Introduction

The human species has always been an avid consumer of media. It’s a form of communication that transmits or stores information, reached by a wide audience. It is often associated with the original scalable form of media – publishing, made possible by Gutenberg’s printing machine1. However, other means of communications have risen in an impactful way. Analog telecommunications brought instant ways of media distribution to the masses, through radio and television broadcast.

In particular, a new form of media continued to revolutionize the way information is distributed – digital media. Large, distribution networks that are extremely efficient allow for an inexpensive broadcast of information – much due to the personal computer and internet revolution. It has taken over traditional media, transforming it by distribution but not always by form. In this particular work, an effort will be made in order to understand what impacts digital media has created in terms of distribution and what current trends are rising for the future.

Videogames and Digital Media

Humans are also known to be playful individuals, as are many species within the realm of nature2. It is a natural form of socializing, transmitting values and acquiring skills3. Video games entered the house of the Americans during the 70s, gaining a much more significant traction during the 80s after an industry collapse. This was impulsed by the growing penetration of Personal Computers (PCs), but also through the effort of dedicated gaming systems developers such as Atari. As the industry grew through this segment and the alternative arcade video games, this new type of media found its way to the consumers4.

Traditional Distribution of Videogames

The traditional form of distributions of video games was through retailers. Mass retailers would stock the software in different kind of forms, starting from floppy drives & cartridges to CD-ROMs and DVD disks. The software is hardware dependent, meaning a dedicated system or compatible personal computer is required to serve as an install base for developers to release their creations.

Developers faced great risks as not only they would incur into the development, marketing and licensing costs, along the additional risk of needing to “go gold” in time order to release to manufacture – which was, by itself, another upfront cost to support5.

The Rise of Digital Distribution

Transitioning from a normal brick and mortar retail approach, the videogame industry continues to adapt in a continually more connected world. Physical retailers are still an integral part of the value chain within the industry, however they are decreasing in significance at a fast rate.

While the concept may have appeared during the 1980s through the ingenious broadcast of data through radio frequencies6 and even the launch of the ahead-of-its-time GameLine service7, it was not until the true massification of the internet where the method found its place among the consumers.

The Present of Digital Distribution

The current scenario of digital distribution platforms includes historic major players from the video game industry:

  • Console Platforms: Nintendo8 and Sony9 offer digital storefronts integrated within their own game systems, while Microsoft offers a cross-device platform that caters to its Xbox, Windows-based systems and even mobile devices10.

  • Publisher Platforms: Some video game developers offer their own distribution platforms with emphasis on in-house developed software. Electronic Arts with Origin11, Ubisoft’s Uplay12, Blizzard’s Battle.net13, and Rockstar’s Social Club14 have obtained significant user-bases.

  • Steam: Valve Software’s Steam15 remains the largest online storefront for both videogame publishers and independent developers, with a record of over 12 million concurrent active users16.

  • Alternative Platforms: Other independent platforms have sprung up, some with unique value propositions such as the DRM-free philosophy of CD Projekt Red’s GOG17 and the independent game development focused Itch.io18.

  • Mobile Gaming: As the penetration of increasingly capable and more open smartphone devices grew19, the mobile segment gained stronger traction. This software is mostly distributed through the operating system’s media distribution platform, dominated by Google’s Play Store and Apple’s App Store20.

  • Cloud Gaming: During the 2010s, with fiber-capable connections and more affordable cloud computing infrastructures, cloud gaming was introduced. Notable services include Sony’s PlayStation Now21 and NVIDIA’s GRID22.

The Impact on Game Development

The rise of the digital distribution channel had a deep impact on how games are developed. Gabe Newell, founder of Valve Software, has stated that the risk of developing video game software is reduced since there are no conventional retail restrictions23. This can be directly relatable with the long tail strategy that online retailers have long applied, catering to a much wider consumer base24.

The Indie Revolution

This has created a sub-culture of independent (indie) developers. These bootstrapping teams of artists, programmers and composers have found a place among an industry often hard on young companies dependent of big publishers.

