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Digital Distribution of Video Games

August 30, 2020

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 machine[1] . 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.1 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. Is this particular work, an effort will be made in order to understand what impacts has digital media created in terms of distribution and what current trends are rising for the future

Digital Distribution

VIDEOGAMES AND DIGITAL MEDIA

Humans are also known to be playful individuals, as are many species within the realm of nature[2] . It is a natural form of socializing, transmitting values and acquiring skills. [3] 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 impulse 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 consumers. [4]

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 support.[5]

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 decreasing in significance at a fast rate. While the concept may have appeared during the 1980s through the ingenious broadcast of data through radio frequencies[6] and even the launch of the ahead-of-its-time GameLine service [7] , it was not until the true massification of the internet where the method found its place among the consumers.

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 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 service [7] , 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. Both Nintendo[8] and Sony[9] offer digital storefronts integrated within their own game systems, as Microsoft offers a cross-device platform that caters to its Xbox One, Windows-based systems and even windows mobile devices[10] . Also notably, some video game developers offer their own distribution platform with emphasis on in-house developed software. Electronic Arts with Origin[11] and Ubisoft’s Uplay[12] have obtained some significant user-base, along with Blizzard’s older Battle.net[13] and Rockstar’s Social Club[14] . Blizzard, in particular, only allow access to their software through their platform. The major player in the scope is also a video game developer, starting the project back in 2002[15] and releasing it in 2004[16] . Valve Software’s Steam[17] remains the largest online storefront for both videogame publishers and independent developers, with a record of over 12 million concurrent active users.[18] Other independent platforms have sprung, some with a unique value proposition such as the DRM-free philosophy of Projekt Red’s GOG[19] and independent game development focused Itch.io[20] . As the penetration increasingly capable and more open smartphone devices[21], the mobile segment gained a stronger traction – a vast majority of today’s sold mobile devices are capable of executing some kind of video game software. This software is mostly distributed though the operating system’s media distribution platform, which are dominated by Google’s Play Store and Apple’s App Store[22] . During the 2010s, with fiber capable connections and more affordable cloud computing infrastructures, a different kind of service was introduced – cloud gaming. The concept consists of receiving a video feed of computer generated graphics outside of the consumptions device, with such a low latency of inputs that allows for a consistent gaming experience. Among the first notable movers, Gaikai and OnLive were both acquired by Sony[23] [24] which later on launched the PlayStation Now[25] service. NVIDIA also made a move on the market, with the launch of the GRID [26] service.

OTHER DIGITAL DISTRIBUTION STRATEGIES

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 restrictions.[27] This can be directly relatable with the long tail strategy that online retailers have long applied, catering to a much wider consumer base[28].

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 process [29]. Access to demand is often a challenge and with direct access to such a user base can make a big difference to a project. Another key trend that’s impacting the industry is the 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 of both independents and publisher sources. Among the top 15 most funded campaigns in Kickstarter, 4 are videogames[30] . 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. With this in mind, Steam created the Early Access feature which allows sale of alpha and beta video game releases[31] .

NEW BUSINESS MODELS IN THE DIGITAL AGE

The digital distribution model also created the opportunity of new and different business models. First and foremost, it allows for a continuous development even after product release. Currently, even physical copies often are serviced with bug fixes and additional content. The latter part even allowed for a new stream of revenue for developers and publishers – downloadable content (DLC). Often divisive among the industry, it offers players the chance to further customize their experience or even acquire new levels of gameplay while keeping a steady stream of revenue for the developers[32]. Some games aren’t even made available with the full planned content, being released and sold in parts or episodes[33] . Another important business revenue model developed through this distribution method is the freemium model34. The 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, with old industry giants successfully experimenting with the concepts. One worthy example is the card-based videogame Hearthstone: Heroes of Warcraft. Inspired in Blizzards’ own successful IP, the card game is fully open from the start and every feature can be unlocked through an in-game currency35 . However, it is designed to require a large amount of effort to do so – which can be bypassed through in-app purchases. Similar tactics are also common in mobile videogames, which deliberately limit the user’s action for a period of time in order to generate frustration and increase in-app purchases in a 2$ billion industry[36].

In Hearthstone’s case, this strategy resulted a revenue over $20M per month, with a growth outlook[37] as it establishes itself as an eSports[38] . More complex solutions include a kind of hybrid game economy, with in-game currency having a real value with real-world currency. A notable phenomenon still persists with Second Life’s currency, often compared to a practical FOREX market sprung from a digital market.[39] This phenomenon most likely lead to some developers and platforms to create their own digital markets inside their platforms or games. Steam added a trading functionalities in 2011, allowing direct trades between users and an exchange called Community Market. The Community Market[40] allows the exchange of digital goods containing the developers or publishers IP. The goods are generated through purchases or through gameplay, which can range from trading cards, player or user customizations, and even emoticons. As all supply and demand markets work, some items end up obtaining very high values for purely novelty reasons [41] [42] . Valve takes a cut out of every transaction, which later shares with the IP owner – noting that there are digital goods, which have an insignificant marginal production cost. These very liquid markets often serve as some kind escrow for gray markets game trading.[43]

