Valve: PC Has 'Perception Problem,' Piracy Reflects 'Unserved Customers'
"There have been a bunch of stories written recently, both in the gaming press and the mainstream business press, that PC gaming is dead," said Gabe Newell during a small press event attended by Gamasutra and held yesterday at Valve's offices in Bellevue, Washington.
"This meeting that we're having here really should be done by Intel or Microsoft, companies that are a lot more central to the PC ecosystem, rather than just hearing about our perspective on these issues."
This kicked off a two-hour presentation, in which a number of Valve employees made the case for the PC as a robust, innovative platform.
A Perception Problem
"Is there a crisis in [PC] gaming?" asked Newell, who led the first segment of the talk. "You know, 'Piracy killed my game,' 'Console numbers are huge,' 'People don't want to play their PCs in the living room' - all these stories get written over and over again, and our view is that it's exactly the opposite. PC is where all the action is, and there's a perception problem."
According to Gartner Group data, there are over 260 million online PC gamers, with 255 million new PCs being sold in 2007. Steam alone has 15 million connected gamers, with 1.25 million peak connected gamers, and 191% year-over-year growth; Valve was quick to point out that Steam represents just one of many online distribution systems.
"This is a market that dwarfs the size of any of the proprietary closed platforms," Newell said. He noted that the vast difference in scale between PC and console platforms means that PC continues to be the platform with the most capital investment, allowing it to drive the innovation and technology development that eventually trickles down to consoles.
Newell then cited DFC Intelligence data showing that, while worldwide retail PC game sales have been relatively flat since about 2001, PC online sales have continually grown - that segment has traditionally not been tracked by widely-cited firms like NPD. With Valve's own products, it expects online sales to surpass retail sales within the next three months.
Beyond digital distribution, he brought up areas such as online subscriptions (only as of recently tracked by NPD, which claimed $1 billion in annual subscription revenue), casual games, and free-to-play online games such as those popular in many Asian markets.
Newell then returned to his "perception problem" angle. "We don't really have a champion of the PC platform. If you write a story about the Xbox 360, there's just an army of people who are going to descend on you to make that picture look as polished and rosy as possible. Same things for the other consoles - but there's no equivalent on the PC, and the people who are traditionally driving these messages, like Microsoft or Intel or Apple are, for various reasons, not very effective champions."
Still, Valve does not want to create the impression that it will solely take on that role for PC. "The PC does have that distributed management problem," he said, when asked about Valve's role in the platform's stewardship. "It's been doing pretty well since, you know, 1981, so we're trying to draw attention to that, and hopefully we'll hear more from the people who have traditionally provided leadership there. We're trying to do our part. We recognize we're part of this."
Continued Newell, "We tackle a set of problems that is a higher priority to us, PopCap has a lot more focus on a certain kind of customer and is aggressively trying to figure out how to grow those customers as fast as possible. One of the nice things is, we have a lot of people trying to tackle a lot of problems. We're just tackling our subset of those."
After a lengthy pause, he added, "I'm trying to avoid slamming particular people."
The Worldwide Market
"What you end up getting is coverage of the gaming industry that is very much driven by English-language packaged goods sales," Newell said, "and when you look at those numbers, you're only seeing like 10% year-over-year growth."
He stressed the importance of recognizing the size of the global market, particularly since digital distribution removes traditional barriers associated with retail games, such as shipping-related concerns.
Certain established markets like Germany and the Nordic countries, as well as emerging markets such as China and Russia, are, as Newell puts it, "leapfrogging the console generation" and being largely driven by the PC. Certain markets that can be difficult to reach via retail means can be highly accessible through digital distribution.
Valve business development director Jason Holtman spoke in greater depth on emerging markets. As he pointed out, retail and distribution methods in various markets can be radically different, presenting challenges in shipping products globally - but "PCs are the same all over the world. All of a sudden, if you can open up emerging markets and go somewhere like Russia and southeast Asia, you've gone way further than you can go with a closed console."
Holtman then expanded on Valve's success in Russia, a market that has traditionally frightened publishers away because of its widespread piracy. "Rampant piracy is just unserved customers," he argued. "Using Steam and Steamworks, we were able to address that."
He explained that with encryption technology and Steam's online verifiation, Valve was able to ship discs to replicators in Russia without the game being pirated, and ended up shipping in Russia alongside the rest of the world.
The opening up of worldwide markets, as well as the long tail sales approach that is offered by digital distribution, makes for a strategy that is less dependent on the traditional immediate hit-driven marketing approach, Valve argued.
Said Newell, "As you move away from needing to hit that huge first-weekend blockbuster mentality, the physical constraints of moving bodes through warehouses, and hitting critical mass to justify these huge marketing budgets, you're getting back to an era when smaller and smaller groups can connect with their customers, and I think you're going to actually find that the enjoyment of being in the game industry as a PC developer is much greater than operating outside of the PC space."
Photo credit: Frieder Erdmann