2014 in Video Games: The Year of Digital Acceptance

Bryan Cashman is the founder of Callvention, a service enabling phonecalls with game developers.

The widespread acceptance of the digital distribution business model across the video game value chain will make 2014 like no other year in gaming. For the first time, all players, from traditional brick & mortar retailers to traditional console manufacturers are doubling down on digital.

By the end of 2013, traditional retailer Target was selling Ouya, a console with no packaged games and a purely digital-only model. Nintendo, often called digitally backwards, released downloadable games same-day, as well as exclusive digital download games. And in 2014, Valve, the operators of the incredibly popular Steam digital distribution platform, will release a physical console that will play digital games easily in living rooms.
 

2013

Let’s quickly look at the year that just passed.

(Source: SuperData Research)

In 2013, digital game sales already made up over a third of game revenue in the US. Spurred by the disruptive digital download business of smartphones and tablets, traditional players were forced to make moves in digital. Adopt or die, as the old saying goes.

Some digital highlights from 2013:

Digital Lessons from 2013:

Early adopters of digital distribution are also your most vocal fan base

As Microsoft learned the hard way in 2013, the consumers who are most likely to care about terms like “distribution methods”, “always connected” and “digital licenses” are also the consumers who are most passionate about speaking their mind about video games.

Microsoft’s PR disaster in 2013 saw core gamers complaining about the need to keep their Xbox One connected to the internet at all times, as well as the loss of their ability to sell games used in a free market system.

Microsoft never spoke to the fan base appropriately, and mismanaged their relations with this community in a matter that has dramatically damaged the Xbox brand. PlayStation 4 is the console of choice, according to early sales reports, and Microsoft has this fiasco to blame.

There were benefits to Microsoft’s strategy that the company could’ve discussed. By selling game licenses instead of packaged software, Microsoft could allow users to share their game licenses with friends, and could have potentially allowed the reselling of digital games as an industry first. But Microsoft didn't substantially discuss potential positives. Similarly, in a digital media world, there are dozens of well-loved services that constantly require an internet or telecom connection, including satellite radio, Pandora, Dropbox, YouTube and Cable TV. Without focusing on telling a story to ease this audience, Microsoft lost the battle before the system was even released.

Make sure your servers can handle demand fluctuations

When Valve decided to give Left 4 Dead 2 away for free, delivered over the company's well-established Steam distribution platform, the company likely hoped to graciously thank their fans for a great year. Instead, Twitter lit up with talk of a Christmas day outage. On one of the company’s biggest revenue generating days, their entire online store remained largely offline. Despite the maturity of Steam, even Valve could not handle the short-term demand placed on their servers.

Servers also failed for Nintendo on Christmas day, as the launch of a Pokemon online service, a discount sale on the Nintendo eShop, and the digital registration of new Nintendo Christmas hardware proved too much for Nintendo’s global servers.

If consumers, whether core or casual, are going to accept a fully digital ecosystem, the infrastructure has to be fail proof. Poor experiences like this not only damage the long-term viability of a video game brand, but they also push consumers to platforms that never seem to fail, such as iOS.

Just because you can make downloadable patches doesn’t mean you can rely on them

Digital games are a service, we say, which means games can be constantly updated throughout one’s existence. However, that doesn’t mean a game should be shipped broken, with patches planned post-release.

Battlefield 4 was supposed to be EA’s grand defeat over Activision’s Call of Duty. With new consoles launching, EA had a unique window to claim the new title as the preferred online shooter. Battlefield 4’s visual engine impressed over Call of Duty, and Call of Duty’s gameplay was starting to look stale.

However, EA shipped a game that did not fully work. The company may have been aware of these major glitches, but planned to correct them via patches available on the game's release date. The patches kept coming after the game’s release, and the game is still partly unplayable.

EA is currently facing lawsuits from investors over the release.

But more importantly, the Battlefield brand may be permanently damaged. Gamers want experiences they can trust, and an experience that just does not work will be remembered as sequels to Battlefield 4 are released in the future.

What was once EA’s opportunity to victory has now become a long-term tarnish on a developing brand.
 

A Very Digital 2014

With the whole industry ready for digital, and a number of lessons from 2013, what will see in this new year?