Steam had an important impact when creating Steam Greenlight – a process to incorporate small videogames on its catalogue through user-review process25. Access to demand is often a challenge and with direct access to such a user base can make a big difference to a project.

Crowdfunding and Early Access

Another key trend impacting the industry is pre-release revenue. Crowdfunding has gained traction among start-ups, with platforms such as Kickstarter and Indiegogo financing millions of dollars to early concepts of videogames. Among the top 15 most funded campaigns in Kickstarter, 4 are videogames26.

These structures also often include the consumer in the development process, creating constant feedback loops and small adaptations to better adjust the final product to its target audience. Steam’s Early Access feature allows sale of alpha and beta video game releases27.

New Business Models in the Digital Age

The digital distribution model also created the opportunity of new and different business models:

Downloadable Content (DLC)

Digital distribution allows for continuous development even after product release. Downloadable content offers players the chance to further customize their experience or acquire new levels of gameplay while keeping a steady stream of revenue for the developers28. Some games are even released and sold in parts or episodes29.

Freemium Model

The freemium concept consists of offering a free, limited product with an included storefront for additional content. Such content can range from additional levels, customizations or even the unlock of a faster progression mode. It is quickly becoming a standard in online gaming.

A worthy example is Hearthstone: Heroes of Warcraft by Blizzard. The card game is fully open from the start and every feature can be unlocked through in-game currency. However, it is designed to require a large amount of effort to do so – which can be bypassed through in-app purchases. This strategy resulted in revenue over $20M per month30.

Virtual Economies

More complex solutions include hybrid game economies with in-game currency having real-world value. Steam added trading functionalities in 2011, allowing direct trades between users through the Community Market31. The goods are generated through purchases or gameplay, ranging from trading cards to player customizations. Valve takes a cut of every transaction, which it shares with the IP owner.

Gray Markets

The rise of digital distribution platforms also created the perfect environment for a secondary market of video game titles. Many individuals turn large profits by buying and selling from different storefronts and regions, taking advantage of regional pricings and foreign exchange arbitrages.

Many of these trades occur on publicly available marketplaces like G2A32 or Kinguin33, but they also occur on discussion forums. While there are arguably some benefits from having an exchange market of digital goods, developers and publishers see it as bleeding revenue. In some cases, hackers exploit credit card frauds to obtain keys and rapidly liquidate34.

References

Footnotes

  1. Briggs, Asa and Burke, Peter (2002) A Social History of the Media: from Gutenberg to the Internet, Polity, Cambridge ↩

  2. Garvey, C. (1990). Play. Cambridge, MA: Harvard University Press ↩

  3. Homo Ludens, Johan Huizinga, Routledge 1949 ↩

  4. Atari: Game Over (2014) Documentary ↩

  5. IGN: The Economics of Game Publishing (2006) ↩

  6. Kotaku: People Used to Download Games from Radio (2014) ↩

  7. GameLine Service, Atari Magazines (1983) ↩

  8. Nintendo eShop ↩

  9. PlayStation Store ↩

  10. Microsoft unified gaming platform ↩

  11. Electronic Arts Origin ↩

  12. Ubisoft Uplay ↩

  13. Blizzard Battle.net ↩

  14. Rockstar Social Club ↩

  15. Steam Store ↩

  16. Gamasutra: Steam hits 12 million concurrent users ↩

  17. GOG.com ↩

  18. Itch.io ↩

  19. Global smartphone market share statistics ↩

  20. App store statistics ↩

  21. Sony PlayStation Now ↩

  22. NVIDIA GRID ↩

  23. Rock Paper Shotgun: Gabe Newell Interview (2007) ↩

  24. Wired: The Long Tail (2004) ↩

  25. Steam Greenlight launch (2012) ↩

  26. Kickstarter most-funded projects ↩

  27. Steam Early Access ↩

  28. Kotaku: How DLC Actually Helps Games ↩

  29. Gamasutra: Episodic Gaming ↩

  30. SuperData Research: Digital Card Games ↩

  31. Steam Community Market ↩

  32. G2A.com ↩

  33. Kinguin.net ↩

  34. IndieGameStand: Steam Key Reselling ↩