IGN's downloadable game service Direct2Drive just turned five years old, and has seen exponential growth as full-length game downloads proliferate on PC. The company's sales have doubled over the past few years, and this year's seen a 45 percent unit sales boost over the previous one.
Most importantly, the service's growth doesn't just tell a story about Direct2Drive, but is just one more example of a rapidly-evolving digital space for video games. These days, it's hard to even remember when publishers were wary of digital launches and consumers had few, if any options for current, full-length game launches, but it was not very long ago at all.
In 2004, "it was very difficult to get anyone to sign on... especially publishers," Senior VP of consumer technology and products Jamie Berger tells us. "They were very nervous about digital distribution, they were very nervous about the retail reaction, and 'is this going to lead to the situation that the music guys were going through?"
The beginning of the new millennium saw the music and movie businesses struggle to capitalize on the era of digital distribution. Connected consumers quickly snatched their power away, making it increasingly challenging for them to monetize content at all. Publishers feared the same thing could happen for games, Berger recalls, and so were hesitant to make offerings beyond classic, sure successes whose shelf life had mostly expired.
"The cool part is the ability to unlock lots of value out of catalog titles that were not getting any value derived by the publisher after, say, 18 months -- and now, all of a sudden, say we launch with Knights of the Old Republic and it's one of our top sellers, which we never would have imagined [beyond] a niche audience," says Berger.
Direct2Drive began with a "couple dozen" titles, mostly two or three year old games, Berger says. "At the time, we were like, 'boy, wouldn't it be great if we could one day launch day-and-date titles? That day is here now. In general, digital distribution... is now being treated by pretty much every publisher as a standard part of their launch strategy, or both console and PC."
Direct2Drive focuses only on the PC space, of course, but Berger says PC download consumers are now being considered alongside console customers as a matter of form. "I think any publisher now is looking at digital distribution, but they have to have a strategy for launching their product with it, and post-launch DLC, and incremental add-on content, special editions, the kind of things that are becoming a more mature part of the business."
Beyond The Back Catalog
Today, the state of things on Direct2Drive -- an offering of 1,000 titles from relationships with over 300 game publishers -- is quite a ways from where the service began. So what caused the sea change?
"We were making the money! Simple as that," says Berger. "The publishers are going to start going where the money is. At first, it was more of an experiment... and then what started happening was we started becoming a larger proportion of their sales each year per game."
Ubisoft was one of the service's major early adopters, Berger says, and a primary leader of the trend toward digital distribution in general. "We saw them jump in, and as they started getting more and more aggressive, more conservative folks like [Electronic Arts] and some others started jumping on board, because they saw the other guys going with their day-and-date titles."
"It's really the obvious -- a publisher trying to figure out how to go where their consumers are, and maximize revenue and income. Digital distribution is now earning its keep, and becoming a kind of growth spot in the industry."
And the major lesson the music business earned the hard way was to figure out where consumers are going and get there early -- not wait or worse, fight them on it. "[Digital is] an inexorable part of the distribution of entertainment content," says Berger. "If you want to be in the business of distributing entertainment content in this century, you better create a proactive strategy around digital distribution... a smart strategy of getting ahead of it and not just being pulled into it by the consumers."
Not Just Storefront, Service
With publishers wise to the merits of reaching consumers through channels like Direct2Drive, consumers are being offered ever more options to download games from digital storefronts, and the space is likely to continue becoming more competitive.
In order to succeed, says Berger, "I really believe the first thing you gotta do is stop thinking of yourselves as a digital distributor. We're an e-commerce provider first and foremost; you have to be great at customer service, you have to cover the basics of being able to manage different transactions from different types of customers, and you need to always deliver the goods."
"I really believe... that if we just said, 'we want to be a great downloader', and then we were terrible at customer service, user interface, ability to find the product, then we've failed," Berger adds.
That being said, post-sale operations are still challenging, he notes. "The extra component of what we need to do well is dealing with post-sale of whether there's DRM, or, 'hey, I want to re-download my game,' or 'I have a problem installing'."
Thus digital distribution creates another major point of differentiation from traditional retail channels, where post-sale commitment is low at best and many brick-and-mortar stores offer a return policy only for actually broken and damaged software, not for compatibility issues, and no support for the post-release incremental content and online modes that have become standard today.
