Game Retailers Hurting Themselves With Digital Distribution

GameBiz recently had the chance to speak with Brad Wardell, CEO of Stardock, about pricing and distribution within the games industry. Wardell follows up a bit on the Demigod piracy fiasco from a few days ago, and mentions that retail outlets may be on their way out. "Retailers need to be careful about this stuff. They're kind of signing their own death warrants once they push digital distribution at the store. Once you have the thing set up — once you've experienced how to purchase the game or deal with it online — why would I go back to the store for the next purchase? Especially if the store isn't providing added value. If you're a retailer, you're killing yourself. If I can't get a game off Impulse, I'm going to Steam. I like stores, but I'm really lazy."

Comments

Seems kinda obvious.

[fractoid]

If you go into Dymocks or Barnes & Noble or some other book store, you don't really expect them to say "go buy it from Amazon.com", do you?

This applies even more so for digital media where the entire product can be downloaded (barring shiny manuals and soforth that rarely happen these days anyway). Isn't a physical retailer becoming irrelevant anyway?

Re:Seems kinda obvious.

[Lumpy]

Only for the excessively rich. The rest of us wait until the game hits the $19.95 bargain bin.

you might be incredibly wealthy and thinks that $69.99 for a game is nothing, but 90% of us think it's insane and wait for it to become affordable.

Digital distribution allows them to keep the price high as hell forever if they want, It costs nothing to make more copies for them and they dont have the stock of CD's or DVD's out in stores getting dusty over the course of a year forcing the price down.

also it helps game companies by destroying the used game market. If I have to buy all my Wii and Xbox360 games online, I cant sell them used or buy them used...

and the Game publishers are salivating uncontrollably over that idea, they desperately want the used game market to go away.

Not necessarily

[owlman17]

With music, the stuff that really matter to me, the musicians I really like, e.g. U2, Def Leppard, etc. I still buy the physical CD even though I could just as easily buy the digital versions from the comfort of my room. Not only am I a completist, I am a fan of those bands. My "B-class" bands or one-hit wonders, yeah I do buy the digital versions.

Same principle with games. I've been waiting for StarCraft II, Diablo III, etc. Even if I could get them digitally (if offered), I'd still buy them from the local store when they come out. I've gladly paid a premium for the physical copies of the games I really like over the years. Not just for the nostalgia, but also to support our local store.

Re:Not necessarily

[xaxa]

The small artists I see seem to charge more for their CDs at a show than it would cost me to get them from Amazon.

For instance, I saw Zeromancer a couple of weeks ago. They wanted £14 (or more? can't really remember) for their latest album, but it's available for £9.25 on Amazon marketplace. Admittedly, that's from the USA, but I don't mind waiting a couple of weeks for CDs to arrive.

I'd like to support local independent record stores, my favourite is Resurrection Records in Camden, London, since they're the only specialist industrial/gothic store I know. The CDs are mostly £14-20, but they're £2-3 less on Amazon, and another £3-6 less on Amazon marketplace.

Apparently, I can get music recommendations from the record store. I've never asked though, I just go to last.fm and click "Similar Artists", or go to a gig and remember what the support acts are called.

Re:Not necessarily

[Urd.Yggdrasil]

I still buy CD's as well, but it's mainly due to a lack of quality online downloads. When you buy a game at a store or on Steam you get exactly the same game, but buying a lossy mp3 isn't the same as ripping a CD to FLAC. If there were some decent online retailers of lossless audio I would probably buy from there.

why the devs / publisher's LOVE online distro

[SethJohnson]

Online distro favors devs / publishers for several reasons:

• Cut the retailer out of the cost column.
• Reduce packaging expenses.
• Reduce overhead.
• Small guy boutique can make a fortune with just a spare-time effort..
• End user can't re-sell the purchased product.

The last is the huge one. Adobe and Microsoft have tried all kinds of tactics to supress consumers' ability to re-sell software. The game companies no doubt hate seeing used game transactions taking place without them getting a cut. With online distro, the re-sell market is crippled.

