The Case For and Against Digital Distribution0
Matt posted in Games on July 26th, 2007

Digital distribution seems to have a lot of buzz in the industry today. Many people including myself have purchased quite a few awesome games on Live Arcade. I am among the 13 million people with Steam accounts. Certainly, digital distribution has a lot of momentum behind it, but is REALLY the future of the industry? People seem to assume that it’s a good thing, but what are the REAL advantages and problems with it?

Normally, people paint it as the salvation of the industry, and that is most likely because it’s much better for the publishers and developers. Firstly, the physical goods cost money. It’s not much, but maybe at $5 a unit, it adds up pretty quickly, especially if you have a budget release. Secondly, digital distribution cuts out the brick and mortar shops from the retail chain. The brick and mortar shops add cost in several ways. Firstly, they get a cut of the profits. According to this article, the wholesaler price for a $60 game is $47. So, if you buy a game at a shop, the retail channel buys the game from the publisher for generally around 20% less. The shipping from the manufacturer to the retailer’s warehouse to the retail shop has to be paid on top of the these costs. So, in terms of cutting costs, digital distribution is a big advantage.

That’s not to say digital distribution is free. Either running data centers or licensing space from someone else costs money. It’s going to work out to be less than the approximately $20 lost to retailers as well as shipping and manufacturing. If a company were to want to reduce the cost even more, there is always the option of sharing the files via either bittorrent or some bittorrent like client. Of course bittorrent is often used for piracy, but if it were necessary to log into a central server like with steam, then it would make it hard to pirate. So one huge advantage of digital distribution is that it is cheaper for the publisher to get it in consumer’s hands.

Another advantage is that a publisher can offer old games at a discounted price without worrying about fighting for shelf space. For example, Deus Ex was recently released on Steam. That is the type of game that would not be carried by many retailers because it’s old and won’t sell much anymore. There are already so many new games fighting for shelf space that the retailers stand to make more money off of. Putting it on Steam makes a lot of sense because it couldn’t sell at retailers, but there is still a market for it.

Digital distribution opens up new avenues for indie developers because getting an independent game into a brick and mortar shop is very tough. In order to get a game into a store, a publisher needs to invest quite a good bit of money. If they don’t think the game can get that many sales, then they won’t invest it. Now, depending on the cost of development, a game can be profitable but not profitable enough to see a release in store. Oftentimes with indie games, they are risky, so even if a game turns out to be a big hit, it may not immediately obvious by playing the gold master. Digital distribution has little or no upfront cost if you go with a  system already in place (Xbox Live, Steam, etc), so it makes a lot of sense for the publishers.

Digital distribution for the consumer is more complicated. On one hand, you can buy games and play them right then and there without ever leaving your house. Xbox Live has the brilliant feature that you can actually convert the demo for the Live Arcade games into the full game with a few button clicks. That makes it all the more appealing since you can often continue your session from the demo into the full game.

On the other hand, digital distribution can be bad for the consumer. Oftentimes despite the savings to the developers, that isn’t passed on to the consumer. I was going to upgrade Norton System Works. Downloading the upgrade was the same price as buying the boxed version, but the boxed version required an additional shipping cost. I was going to go for it and save a few bucks until I found that I’d only get to download it once. If I lost the installer, then I’d have to buy it again. I had the option of paying for download insurance or something like that, so I could download it multiple times, but at that point it worked out for the same as the shipping. I ended up buying the boxed version and waiting a few days for shipping.

I wanted to purchase Half-Life 2 when I got my new computer. I looked on Steam, and the Half Life 2 Holiday Collection was exactly the same price as it was in the store. If I buy it on Steam, more money goes to the developers. But, I don’t get a case, instruction manual and discs. As a huge game collector, I like having the physical game to add to my collection. Sure, it may be unnecessary, but for no extra money, I’d opt to have the physical item.

Now, I don’t resell games because I’m a collector, but there is a huge market for it. A large portion of Gamestop’s revenue comes from their used game sales. If you buy a digitally distributed game, you lose the option of reselling it. That can hurt a lot of consumers who regularly sell back games in order to buy new ones. It is good for the game developer because then they profit from every sale of the game, but bad for the consumers.

I do however buy a lot of used games. The reason I buy them is twofold. One is that I buy a lot of old and out of print games. Another is I get a lot of random stuff out of the bargain bin that either I don’t particularly want but is really cheap, or things that I heard about or might like that is also pretty cheap. One might think that I’d love the Virtual Console, but I actually dislike it. I like getting the games on the original systems partially because of collector’s value, but also because I like to physically own the game when I have the chance. I do however like remakes with new features like the Castlevania Symphony of the Night for Xbox 360, although its new features were actually pretty weak. Despite the original game has more collector’s value, it’s pretty pricey, so I figured I’d settle with the downloadable version. I’m probably going to pick up the PSP remake also, especially because it comes with a translated version of Rondo of Blood.

So, although I’ve never resold a game, this is an appealing prospect to many people. Another thing for the consumer that digital distribution prevents is renting games from blockbuster or gamefly. Gamefly is perhaps the worst nightmare of video game developers because the gamers can keep the game for as long as it takes to beat it and never purchase another game again. This doesn’t appeal to me, but many find it very appealing – play a game until they tire of it, and move on to a new game. Digital distribution stops both of these things for a consumer, which basically sucks for the people who play games like that. Now, gametap is a digital alternative, but it currently doesn’t support many new games nor does it run on any consoles.

So, are there any conclusions to be made? Although digital distribution can be a real win for the publishers, it’s not as appealing to the consumers in many circumstances. Because of that, it will never replace the retail channels. It is a great avenue to deliver content that wouldn’t get any shelf space in the stores, not the future of our industry at least any time soon. Perhaps publishers can slowly move to that model, but because of its downsides many consumers (including myself) will be slow to adopt it for products with a retail version available. I guess the most important conclusion to make is that the Playstation 4 WILL have an physical disk drive.