Download Time: Digital Distribution Goes Hardcore

Electronic Gaming Business, Sept 22, 2004

Is the game industry about to get "iTuned?" With retail shelf space for PC titles shrinking by the hour, broadband penetration deepening, and consumers (maybe even publishers) finally warming up to the idea of downloadable media, the long promised digital distribution channel for retail games may finally be opening up this season. Without naming names, industry insiders tell EGB that the fourth quarter may see some major retail PC titles available online on the day and date they also hit stores. As it is, Valve Software is planning to make a splash in this space by offering mega-franchise Half Life 2 via download to customers of its Steam online gaming service, perhaps even before the game hits stores. Digital distribution is about to get hard core.

Portals like Yahoo and Comcast are now showing interest in moving from casual downloadables to digital distribution of core titles, new and recently released retail games that players can try and buy immediately online. IGN just joined GameSpot's DLX Full Game Trials (http://dlx.gamespot.com/trials.html) with its Direct2Drive.com digital store. Stardock unveiled a unique TotalGaming.net subscription service ($89/yr) that lets members download a suite of titles that includes the new retail game The Political Machine, along with Disciples II and the publisher's own Galactic Civilizations. The service has attracted more than 10,000 subscribers, says Stardock CEO Brad Wardell.

"What everyone wants in the market is more core gaming," says Gabe Zichermann, vp of strategy and communications, Trymedia, which supplies the ActiveMark DRM wrapper for files at GameSpot, IGN, and AOL.

IDC estimated the digital download market at $52.7 million last year and projected it to grow to $762 million by 2007. Zichermann says that current forecasts of $120 million in digital distribution revenue this year are probably close. From his vantage point, "It's grown by a factor of three this year."

As the Consumer Turns

Call it the iTune effect, but any remaining consumer reticence about downloading media without the disc is eroding. IGN witnessed changing user patterns at its demo and patch download site FilePlanet. "We were seeing increasing numbers of full versions of games downloaded," says Jamie Berger, vp of consumer products. And in a trial involving four MMOGs offered for download and purchase "we've sold cumulatively over 19,000 copies since March," Berger says. Consumers now have the broadband pipes and the willingness to buy in.

Traditionally, consumers liked the security and tangibility of discs that let them reload games to different machines or after a hard drive failure. Both Direct2Drive and TotalGaming.net are answering these concerns by letting buyers remain permanently registered in the system to re-download games as much as they like after purchase, following the lead of the music download services. "The biggest obstacle to getting this thing going is people don't want to worry that they will lose the ability to play their games," says Wardell.

Waiting for AAA

The principle hurdle facing digital distribution in the past year has been luring top publishers to put triple-A titles into the digital channel. The usual suspects, Atari (Rollercoaster Tycoon 2) and UbiSoft (Pandora Tomorrow, Prince of Persia) seem omnipresent but relatively alone at these portals. Zichermann says that about 10% of downloaded ActiveMark titles this year were issued online on the day and date of retail release, but that is about to change. "We have secured an astonishing number of day and date titles for Q4." Berger also intimates that more major players are coming; "It would be a big mistake to assume what you see on the site today is what you will see in a few months."

In fact, Sony Online Entertainment has been using the digital channel profitably for two years already, says Chris Kramer, director of public relations. It offers two MMOGs on Direct2Drive and will offer Lords of EverQuest soon. "For us, PlanetSide has been a huge success," says Kramer. "Over 40% of the people who have downloaded the game have converted to paying customers. It's definitely part of SOE's business mix."

Concerns about digital distribution undermining publisher relationships with traditional retailers are going away as customers seem to demand an online channel. Berger says publishers are starting to see digital distribution as a way to increase sales, not just shift them to another platform. "We are not trying to be a zero-sum game. This unlocks incremental value. It can increase sales by reaching an audience more broadly and when they are in a different state of mind." As well, most top tier titles on these systems are selling for about the same price as retail, so they are not in direct competition with the bricks and mortar channel.

Wardell says that digital distribution also opens up worldwide markets for U.S. titles that are unavailable or too costly for international audiences to get at retail. "We are seeing a lot of sales over in Europe," he says.