Seth

Re:why the devs / publisher's LOVE online distro

[Daengbo]

Ummm, do you realize that Counter Strike was originally a mod for Half-life?

Re:why the devs / publisher's LOVE online distro

[Trojan35]

This is a double-edged sword. They'll probably need to re-do their pricing structure, because many people who currently pay $60 for a game do so knowing they can get half of that expense back on the used market.

No Thanks

[Anonymous Coward]

I liked Stardock before they went all Impulse crazy.
But now:
- Maybe the game wont activate in the future
- Who knows what kind of spyware is in Impulse
- No separately downloadable patches

I bought Sins but was rather unhappy when they switched the patching system to Impulse. So you could no longer play online (game versions must match between players) unless you installed their spyware.

No thanks, if I wanted Steam I'd go with Steam.
Is it so wrong to want to buy a truly DRM-free game?
On a DVD (which I can backup), with no passwords/serials to forget/lose?

Game retailers are antiquated

[Renderer of Evil]

It's a highly inefficient operation in terms of getting a good return from the shelf space. It's taken up by giant empty boxes that don't do anything.

Here's an idea. Tear down these remaining stores and turn them into arcades with every game loaded on a server with terminals all around. You pay-for-play and if you decide it's something you'd enjoy pay for a copy on a USB stick. Now you have instant gratification and avoidance of downloading of 3 gigs of shit on Steam.

Confusing Headline

[im_thatoneguy]

How is it that "Game Retailers" are hurting "Themselves".

Shouldn't the headline read "Online Game Distributors killing Game Retailers"?

I haven't seen any actions on the Game Retailers part that is hurting themselves except for existing. I suppose you could argue they should have become what steam is. But that's passively letting yourself die out.

Seems is all there is.

[mcrbids]

Books don't run on a computer. You can "download" a book, but using a laptop to read a book is inconvenient, and an e-book reader is expensive and clumsy.

But software needs to run ON the computer. There's no real benefit to the packaging and/or CD itself once it's installed, other than you can get $3 selling it back to (ahem) the local software/games store.

Used games is what the local software store makes money on, anyway. I bought GTA 3 for PS2 at the local store for $7, and I doubt the the original guy got more than $2 for the game.

Re:Seems is all there is.

[Kokuyo]

You all seem to be ignoring that deep down, most of us are still hunter-gatherers.

Personally, I like reading stuff on screen. Gives me way less cramps than holding a book or keeping my head at weird angles because the book is on the table. Yet, when I buy stuff, I want a physical presentation of that to put on a shelf. I want my books looking as nice as possible, I want my movies as DVDs and I want the good games to have the packaging standing around somewhere (with such a low number of good games coming out these days, the space used is negligible).

What I'd like to see is this: I go to Amazon, buy a book/movie/game/music and they'll send it just as we're used to. Then there's the option, like a gift wrap, to download the thing for another 3 bucks (gotta pay for bandwidth and server storage after all).

That's the way I want it. I don't want to have to bend over backwards to get my digital content from my media onto my harddrive. Even worse with non-digital content. The mind boggles at the thought of scanning a whole book let alone half a dozen or more. Considering that publishers have digital versions of just about anything they produce, one should think this would be a piece of cake.

Re:Seems is all there is.

[hedwards]

Should I point out that you're a Luddite now, or wait till the end of my post?

Books are a terrible format for information to come in, it's easy to lose ones place, bookmarks can fall out easily and one has to find a position which is comfortable, the size of the print and the spacing are usually not right for large portions of the population.

Computers can solve most of those problems quite easily with technology that we already have, and pretty much all of that has already been addressed by at least one ebook reader.

Or to put it another way, perhaps we could just admit that books are not particularly well suited to their intended purpose and should really be relegated to the world of antiques and collectibles. Electronic literature just has too many upsides to be ignored. Probably the only downside to them is the lack of durability into the future, ill conceived things like DRM and poor backups could be really bad for long term culture.

