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.
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
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.
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
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
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
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.
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
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!