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Movie vs. Game Distribution

Content creators make their money by carefully controlling access to their content. Hollywood figured out the best ways to do this and both consumers and film creators have benefited. Why can't our industry figure it out?

Comparisons are regularly made between the film industry and game industry, but one important difference is the distribution model, and that is costing our game industry some potential revenue.

From a consumer perspective, they have 10 opportunities to see (and pay) for a movie, with Hollywood making some earnings off the gross from each distribution channel.

  1. Movie Theater
  2. Cheap Theater
  3. Purchase at Store
  4. Rental at Store
  5. Purchase Used at Store (zero income)
  6. Rent Online
  7. Internet Stream
  8. Cable Pay per View
  9. Cable Premium Movie Channel
  10. Television / Basic Cable

What Hollywood actually nets from all of these channels is debatable and is certainly an area where royalty agreements discourage full disclosure.  However, Hollywood did take the plunge many years ago into the rental market (back when VHS and Beta first rolled out) and they saw a surge in their revenues.  In fact, they found that some movies that did not do well in the theaters had a strong showing in the secondary markets and helped recoup investment and make a "B" movie profitable.  This helped keep film makers employed and also provided more variety for consumers, who see more movies now per year than they did before the invention of the VHS.

Movie viewers consider the quality of films before choosing which distribution channel to purchase them.  The same is true with console games, where the only choices are:

  1. Purchase at Store
  2. Purchase Used at Store (zero income)
  3. Rent at Store (limited income
  4. Download (limited to a few titles)
  5. Classics Re-Distributed at Store (limited to a few titles)

The Problem

The discrepency here between the number of channels in Movie distribution vs Game distribution is huge.  This is dictated largely by our console manufacturers (Sony, Microsoft, Nintendo).

The problem is compounded by the fact that many of our console games never make it past the 3rd channel.  Most console games are too big for download, and the fifth option, reserved and controlled by the manufacturers is the "classics" label, with a reduced price point at around $20 per unit.  In theory this should allow people who didn't value the game enough at full price ($60) to purchase it at a more reasonable "impulse" price - basically the cost of a DVD.  It's this price point that keeps the rental and used market in check.  Yet console manufacturers limit which titles go classic to those that already achieved a certain success (like 500K+ unit), so the rental and used channels become the primary beneficiary.

Publishers cannot recover their investment on the used and rental market.  They have no leverage that will force the kind of revenue sharing agreements that make it viable.  In the end, the consumers lose out because less games get made, and the publishers and developers lose out because they gambled and lost on a game that wasn't quite a hit.  Games don't break even and jobs are cut.  This has lead to more and more investment to try to "ensure" that games become a hit.  It's also driven our price point up to $60 - nowhere near an impulse buy decision like going to a movie or buying a DVD for $20 at the grocery check-out stand.

A Suggested Solution

Something has to be done!  IMHO, the best way to do this is to make the 4th and 5th choices more prevalent.   Every game should eventually make it's way to the download option off XBox Live, Playstation and Wii Networks.  Every game should make its way to the classic re-distribution market.

Why don't we see more "Classic" game?

Publishers want to protect the new release price point.  In the early days of VHS, Hollywood feared what VHS would do to their movie theater revenue model, but clearly they have fully embraced it now, judging by the shear number and variety of movies available in the VHS/DVD format.  The trick was timing.  Ticket prices certainly haven't come down as records for theater earnings are broken every year.  We can do the same.  The "AAA" games on release will go for $60, and the "A" games will slip down to $40 and recover some of their investment, and the "B" games will not recover their investment at all until maybe 6 months later when the "classic" edition comes out for all games at $20.  A consumer will take a chance for $20 but they can't if it's never offered to them.

A legitimate concern and roadbloack may be more from the retailers.  They make $20 to $30 per unit on new releases.  They also make $15 to $30 per unit on used games.  Classic releases priced at $20 would only earn retailers $10 per unit and drive down their used sales.  You know who I'm talking about, GameStop is calling the shots here. 

The only way to get around that is to provide the non-used game resellers with a full and timely array of "classic" priced games.  This would provide the much needed leverage for more reasonable revenue-sharing agreements for both the used and rental channels.  This would benefit consumers who would play a greater variety of games.  It would benefit publishers who would see more of their games profitable.  It would benefit developers who wouldn't lose their jobs because their game wasn't a big hit.

The Future of Downloadable Content

Recently we've seen a surge in downloadable content on the consoles.  For the most part, these are "shorts" because of the shorter download time and smaller disc space.  Yet there are a few standouts, like Battlefield 1943, that provide a full experience at a lower price.  As we know, that particular game was a repackaging of the hit PC game that started the Battlefield franchise.  With limited investment, EA found a way to re-distribute a game and turn a handsome profit.  They also de-rezzed the game from the standards we've seen from the BattleField 2 & 3 console titles.  This made the game faster to download and take up less disc space so as not to discourage purchases.  The same can be done with all console games.

The roadblocks for this distribution model has largely been the footprint of the game in terms of download time and disc size.   This can be overcome in three ways:  (1)  Developers can de-rez the game by stripping out FMV's or replacing them with engine-rendered animations, reducing texture quality and overall optimizing the data footprint.  (2) They can shorten the game, releasing it as episodic content.  We've seen Valve do this with Half-Life 2 over Steam, and we've seen a large number of $10 to $20 add-ons for games like Halo, Call of Duty, and Fallout.  (3) We take another lesson from PC game distribution and speed up the download process using torrent or dedicated local FTP servers.

Clearly people are becoming more comfortable making purchases online in $10 to $20 increments, so it's conceivable that a full-price title, if repackaged into smaller chunks, could generate revenue online.  The challenge is marketing.  People are compelled to purchase add-ons to stay current with the online options (like the latest mappack), but not all games have a big mulitplayer experience.  Games like BattleField, Half-Life and Halo have name recognition. People almost go out their way to find their download purchase option and console networks often feature those games in their menus.  A modest "A" or "B" game would get lost in the menus.  Print, TV and in-game marketing is needed, much in the way that Hollywood advertises new rentals.  New released games and demo discs could have links to downloads of old games.

Conclusion

This is a much discussed topic, and we've seen little movement.  Yet maybe this little recession we've had will encourage the powers that be to make some changes to the distribution models in search of new revenue.  If and when they do, the consumers will play more variety of games and publishing and developing games will not be so costly a gamble.

 

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