Re:Seems is all there is.

[Kharny]

Books are easy to replace, cheap and require no electricity to operate though.
Ease of use is still a lot higher than ereaders or computers.

Re:communism = forced economy

[fastest fascist]

Right, because before Marx, there was no government intervention in economies. I'm guessing you're from the USA by the casual way you throw the term "Communist" around.

Online is not really cheaper...

[TheTurtlesMoves]

It seems to be popular opinion that downloads cost are so close to zero that it does not matter. Well after pricing bandwidth deals for servers and minimum bandwidth cost, since you need enough bandwidth for peak demand not average. I was surprised that pressing DVD's and posting could easily be cheaper.

I can get 1000 DVD pressed for 30p including art on the disk and a 4 page slick. 10000 is much cheaper since it can use the same master. Its not much more for a box. Postage is pretty cheap if your not using amazon pricing as a guide. Now for bulk distribution to shops, I would estimate that is cheaper to sell box sets that online copies.

Really the price of infrastructure is the killer here. If you could get away with average bandwidth rather than peak it wouldn't be so bad.

Re:Online is not really cheaper...

[freedom_india]

You need a small lesson in Economics 101 my friends:
1) The cost of a product is NOT equal to its cost of manufacture, storage, shipping & profit. It is much more complex. For instance store display: Shelves are pricey. If you do not want your Game to be relegated to the corner, you better be prepared to give the Retailer a larger share of your take.
2) The cost of in-store advertising, banking costs (LoC, and other bank costs), add up to your margin; Seriously you are not thinking of shipping 100,000 copies of Tales of Valor to Gamestop without buying insurance against their bankruptcy, not to mention getting their banker to issue you a letter of credit, accounting fiascos, etc. Its not just production+marketing costs. (FYI marketing is NOT selling. Marketing includes everything).
3) Storage space, warehouse rentals, insurance, shipper costs, insurance, finances, banking lines of credit, etc., take a bite out of your profit.
Getting a DVD manufacturer to press 1000 DVD at 30p is the start of your troubles. The maker will charge you for shipping to/from his factory, you need space to store it till you ship it to shops/retailers/direct purchases, money to tide you over until then, etc.
Which is why CDs cost $19.99. (all of the money does not line up the RIAA pockets. And NO, am NOT a supporter of RIAA/MPAA. I buy my music from Russian websites).
So, there goes your arguments.
Being Digital involves a different set of troubles: You need to purchase bandwidth and in this age of throttling, double-dipping by AT&T, you need the clout of Google and the bank balance of Bill Gates to muscle in on a online store like Impulse or Steam. They handle your troubles for a fee. And that is not cheap.
You need to tie up with PayPal or credit card processors who take a a cut.
You need to make sure your latest fixpacks or updates are shipped via the same media.
You need to make sure your online support is available 24x7x365. And NO, you cannot set timings like 9AM-6PM Central. You DO NOT sell at BestBuy. The customers fix your timing. And according to them they ARE calling you at 9.30AM their time. NO they don't care if its 10.30PM your time.
You need to make sure that if you want to sell a second Game you better be prepared to make sure your planned downtimes are PLANNED. No unscheduled downtime. If its down for 10 mins, its down for 10x1,000,000 mins (1,000,000 users).
Above all, prepare to have DVDs ready for shipping when somene wants the physical copy and is willing to pay for it.

Re:Online is not really cheaper...

[TheTurtlesMoves]

My arguments went nowhere....

I didn't add all these thing because they distract from the point and they exist on *both* sides of distribution as you said. Really We had full quotes including insurance, storage, legal (a big one) and cost of credit (we don't need much we have cash) but only door to door. Not to a shop. I was not much extra. Once you hit the 100000 copy mark things get cheaper per unit not higher.

And *lot* of extra cost too. First is the costs of SLA and associated legal fees, no to mention that already you have to pay a pretty penny and are on a 2+year contract for this end of the server market with expensive termination options. Now you need a merchant account or to out source online transactions. Again this is not cheap and again its expensive if you want a SLA. This gets even more complicated in that its generally a pain if you can't really predict the transaction volume.

