Last week, I made the case that the game industry is moving from a packaged, complete buyable product towards a time-based rental-like system for the distribution of new games. It’s already underway, and seems like a gradual process, but before you know it, everything will be digital. There are certainly arguments to be made for maintaining a system of packaged game products, but that ship has sailed – there is no need to cling to a system which is being phased out. The percentage of gamers who need to “have a physical game” is shrinking every year
If the public is ready to consume in this new way, and developers/creators have already embraced the general concept, it’s time for the industry to construct a sales infrastructure to support multiple revenue streams.
Formalized Game Release Cycles
The movie industry has cultivated a cycle for new movies where there is an ebb and flow to content as it moves from new release into the ether. A new release will appear in theatres for a certain amount of time to draw ticket-buying movie fans. Then it moves to DVD, where it has a chance to earn revenue at retail and online. From there, a movie is sold on PPV, where the revenue is shared between the creator and the cable provider. It trickles down to pay cable, basic cable and finally free tv, earning additional incremental revenue at each step down the ladder.
For games, there is only one revenue source – the original release of the game. Almost all games are taken out of new, retail circulation less than a year after their release. The secondary market for games – the used gaming rack – is weighted entirely in the retail channel’s favor. The creators and publishers derive no revenue from a game after its new release window has closed. Used games – both at retail and online – have proven that a game can have life as a lower priced product months or years after its release. If the marketplace has already set up this pricing cycle, it is easy for the console makers to adopt the pattern and formalize it.
What if each game went through a multi-part lifecycle, allowing a new audience to buy in, and each audience to feel a benefit along the way?
1) The game is released for full price and maintains that price for 6-12 months.
These early adopters will get the newest game first, a full compliment of online players to play against, and the satisfaction of being on the cutting edge.
2) The game is reduced in price to $20-30
Gamers who cant afford the full price, or don’t care about getting the newest game on day 1 can wait a few months for the second phase to kick in – value pricing. This is already how the market works – a game is typically reduced at retail or exists only as a used game product. This second influx of players will also reinforce the value to the early adopters, who will have a renewed interest in playing a game with a thriving online community. This shouldn’t be limited to “million sellers” or major gamers – there is no reason every game couldn’t be released at this second price level, at least digitally.
3) The game is reduced in price to $5-10
That sounds awfully low but presently game publishers make $0 from most games after 2 years of release. Why doesn’t Sony put their early first party games – Lair, Heavenly Sword – on the PSN now for $5-10 to attract new buyers or whimsical purchases.
A cycle like this already exists in the real world marketplace – this would be the publishers’ system to formalize it in a way that benefits consumers and keeps the revenue for the games going back to the creators. With the online storefronts on Xbox 360, PS3 and even Wii, the pieces are already in place for publishers to implement this type of price tiering.
World of Warcraft has proven the mass-market, mainstream appeal of a game with a subscription-based pricing plan.
For sports games, a subscription model seems like a perfect fit. The value of a physical game in the sports genre is almost entirely found in the first year of its release. As soon as NHL 2010 is released, NHL 2009 plummets in value, usually falling into single digits. At the same time, NHL 2008, the version from 2 years ago, has its value vanish entirely. While one can purchase a sports game and hold onto it indefinitely, the market for the most part does not value the game itself. This is further proven by the fact that nearly all sports-game manuals have been black and white for many years. Publishers know that the buyers place no value in the package, or owning the packaged game for eternity, and thus do not put effort into making it worthy of collecting.
Instead of having a single, yearly release for Madden NFL Football each year, football fans could download the game and subscribe on a monthly or yearly basis to get all the latest Madden changes. Throughout the year, there would be downloadable updates for subscribers that would add new features, change up players and stadiums, add new music and refresh content. The yearly retail product would still exist in almost an identical form – instead collecting all of the downloadable updates available since the last retail release.
This method of delivering new game content could be mapped onto any number of genres – imagine a Mario Kart subscription with track and character updates. This system would allow the current yearly updates to remain at retail, but provide recurring revenue to the publisher, and an on-going value to the player.
