GameStop Acts On Impulse

How to caption this graphic...GameStop Impulsively Spawns Labs?

Traditional game publishers are making more and more money from digital distribution. Even Activision, long known for sneering openly at anything other than a disc sold in a store, is now touting the fact that half their revenue in the latest quarter came from digital distribution (of course, I think they're counting WoW subscriptions in there). This may be good news for publishers hoping to see a bright future coming out of three years of down sales for the industry, but there's one player who's not so happy at the expansion of digital distribution: GameStop.

They are taking the threat seriously, and there's no better evidence than their recent purchase of Stardock's Impulse digital distribution service. Sure, it's not Steam (who has about 70% of the digital distribution market), but Impulse accounts for about 10% of the digital distribution business. GameStop should be able to expand that with their resources.

Interestingly, GameStop has also bought Spawn Labs, which has game-streaming technology that hopefully can compete with Gaikai and OnLive. While I'm on the subject of game-streaming, there's a new kid on the block called Happy Cloud, which has an interesting twist on the idea of streaming games. They don't want to stream you the game so much as make your download of the game happen a lot faster, in a way. They set the game up so you can start playing quickly (in a few minutes), and not have to wait until your multi-gigabyte download is finished (hours later, usually). This opens up the possibility of impulse buying, and Happy Cloud is open to licensing the technology to other digital distributors. This could really speed up the spread of digital distribution.

The upshot of all this news is a further expansion of digital distribution is in the offing, and GameStop doesn't intend to miss their opportunity. Having a retail presence does offer some interesting possibilities for merchandising that Steam won't be able to match. Kudos to GameStop for understanding how the marketplace is changing, and making some moves to try and adapt their business. Let's hope they pull off a successful transition to the future.

Steam Keeping Quiet

Valve prepares to repel number-seekers.

Steam is the leading digital distributor of games, but the only way we know that is pretty much because they say so. Because they don't release any sales numbers except to the companies whose products they sell, and apparently this isn't gonna change any time soon. According to this article, Valve is not interested in turning over information on sales to NPD, which would dearly love to have some actual numbers to put into their estimates of how much revenue is being generated by digital distribution, freemium, and other monetization methods.

If NPD is not getting numbers from Steam, it certainly makes their numbers for non-retail sales rather vaporous. Then again, we should have known this already... NPD assembles a lot of guesses about non-traditional game revenue numbers, because hard numbers are not being released. I just hope nobody puts too much credence in the numbers NPD puts out...

Meanwhile, as the comments section on this Gamasutra article make clear, Valve is hurting game developers by refusing to provide data. Sales data could be enormously helpful to developers trying to figure out if they have a huge market available to them or not, and how well their game is selling relative to that market. Further, if you can have independent numbers on sales to point to, this is extremely important in getting financing. People who might lend you money kind of like to have some idea if they will get paid back.

I realize Valve may not want to release their numbers directly, but providing them to NPD is a way to get them out to the world with NPD filing off the serial numbers so they can't be directly attached to Steam. Right now Valve is showing they don't really care to help small developers. Maybe they are forgetting that's where they were once upon a time.

PC Gaming 2011 Predictions

Continuing my series of 2001 predictions, I'll look at PC gaming. I define this as a wider field than some might; in this area I include MMOs, boxed retail PC games, downloadable games, Flash games, and F2P games like League of Legends. While the boxed retail PC game has certainly had a difficult few years, people still spend a lot of time playing games on their PCs. The PC game market's biggest threat may be the emergence of the tablet market, as it eats into PC and laptop market share. A tablet may be a better way to game for many people at home; it starts up right away and games are easy to install and acquire. Of course, tablets lack the control possibilities of a PC, so certainly hard-core gamers will still be attached to their cutting-edge hardware. Still, many game makers will want to look closely at the tablet market, if they aren't already.

Anyway, here's some of my predictions for PC Gaming in 2011.