Yet you mention all that and then claim I'm wrong. We priced it up. It was about the same to cheaper with shipped DVD's than online. Both is worse of course. The claim that online distribution mean the cost of a copy is nothing is simply not true.

And yet there is even more. One of the big headaches is ratings. In some countries is fine to sell without a rating if you are not based there, in others you must get the game rated first regardless. Legal fees are a bit of a killer since its all international.

However there is another option. Bit torrent. But i don't know if that will really work with paying customers. I think a full download option would be needed at a minimum.

Re:Online is not really cheaper...

[freedom_india]

From time immemorial man has had the tendency to acquire for free if he could get away with it.
Stealing Electricity when it was introduced was a BIG problem. Big enough for many companies to die. Eventually it got straightened out.
Same was with Telegraph. The number of times codes changed in Telegraph is too numerous. Since telegraph companies charged by word, companies had exotic dictionaries with vast number of definitions for each word: Long sentences for single meaningless words.
So was it with Telephone. People still steal phone talk time through pranks, tapping, etc.
Internet stealing through WiFi...
You can't prevent stealing.
You can only control your own costs so that a stolen Game did NOT result in adding to your costs. Like DemiGod is doing now for Stardock.
A .license file which embeds the user's email ID, hardware ID and a few random details is quite hard to break yet not too costly.
No, DRM would not do it. Gamers get mad when their PCs are hacked legally.
If your Game is stolen, and exchanged for free in torrents, but it does NOT add to your running costs, forget worrying about it. What does not cost you, should not worry you.
Of course your lawyers will argue that each illegal install is money stolen from you: that's not entirely true. A 11-yr old kid may want to play, but does not have the money to buy it. He will somehow steal it. You can't get money from him. But you can bet that he will praise it to his friends, some of whom will buy it.
Other crowd is the earning well-to-do crowd. They will the latest. And they will yours.
Others are professional hackers. They thrive on challenge. They WILL crack the most hardest Games, even BioShock. You can't control them.
Some, like me, will buy out of loyalty, or will crack it if it can't be bought in my country, or play a hacked version to see if its Good and buy it to keep my PC free of Trojans. And yes, i buy every Game stardock makes: Why? NO DRM. I don't even play their Games. I just buy and that's it. I play Company of heroes ONLY. Not even Crysis. But i still buy Political Machine, Gal Civ II, DemiGod, etc. Why? NO DRM, plus i like Stardock.
Their support is cool and their CEO seems to have realized that DRM a la, BioShock hits them back.
Thier only slip up was online resources. This is where they pay costs.
If yours is not online gaming, then you are good to go.
People who steal your Game may buy, may not. But as long as they don't cost YOU in server time or resources, why worry?
Its a Business Risk. Much like CISCO doesn't care if clone copies of their routers are sold in China. Why? They don't incur costs on such cloned copies. So no worry.
Think about it, but consult with a lawyer. IANAL. So beware. I talk from my experience only.

Read on your Mobile

[krischik]

A good mobile phone can be used to read eBooks. And that is not at all expensive and clumsy.

I know it is off topic but I hate amazon for breaking the mobipocket idea of "read on the device you already own" to push there Kindle thingy.

So stupid - got the whole infrastructure for platform in-depended eBooks when they purchased mobipocket and they broke it.

Re:Read on your Mobile

[krischik]

I don't mind eBook readers. What I do mind is reduction of choice or unnecessary and incompatible changes to an established file format.

Mobipocket can be read on various eBook devices, Windows PCs, PDAs and Smartphones.
Mobipocket. You can buy Mobipocket eBooks from about a dozen shops - most of which even features in the Mobipocket software them self.

Mobipocket was inviting other companies to join in.

And what did Amazon do after they purchased Mobipocket? A minor but incompatible change to the file format and reduction to just one device.