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My Thoughts on Valve's Steam
by Tom Buscaglia on 10/14/09 08:13:00 pm   Expert Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

Randy Pitchford, from Gearbox, the creators of Borderlands, recently did an interview for Maximum PC in which he took a shot a Steam, saying that it amounted to a conflict of interest and that Valve was taking advantage of small studios. I could not disagree more.  Steam provides independent developers with access to the market place on an even footing the major publishers.  Royalties from Steam are easily 5+ times more than they would be through traditional publisher dominated retail distribution channels like Wal Mart (which apparently Randy seems to like).  It is hard for me to understand where he is coming from, as it makes no sense to me. I have several clients who would not be the successful studios that they are today without their relationship with Steam.

So, I thought it might be relevant if I reposted in its entirety an article I did on digital distribution that first appeared in Gamasutra in March 2006.

 **********************

The Good News About Digital Distribution

Last year at GDC, I met the guys from Tripwire Interactive. They had just put their studio together from the team that created the Red Orchestra mod that won the “Nvidia $1,000,000 Make Something Unreal” contest. Their mod had also garnered a bunch of “Mod of the Year” awards. Since they needed my legal help, but were tight on cash, we worked out a deal where I agreed to represent them for a percent of revenue. Sort of like an agent, but at a much lower percentage.

I do this from time to time with teams that I really believe in. And, I had even done a similar deal with Trauma Studios, the creator of Desert Combat, the prior year’s “Mod of the Year.” So, it seemed fitting. (Hmmmm…I wonder who got “Mod of the Year” for 2005?)

There was a great deal of interest in the commercial version of the game from several publishers including Midway. And we worked for months trying to close a deal. But eventually it became apparent that even though the folks on the product acquisition side were very interested in the game, the marketing folks were not going to green light the deal because their retail buyers had not heard of the game and would not put in significant initial orders necessary to minimize their risk. So, no deal.

The Red Orchestra Deal

Fortunately, as part of the contest winnings, Tripwire had an Unreal Engine 2.5 license. So, although they did not get the whole million dollars for winning (the total prize money in products, engine licenses and cash totaled $1,000,000 over the entire contest), they had an engine and some cash. So, they put what they had into finishing the game however they could. We continued to look for a publishing partner and began discussing the digital distribution possibility.

We looked into a bunch of digital distributors including IGN Direct 2Drive, Trymedia’s Digital River Distribution network, GarageGames and Valve’s Steam. I assumed that Steam was limited to only Source Engine games and that there was no way the Valve would want Red Orchestra, a WWII FPS game made with Unreal technology, competing against Valve’s own Day of Defeat. But to his credit, John Gibson, the head of Tripwire got in touch with Valve anyway. To my surprise, the folks at Valve were not only interested, they were straightforward and easy to work with. A real pleasure. So, in short order we had our digital distribution deal in place.

Of course, with a digital distribution deal, there is usually no big marketing push from the distributor like there is with a big publisher. But, through Steam we would be selling into the hardcore FPS gamer market. And as a result of the Valve deal, Red Orchestra got solid editorial exposure in major PC game publications, including two page “preview” articles in PC Gamer US and UK. The buzz from the Valve deal resulted in a retail distribution deal with Destineer as well. No advance. But access to the retail distribution channel and a solid chance to succeed. And most important, no need to give up the IP rights to the game.

That means Tripwire has a chance, maybe not a big one, but a chance to retain the IP to a franchise that they built. And that means long term IP value to the company. And it was the digital deal that made it all happen. So, Tripwire Interactive’s Red Orchestra: Ostfront 41-45 is set for release in March 2006 via digital distribution on Steam followed by retail as soon as the media gets manufactured, through the retail pipeline and into stores. Wish them luck!

The Digital Distribution Advantage

Once the digital deal is in place, a retail publisher is in a much less advantageous bargaining position, especially where it comes to IP ownership issues. Digital distributors, at least for the present, have no interest in obtaining IP ownership for the games they distribute. The so-called casual games, or “Pop Games” as I like to refer to them, have been building this model in the PC market for several years. And with the present broadband penetration, the download of full-blown PC games is a reality. I recently purchased F.E.A.R. digitally, and that’s an over 1GB game, unzipped. And we all know of Valve’s success with distributing its games via Steam.

Digital Distribution for Console Gamers

Up until now digital distribution has been something unique to the PC market. But the Xbox Live Arcade (“XBLA”) is changing all that. The size of the game that can be downloaded on XBLA is limited to the size of the 64MB memory card, which limits things somewhat when compared to PC downloads. But it is a huge potential market. Of course, access is also an issue.

If access to the XBLA pipeline gets clogged with aggregators who are already XBLA certified, we could potentially end up with some of the same issues we have now with the retail channel. For example, although MS has no interest in game IP ownership, at least one of the XBLA aggregators is looking to acquire IP rights to the games it distributes through XBLA. But hopefully this one distributor is an aberration and there will be enough less greedy options for developers to just go elsewhere. After all, the marketplace is a great influencer of predatory policies like this.