Utilizing Pre-Release Hype
One area that could offer a large upside to both creators and consumers is allowing players into the game development process earlier in the cycle. The current system has a game in development for 12-36 months, and builds to a marketing crescendo for a big release date. The profitability of the entire project relies on a short window of time where the game will sell or not. This “feast or famine” construct is already beginning to hold back innovation and creativity on the top level of game development.
Gran Turismo 5 is at the forefront of this quandary, as the game has been in development for years and costs continue to skyrocket. However, unlike many top flight games, Sony has segmented the experience, releasing a number of demos and a $40 glorified beta version that sold in large quantities. Already the revenue from GT5 is more than it would have been had Sony opted to only shoot for one large release, when the game is completed.
Gamers are particularly hungry to play the latest and greatest games. By using the pre-release hype to their advantage, Sony was able to actually monetize incomplete game code to help amortize the costs of the full game.
For a game like ModNation Racers, letting gamers buy the game earlier than its full release would capitalize on the anticipation of the game. These gamers would be getting a hidden look behind the curtain, and also act as beta testers to work out some kinks in the game. This “pre-release” access could be limited to say 10,000 gamers, paying $10 each. There could be achievements or rewards related to being in this elite group. There is nothing to lose – the game already is being built and has a playable build for in-house testers. By opening this time up, developers could form a closer bond with consumers, and reinforce the idea that paying for the game is not only a cost to the consumer, but also a way of compensating those who created the game.
Digital downloads are the bold new frontier for the games industry, and as such, there have been a number of major issues that have held back further innovation.
The biggest barrier holding Sony and Microsoft back from fully exploiting digital distribution is the relationships they maintain with retail partners. A packaged version of a game, which includes shipping, printing, stocking and other fees, should be higher priced than the digital version. There is also no reason the digital version shouldn’t be online the day and date of its release. Their hands are tied – to undercut all the retail partners via a self-serve, self-owned online storefront could have massive negative repercussions.
The industry needs to tread carefully, because a wrong move with Walmart could spell doom for a console or game. Every company needs to maintain a full retail outreach program until the digital foundation is fully in place.
Imagine the sales possibilities of a midnight on-sale if in addition to the diehards who go to a store for a day-one purchase, anyone at home would be able to buy the game digitally the day it went on sale. This would only serve to increase the release date sales for major and minor titles alike.
Marketing Through Retail
While retail’s primary goal is to sell the game to the public, a secondary goal is to market new games. In-store game racks, game displays and cardboard point-of-purchase display units help spread the word about new games in ways that advertising and traditional marketing cannot. Without a strong retail presence, games lose visibility. This is related to the retail problem, but separate as well. If games move entirely to digital distribution, or at least primarily, there will need to be innovation in marketing to replace the lost opportunity of retail space.
Many of the concepts in this column are in anticipation of the next three to five years of advances in the gaming space. Statistics show that a painfully small percentage of current console owners are even aware of the ability to buy digital content, let alone making it their primary avenue to purchase. With that said, the success of gaming applications on the iPhone is proof positive that the market is not only willing to adopt digital distribution, but already doing so in large numbers. Once the interests of gamers, developers and publishers are lined up in a more efficient system, the mainstream will be ready to adopt fully digital distribution on home consoles.
I’m not implying that all games purchased in 2010 will or should be done digitally. However, if the games industry sets things in motion now, they will be able to dictate how games are sold in the future rather than being forced into action after the fact.
Jonathan Widro is the publisher of Diehard GAMEFAN and owner/CEO of the Inside Pulse Network. He has worked as a writer and publisher for over a decade, after working in game-related retail for over five years. He has worked in game development, most notably creating user-generated gaming portal Fyrebug and over 100 Flash games. Gaming Under Construction, Jonathan’s perpective on the gaming industry, is published every Wednesday on Diehard GAMEFAN.