"One of the really interesting aspects of being a digital distribution retailer is that we are responsible, and rightly so, for not just selling the product, but helping them make sure that the product will work," notes Berger. "In a typical store, once the product leaves your store, you wash your hands of it."
The Cloud Is Coming
Whether or not a given title will work on a user's computer has nothing to do with the digital distributor, "but we still have to deal with it." One promising development on the horizon that has major implications for one of the biggest challenges for gaming on the PC is cloud computing -- by streaming games from a server, a user's PC can theoretically become a wholly agnostic platform, sidestepping usability and compatibility tangles entirely.
But how would the success of services like OnLive impact the business of companies like Direct2Drive? Is it a threat?
Berger doesn't see it that way. "We are a digital distributor of games... we don't have a tech-religious kind of focus, where we say the only way to sell games is to download them," he explains. "Our focus is to say we're a digital commerce place for games, and if a portion of the world migrates to a cloud-based system, we have no problem migrating -- and we see that as an opportunity as well."
He theorizes: "In the long run, in my mind I very much believe that two, five, 10 years from now, consumers on multiple types of devices will be able to access us and download games, because the world of connected platforms and connected devices is going to start flattening out these silos of distribution, and allow third parties to sell a game to your handheld device, next-gen platforms and PC all from the same place."
"I also believe what we are is an internet service, not a PC downloading service," Berger adds. "That allows us... to aggressively opportunistically go after new markets that we see opening up for us."
Casual Games Aren't Just For Portals Anymore
Another thing that's changing fast for digital retailers is their casual gaming offering. In 2004, casual game publishers were much more likely to offer games on their own portals, and it was the high point for services like EA's Pogo and AOL Games. For another example, it's easy to forget the days when casual giant PopCap was not yet a major publisher of console, mobile and handheld game software -- it was largely just a dot-com.
Many services like Valve's Steam and Direct2Drive who now have entire storefronts devoted to casual and family-oriented titles steered clear in those days. "We made an explicit decision at launch to not host casual content," says Berger. "In 2004 it's not that there was no digital distribution -- it's just [it was all focused] on the mass-market casual games market and small apps."
At the time, recalls Berger, the idea that a consumer would be willing to download a one-gigabyte file to play a casual game was wholly implausible. "So we said, 'we're going to go the opposite direction, and go for the hardcore enthusiast market with $50 games, not $5 games or $9.99 games and work for the premium market."
Now, what Berger calls the "niching" of casual games as products strictly for women over the age of 25 is "just not true... Look at Plants vs. Zombies," he offers. "Is that a casual game? I don't know if it's any more hardcore than Pac Man."
"Casual game development has been, I think, evolving into a really sophisticated market, where you're seeing outstanding products coming from that world -- and then folks like ourselves are migrating with our audience and saying, 'hey look, they're going to want to buy World of Goo."
Direct2Drive has no desire to simply aggregate casual titles, Berger stresses. "What we do want to do is curate really good-quality titles that we believe our audiences are going love, really good developers, really good publishers -- a selection of these types of games rather than ten thousand. Having 900 poker games -- what's the advantage in doing that?"
One more interesting aspect for digital download services is the rapidly-growing, relatively untapped opportunity in the European markets, Berger says, and Europe is a major area of growth for Direct2Drive.
"We have a UK-dedicated site, and we are very much focusing on Europe and the UK... both because there's a lot of really cool game development coming out of Europe right now -- like Mount and Blade," explains Berger.
"Germany still is a very PC-centric market, even with console distribution. In Russia and Eastern Europe, we see a lot of exciting content coming out, as well as a lot of consumers that are looking for these games because the physical distribution model isn't as well-developed."
Alongside expansion in markets beyond North America, publishers are also getting clever with special editions and game content specific to download channels. "Now, you're starting to see publishers go day and date with specific versions of the game that are only available via digital distribution, certain DLC or game items available through Direct2Drive, et cetera," Berger points out.
"I think that's opening up lots of experimentation for publishers to be able to try new things that would have been really difficult on the disc-based model. They're not only distributing day and date, but they're thinking about what digital distribution means for them in terms of building a franchise."