But that experience doesn't necessarily say anything about how the game market will evolve. In the game industry, the closest thing we have to an "open system" is (paradoxically) Windows; you don't need Microsoft's approval, or to pay them a dime, to code a game for PCs. Yet over the last seven years, sales of PC games have declined by half, even as the overall game market has continued to soar. In the game industry, at least, recent experience has been the closed systems do win. And if you're paranoid, you may even wonder how "open" Windows will continue to be. Microsoft has vaunted Vista's game utility, and it's true that big games with ESRB ratings work pretty well under Vista (though apparently some high-end games that push 3D hardware to their limits falter). But it's also true that Vista is turning out to be a nightmare for casual and indie developers. In other words, perhaps it's fair to ask whether Microsoft is pushing to turn Windows into a more console-like environment (in the name of making things easier for consumers, of course), whether "Games for Windows" eventually becomes something very much akin to the authorization process for console games--with similar costs attached for publishers--and with independent games crushed by corporate interests. Of course, maybe Linux comes to our rescue, and becomes the predominant desktop OS. But there's a chicken-and-egg problem there. The things that people do most with computers--office applications, email, web browsing, IM--you can now do equally well on a Linux box, it's true. The one thing that keeps many geeks from moving to Linux is the lack of good games on the platform, and perhaps if Linux games started appearing in bigger numbers, that would be a tipping point for desktop Linux. But given the small installed base of desktop Linux users, there's little incentive at present for people to do games for Linux. Catch-22. Now, I don't actually believe this; the Windows scenario here strikes me as unlikely. The problems with Vista more likely derive from confusion at Microsoft than from some evil, nefarious plan. And so far, at least, Microsoft and Nintendo are offering pretty attractive revenue splits for downloaded games. But the thought of console distribution becoming a "walled garden" controlled by the manufacturer has to be a scary one for everyone in the industry. It will be interesting to see how things play out. 37 Comments:The decline of the PC game has an interesting side-effect in that it makes Linux more viable as a desktop alternative. If you play all your games on a console, the lack of Linux games becomes a non-issue. Perhaps this is why Microsoft is working to reinvigorate the PC gaming market?
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Mike makes a very interesting point. This could be the reason for the GFW push lately come from Redmond. On the other hand, casual games seem to be the main thing for people who primarily use computers for "productivity" purposes, rather than the big games we're all used to playing and creating. And other than the simplest games (like those that come with Windows pre-Vista) there doesn't seem to be much support for Linux at this time.
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Now that I think about it, I'd wager that Microsoft's GFW initiative is more of a defense against migration to OS X than to Linux. For whatever reason, Microsoft has always been paranoid about competition from Apple, even when there isn't any. (Witness Zune.) Linux, on the other hand, has never been deigned worthy enough to even mention in passing.
By I think browser embedding is the future of PC/Mac/Linux games, and that the future of PC publishing lies in alternative business models. If the trends you discuss continue, then console downloaded contnet will become the premium venue for the conversion model, while advertising and microtransactions will become more promulgate on the web/PC. The heterogenaity and market growth seen in the more experimental content on the web will provide a check against the console conversion segment. The publishing industry will have to re-formulate however, there's no getting around it. Have your cake and eat it to: it would be quite possible to combine any linux game with a linux liveCD so that you can run windoze most of the time and then boot off a CD to play the game whenver you want. DOS games used to do something similar... anyone remember having to boot special 'game profile' config.sys setups to run some games?
By Yes, I do remember those. I hated them.
By I don't think that a Microsoft-controlled near-monopoly has to be entirely a bad thing. Being a Windows developer isn't so bad, and being an Xbox developer doesn't have to be either.
By There's also the problem that there will only be one portal. Right now you can push/sell your game in a zillion ways. Console or PC. But if all console games are through XBL or similar then the market becomes like the mobile phone market with generally only the games that pay to be at the top of the game menu in XBL being noticed and everything else gets ignored. Wouldn't online distribution also remove some of the problems (in the eyes of game publishers) of selling used games? That might be one way to sell online distribution to reluctant publishers.
By Correct me if I'm wrong, but the console manufacturers already control the only path to market for a particular console, since they control games manufacturing (i.e. you can't start manufacturing bootleg console games just because you feel like it). They already get to say who passes and who doesn't, and basically nothing stops them from charging as high a royalty as they want. Digital distribution doesn't break new ground on this.
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Greg that's a great post.
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The current primary barrier to entry for independent developers (who are the ones who will create inovative content) is a combination of the publisher funded development model and retail distribution. While the horrors of our current funding models are for another discusion the other subject is more on point. Retail distribution takes a publisher to work with a distributor to work with retail chains. This is all something that an independent just can't pull out of thin air. Each of those links takes a piece of the pie and rightfully so although we can disagree on the amount they take. That's because all of that costs money, money for retail space, money for trucks, money for packaging, money for the disks themselves, ect. Online distribution removes all of those things and all of those players from the equation and simplifies it down to just the developer and the retailer/console manufacturer. Or in the case of PCs the developer and the consumer which is the ideal situation.
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Hey Greg! Is there any reason you keep calling "Xbox Live Arcade" "XBox Arena"?
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