GRAY MARKETS

The rise of the digital distribution platforms also created the perfect environment for a secondary market of full-fledged video game titles. Many individuals turn large profits by simply buying and selling from different storefronts and regions, taking advantage of regional pricings and foreign exchange arbitrages. Many of these trades occur on publically available marketplaces, like G2A[44] or Kinguin[45], but they also occur on discussion forums like SteamGifts[46] and Reddit[47] . Some traders rely on a historic reputation system that accredits and rewards trustworthy sellers and buyers, others often rely on Steam’s own in game trading features to serve as a secure channel for the trade – which is made possible due to the Community Market and high liquidity items that it offers. While there are arguably some benefits from having an exchange market of digital goods, developers and publishers see it as a bleeding revenue. In some cases, hackers exploit credit card frauds in order to obtain keys and rapidly liquidate[48] . In other situations, companies suffer from their regional pricing policy efforts that aim to penetrate less wealthy countries. This has ensured the long-time tradition of region-locking software continues through the internet age, which is often referred as the country without borders.

References

1 Briggs, Asa and Burke, Peter (2002) A Social History of the Media: from Gutenberg to the Internet, Polity, Cambridge, pp.15-23, 61-73. 2 Garvey, C. (1990). Play. Cambridge, MA: Harvard University Press. 3 http://art.yale.edu/file_columns/0000/1474/homo_ludens_johan_huizinga_routledge\_1949\_.pdf 4 http://www.imdb.com/title/tt3214002/ 5 http://www.ign.com/articles/2006/05/06/the-economics-of-game-publishing 6 http://www.kotaku.co.uk/2014/10/13/people-used-download-games-radio 7 http://www.atarimagazines.com/v2n4/dialagame.html 8 https://www.nintendo.com/eshop 9 https://store.playstation.com/#!/en-pt/ 10 http://www.theverge.com/2016/3/30/11332012/windows-10-xbox-app-stores-combining-microsoft 11 https://www.origin.com 12 https://uplay.ubi.com 13 http://battle.net 14 https://socialclub.rockstargames.com/ 15 http://www.gamespot.com/articles/gdc-2002-valve-unveils-steam/1100-2857298/ 16 http://www.wired.com/2013/11/valve-steam-machines/ 17 http://store.steampowered.com 18 http://gamasutra.com/view/news/262980/New_record_set_as_Steam_hits_12_million_concurrent_users.php 19 https://www.gog.com/support/website_help/what_is_gog_com 20 https://itch.io/ 21 http://www.statista.com/statistics/266136/global-market-share-held-by-smartphone-operating-systems/ 22 http://www.statista.com/statistics/276623/number-of-apps-available-in-leading-app-stores/ 23 http://www.engadget.com/2012/07/02/sony-buys-gaikai/ 24 http://www.engadget.com/2015/04/02/sony-buys-onlive/ 25 http://www.polygon.com/2015/1/5/7493499/playstation-now-all-you-can-play-subscriptions-hit-next-week-for-19 26 http://www.polygon.com/2014/11/13/7211241/nvidia-grid-cloud-streaming-pc-games-android-playstation-now 27 http://www.rockpapershotgun.com/2007/11/21/rps-exclusive-gabe-newell-interview/ 28 http://www.wired.com/2004/10/tail/ 29 http://www.polygon.com/gaming/2012/8/30/3280516/steam-greenlight-launched-today-nearly-300-titles-ready-for-judgement 30 https://www.kickstarter.com/discover/most-funded , as accessed on 2016/05/16 31 http://www.theverge.com/2013/3/20/4128644/steam-early-access-buy-and-play-games-still-in-development 32 http://kotaku.com/how-dlc-actually-helps-games-1686831595 33 http://www.gamasutra.com/view/feature/3462/episodic_gaming_in_the_age\_of\_.php 34 Osterwalder, A., & Pigneur, Y. (2013). Business model generation: a handbook for visionaries, game changers, and challengers. John Wiley & Sons. 35 http://www.geek.com/games/hearthstone-how-to-make-gold-get-cards-and-succeed-for-free-1582785/ 36 http://www.androidauthority.com/freemium-games-make-70-percent-revenue-first-48-hours-681770/ 37 https://www.superdataresearch.com/market-data/digital-card-games/ 38 http://www.esportsearnings.com/games/328-hearthstone-heroes-of-warcraft 39 https://www.technologyreview.com/s/404979/virtual-economics/ 40 http://steamcommunity.com/market/ 41 http://kotaku.com/folks-are-paying-an-absurd-amount-for-a-weed-emoticon-o-1005770122 42 http://csgo.steamanalyst.com/id/109457806/ 43 http://www.polygon.com/features/2014/5/22/5590070/steam-valve-item-trading 44 http://www.g2a.com 45 http://www.kinguin.net/ 46 http://www.steamgifts.com/trades 47 http://www.reddit.com/r/steamgameswap 48 http://blog.indiegamestand.com/featured-articles/steam-key-reselling-killing-little-guys/

Artur Raimundo Dias

Artur Raimundo Dias

Porto, Portugal

 

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