Traditional retailers embrace digital Video games are still big cultural events, and traditional retailers are going to want to stay involved. While video games may be big revenue for retailers, they’re also a big draw – retailers like Walmart and Target often sell big game releases at a loss to get consumers into their stores so that they can sell shoppers other higher premium items like toothpaste and jackets. Retailers are not going to let video games become irrelevant to the traditional brick & mortar experience.

While packaged software will have less shelf space as consumers opt to download games instead of buy them boxed, traditional retailers will keep skin in the game through digital packages and bonus items.

Retailers might sell digital download cards for games, with exclusive bonus content if purchased in store. Retailers may also sell physical goods, such as an action figure, that comes bundled with a download code for the game.

Gifts cards may also become more innovative, such as Nintendo’s augmented reality 3D gift cards currently available in Japan.

Companies like GameStop, who encourage the purchasing of packaged games so that they can buy them back and resell them, may opt to provide download codes just to capture that lost revenue. And given GameStop’s role in educating consumers, they will likely be able to coopt publishers into giving free bonus content to gamers who purchase download codes through retail shops. In fact, don’t be surprised if GameStop starts offering free digital gifts to those who trade-in their games.

Exclusive digital releases from the major publishers

In 2014, it won’t just be independent developers focusing on download-only releases.

With shelf space shrinking at traditional retailers, traditional game publishers like Activision and Nintendo will have to look to digital distribution channels for new releases that are less proven hits or more niche focused. Expect the big publishers to release side-quests using established IP, as well as thoroughly built niche game experiences exclusively on digital platforms. Digital-only releases like NES Remix with AAA franchises are just the beginning to a range of digital exclusives.

Streaming games

Streaming games will hit the mainstream, with Sony due to release Gaikai streaming services in 2014.

With Gaikai technology, Sony will be able to stream Playstation 3 games, rendered on a remote server, directly to a gamer’s Playstation 4, Playstation Vita, and eventually their smart TV. Think Netflix for games.

Microsoft's streaming games strategy

Delivering streaming games opens up the possibility for games to be seen across screens, including tablets, smartphones TVs and browsers. Let’s not forget the http://www.businessinsider.com/microsoft-xbox-720-presentation-2012-6#-53">leaked and “unconfirmed” Xbox strategy slide, which says a streaming Xbox games platform in 2015 will allow gamers to “Enjoy the complete Xbox experience Any Time, Any Where, Any Screen.”

That experience beings in 2014 on PlayStation 4.

Continued expansion of Free to Play

Last, expect most game developers to experiment with free to play business models. Once relegated to the mobile and social game sectors, free to play should see adoption across dedicated consoles and handheld platforms. We already talked about first moves in 2013 on Nintendo platforms, but with the billing and digital infrastructure in place, Sony and Microsoft’s platforms will offer a number of unique experiences.

Why would traditional game developers, who can today can sell games for $60, consider adopting F2P?

In the words of Nintendo’s president Satoru Iwata, it’s about ensuring new games can reach their full sales potential.

“When we offer a new proposal to consumers, say, when we launch a brand-new IP or when we release a game with well-known characters but with brand-new gameplay that our consumers are not familiar with, it is hard for them to anticipate and appreciate the value of the content before actually purchasing and playing with it,” said Iwata, in a discussion with investors in October. “For these titles, if we take the ordinary approach of selling the packaged software, the software might not reach its full sales potential, and even when we are able to create something interesting, the games often can just fade away without being noticed by consumers.”

Through digital distribution, Nintendo can lower monetization requirements, letting more players play a game for free before making a decision to spend money on the experience.

“When we offer our consumers such new play experiences exclusively in a digital format, we intend to have wide flexibility in terms of their prices and ways to market them,” said Iwata.

Indeed, a recent study by SuperData confirmed the potential for F2P monetization methods. By analyzing the revenue generated from massively multiplayer online games, SuperData found that F2P games were able to generate nearly triple the revenue of pay to play games.

(Source: SuperData Research)

MMO’s may be one of the first core game genres to successfully adopt free to play monetization methods, but they won’t be the last. Expect to see similar gains in F2P across other popular game categories in 2014.
 

The Year Ahead

For years we’ve talked about the benefits of digital distribution for games. 2014 is the year when it all happens – and more. The infrastructure is ready, the whole value chain is prepared, and the consumer demand is ferocious. Get ready for your digital dreams.

The author, Bryan Cashman ( @consulgamer ), blogs about business issues in the video game industry at CONSULGAMER. This article represents Bryan's personal opinion only.