• The Star Wars MMO has a disappointing reception. Oh, they'll sell a bunch right away, but there will be a chorus of complaints about game balance, play style, and the Star Wars universe fidelity. I can predict this without having seen the game because that's the way MMORPGs launch: Game balance is wonky and they prefer to get that right while people are paying for the privilege of testing. Early adopters will complain about it, and complain about what they get to do or can't do, and Star Wars fans will no doubt find things to complain about. The real key is whether the game is compelling enough to attract people despite the flaws, and stick around long enough for the flaws to get fixed. I think it will be, but I don't think this is going to replace WoW. 
• WoW remains subscription priced, but adds more items to be purchased in-game. Speculation will continue about a shift to F2P, but it won't happen this soon. Meanwhile, though, Blizzard will rake in more dough by ramping up the things you can purchase in-game. Plus they'll be making a renewed push to add more gamers and get their subs growing again, which won't have much effect. There are too many other gaming choices competing for players, and that sub price will get to be a heavier burden over time.
• Most new MMOs launch as F2P; the ones that don't struggle. We'll see a number of high-profile entries into the MMO space this year, many of them with subscription pricing.  If these games don't grab and maintain a big audience, as I predict, the subscription model will be pretty much left for dead as far as new games are concerned. Certainly D&D Online's success has inspired other MMO's to follow suit. Game design is an issue, of course, but I think this will be the norm going forward.
• Steam continues to grow and gain market share. This is an easy prediction to make; nothing succeeds like success. They're doing a lot right, and continue to refine what they do. As retail stores contract their shelf space for PC games, Steam will expand to fill the void.
• PC games at retail continue to fade away. The flip side of the last prediction. Have you looked at the retail space devoted to PC games lately? Ugh. Aside form the occasional high-profile title like Call of Duty: The Sequel, there's a wealth of cheesy game shows and assorted low-priced stuff. Not very lucrative for the retailers, I'm sure. The smaller package size has meant less selling goes on in the store; the shelf isn't pulling in customers. GameStop better hope console games stay healthy at retail.
• F2P games become even more popular. A major RPG is announced as F2P. Free-to-play is kicking ass and taking names. I have no inside info on Riot Games and how League of Legends is doing, but I infer from the fact that they're looking to hire dozens of people that it must be doing pretty well. I'm expecting somebody to realize that a Diablo-style RPG based around a F2P business model would make a pile of money. It's what Diablo III should be if they really want to make a bundle.
• Call of Duty does not add a subscription plan. Some analysts have called for this, but it's not gonna happen. At least not right away; it may be part of a future release. But I don't think will see a move to try and migrate a user base over to a pay model when they purchased a game under a different expectation. If Activision really wants to do this, I'd say do it with a new release that you charge less for upfront... maybe even a free release.
• DLC rules. Downloadable content expands even faster and generates a lot of money for companies. On the other hand, users may feel burned if they think they have to pay for DLC in order to compete at a game. Or that someone can pay to get some nifty ability that totally destroys you if you haven't paid. Game design issues will certainly impact marketing and business results here.

It'll be a good year for PC gaming overall, as long as you're not a retail store.

Steam May Offer Trade-Ins; Publishers Likely To Be Steamed

This one's hot off the intertubes... seems that Michael Pachter, noted industry analyst, is on the record as saying Steam will soon allow gamers to trade in their Steam purchases for other purchases, levying a fee on the transaction of course. Basically, pulling a GameStop with your Steam games. You're tired of it? Trade it in for a new one.

I expect publishers would be more than a little annoyed at this, unless Steam cuts them in for a piece of the action. Which they'd better consider, or else publishers will be loading up their BFGs and looking to put Gabe Newell's head on their wall.

This would, I think, accelerate the move to digital downloads for many people, and give Steam a leg up on other digital distributors (until they duplicate it). GameStop has to be watching this one closely. The interesting, unstated part, is exactly who gets to keep how much of that extra money that Steam will be making from a game... or who gets dinged. If I pay $40 for a Steam game, then a couple of months later I trade it back to get (I'm making this amount up because there's no data yet) $25 in Steam credit... what happens to the money that was paid to the publisher of that game? If I then buy a new game from another publisher with that credit, does that publisher get less cash than they normally would from a Steam purchase?

I can envision different answers to these questions, and some of them would not make publishers happy. Unhappy publishers might stop allowing their games on Steam... so it will be interesting to watch how this unfolds. Stay tuned.

Digital Game Distribution Expands

Looks like Amazon has decided to join the digital distribution party for games, as one analyst deduces from looking at the job postings on their site. Amazon has had success with other digital media, notably e-books and music, so this is not entirely new to them. It will be interesting to see how they implement it.

Looks like Steam will have some well-heeled and experienced competition to deal with in the future. This should benefit consumers, as you can bet  we'll see more efforts to appeal to customers from all digital distributors. It's not just price; look for exclusive deals and more creative offerings. The interface is one area where we're likely to see changes. Amazon's secret weapons in this battle are its recommendation engine ("other games you might like") and the user comments. I don't know about you, but when I'm looking into a serious purchase I always take a look at Amazon's comments. You'll learn a lot about a product's pros and cons that way.

All this activity in digital distribution is another sign of how rapidly the market is growing; Amazon wouldn't jump in if it wasn't a big enough market. Not the best of news for Gamestop...