Games * Design * Art * Culture

Tuesday, February 27, 2007
Riccitiello to Replace Probst
So, news today that positive move for EA, and Mike Antonucci says " 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 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.