The big question is, will the PS3 and Nintendo Revolution also have a digital distribution capability? I suspect they are considering this right now since XBLA is doing a brisk business and leaving this potential market open to a fierce competitor like Microsoft could be a huge blunder. So, it is at least possible that Sony and Nintendo will also do some sort of digital distribution in their next gen consoles. And they may even do it better that MS.

The Bottom Line

So, I have become a believer in the digital distribution of games. The developer’s royalties are usually two to four times greater than what they are in a traditional publisher deal. This means you can sell fewer units and get by and if you get a hit, you get much more return, even at a significantly lower price point. Also, in most cases the developer retains the IP. This help builds long term value in the studio, something you cannot get otherwise unless you develop some sort of patentable technology or other licensable tools and technology while your making your game.

The digital distribution model also opens the door to pure funding deals that do not involve publishers who, frankly, charge much more than the value of the money for the funding they provide. But most important, digital distribution means more ways to get your games directly to the players with as little “middle man” action as possible. That has always been the great promise of the Internet and it’s great news for developers. Heck, higher royalties, you get to keep your IP and direct access to your user base. It’s hard not to believe!

 


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Comments


Alexander Bruce
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This was an interesting article, although it's age shows. Is there any chance that you could publish a new article, with what you now know about how Digital Distribution has gone for developers? I'm very interested in this topic, as it's something I will definitely have to be looking at in the coming year for my game Hazard: The Journey Of Life, which, funnily enough, is also going to be in the final round of Make Something Unreal (though I'm entering / have entered other competitions as well).

Michael Miller
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I think the biggest threat people see from Steam is the possibility of it gaining a monopoly. I love Steam and it's frequent deals (living in Australia means it's one of the cheapest gaming options open to me), and I have a fairly extensive games list on there, but without decent competition there's not going to be much incentive for Valve to make it more viable for either paying customers or developers looking to sell in the store.



I thought an interesting comment was Randy talking about Steam becoming it's own business, breaking off from Valve. If that were to happen I think it could enable both companies to concentrate on their respective products, maybe to the benefit of both. I don't know how it's integrated into Valve, so I don't know if it's probable nor how it would be done.

Alan Wilson
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Maybe you should ask one of the developers who has helped pioneer third party games on Steam, as well as having used standard retail channels, to write up some thoughts...

Jay Moffitt
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I really enjoyed the article. It's kind of a loss you don't write as much for Gamasutra as you did formerly, as an attorney I always have considered your technical articles cutting-edge for gamer's law.



Great point about digital distribution being a pipeline for people who otherwise would not get their work seen by the public.



J.M.

Giuseppe Navarria
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"as an attorney I always have considered your technical articles cutting-edge for gamer's law."

shhhh Jay Moffitt, don't use that word! We could be all sued!

Mat Bettinson
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I'm a little puzzled on why Steam is a bad thing. I think the industry is conscious of a potential conflict of interest but similarly Valve is standing under a huge spotlight on the issue so it's kind of doubtful that they'd engage in unfair practices isn't it?



Even if you think they might, there's at least a couple of other major PC-based digital distribution mechanisms. I would say that Impulse in particular has grown the most in the last year. It went from really just having a couple of games to having major publishers on it.



As a consumer I'd be more annoyed if there were too many, if games appeared exclusively via different stores. I don't really see why accusations of a monopoly are warranted in the direction of Steam. The PC is a hugely open platform. Steam may end up being the biggest but you might as well complain about the largest bricks and mortar retailers too right? They get bigger because they're delivering what everyone wants.



Although apparently at this point that still doesn't include sensible pricing for new releases...

Tom Buscaglia
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Here are responses in a bunch....



Alexander - if you are an IGDA member, I'll be doing an IGDA webinar on Digital Distribution on PC and consoles on the 27th of this month. It may be of interest to you.



Michael - not likely. The way Valve is structured I would be very surprised to see Steam spun off.



Alan - you are too cute!



Jay - I have a new article in the works. I sort of hit a block and have not been writing much outside of contracts for the past year. But I will do what I can to get something now out for Gamasutra soon, if they'll still have me! ;)



Guiseppe - Comments like yours put me over the edge.



Mat - Steam is not a bad thing...it is a great thing. Look at the casual space in comparison. Web distribution is controlled by a bunch of Ferengi minded portals who take the lions share of all the revenue. Steam has set eh bad for Royalty rate fr digital distribution of game that is nearly 2X the base casual portal rate....and more than 5 times what a developer would be getting from a traditional publisher deal. And the guys at Valve pay on time every time, you have real time access to sales and they are about the fairest folks I have ever dealt with in the industry. Why dealing with Valve is like dealing with a game developer instead of a publisher. Go figure! As far as prices go, on Steam the publisher or developer sets the price. So, don;t blame Valve.


none
 
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