Yahoo and Atari Scout the Digital Download Terrain for the Gaming Mainstream

Electronic Gaming Business, May 5, 2004

Back in the day when the Internet seemed poised to "change everything," a core fantasy of the medium was that digital distribution would let independent musicians, filmmakers and even novelists and pamphleteers circumvent their respective mainstream publishing apparatus and find audiences directly and cheaply on the Web. For most major media, the dream never materialized, but "It's the games industry that figured out digital distribution," says Dan Hart, senior director, Yahoo Games.

Where garage bands and e-book authors failed, independent game developers far outside the game publishing mainstream succeeded -- in making and profiting from small, casual titles that were only available online. "It shouldn't be offradar," says Hart. "The general industry estimate is that last year there was well over $50 million in downloadable sales."

In fact, from his vantage point running the most popular games destination online, Yahoo Games, Hart thinks that major game publishers should be looking at downloadable games as part of a larger digital distribution strategy that not only adds revenue streams but enhances their retail marketing efforts. For instance, Atari recently down-sized its retail Scrabble game into a 5.6MB downloadable version ($19.95 with time-limited demo play). "That version in this channel has done incredibly well," says Hart, and it became one of the top selling titles at Yahoo Games last month.

"It's doing much better than the retail version," says Rich Roberts, director of licensing, new business, Atari, which is planning to retro-fit more of its branded board and family games for what he calls the "small file channel." Typical development costs for these games can be as little as $50,000 to $75,000, but a successful downloadable can render an ROI "anywhere from 10 to 25 times that," he says.

By customizing a retail title for a downloadables channel that works especially well with women aged 35 to 55, Atari hit a target that can be very difficult to find in brick and mortar retail where women often avoid the software shelves. This is not just a strategy for small independent publishers and their Tetris clones. It can be an important route for major game makers and their high profile brands. Major video game publishers have found it very difficult to monetize the highly active and loyal game playing audience that exists outside of their core demographic. "The focus has been 14-to-45-year old males," says Roberts. "They don't even want to think about this." But in fact that non-core audience is reachable and potentially very profitable if the big publishers merge their familiar brands with the proven packaging, pricing, and distribution models of digital distribution.

Since his days at Hasbro Interactive, Roberts has been following this segment of casual game buyers who once bought the $10 bargain games at office superstores and later at drug and grocery stores and then from Amazon.com. Now they are comfortable buying online downloadables. "We're not reaching all of the PC gamers that we should be reaching in the retail channel," says Roberts. "You have a distinct group of 25-to-55-year old women and gray gamers who like to beat their own score. They don't go to retail, and if you don't get product to them in the way they want to buy it they will never get it."

The Demands of On-Demand

Yahoo continues to press major game publishers to try its unique gameson-demand model (http://gamesondemand.yahoo.com/play) which essentially lets subscribers rent and play full retail versions online. "We've seen steady growth in games-on-demand," says Hart. "There was an initial positive reception and then last year when we went to unlimited play at one price [$14.95/month] we saw another nice spike." Games on-demand uses a combination of downloaded code and streaming data which has been difficult for many consumers to grasp, Hart admits, but he sees it as a good alternative for non-hardcore gamers who want to experiment with several titles before committing to a full retail buy.

Roberts also places the full retail version of Scrabble in Yahoo's games on-demand service, and he thinks that it is yet another opportunity to grab consumers he isn't grabbing at retail. He expects the game service arena to heat up as ISPs and MSOs (Multi-Service Operators) like Comcast and Cox start seeing games as a premium content service offering much like HBO on cable, an important source of revenue beyond basic monthly broadband fees.

Hart has about 100 titles in Yahoo's on-demand service, but only a handful are recent retail releases like UbiSoft's Prince of Persia and Splinter Cell. He says that the on-demand model is no direct threat to retail sales, and publishers can place new titles into this channel and benefit from Yahoo's massive ad and marketing reach to promote their retail distribution. The problem for the game industry is that there is no one at many game companies even assigned to digital strategies. Hart's biggest challenge isn't making the argument for the channel, "it's finding motivated decision makers...who are motivated as part of their job description to experiment or use digital distribution." It requires a multi-tiered approach involving small file downloads, on-demand, and the sale of downloadable versions of full retail product, a service that is already in the works at Yahoo.