online distribution and publishing of next generation video games

ONLINE DISTRIBUTION AND PUBLISHING OF NEXT GENERATION
VIDEO GAMES FOR CONSOLES AND PERSONAL COMPUTERS
Andrew Chappell
Undergraduate, School of Electronics and Computer Science, University of Southampton
[email protected]
ABSTRACT
Development costs within the games industry are
steadily increasing, causing publishers to reject risk
adverse games. Profitable games such as sequels,
movie tie-ins or generic titles are preventing
innovative genre spanning titles from being
considered due to the risk of losing money if sales
are not sufficient. However, technologies like microtransactions and episodic content look set to save
the games industry from permanent mediocrity.
This paper will aim to investigate how online
distribution will affect the developer, consumer and
the industry as a whole.
Keywords
Video Games, Publishing, Online Distribution, Next
Generation, Micro-transactions, Episodic Content,
Steam, Xbox Live, Arcade, Marketplace
1. INTRODUCTION
The cost of developing and publishing a commercial
video game continues to rise.
Average
development costs for a title from 1997 were
“...between £250,000 and £500,000” [1], whereas a
title can now take 40 to 50 people anything up to 5
years to develop and cost up to £7.5m [1]. Epic
Games’ showcase title “Gears of War” for the Xbox
360, released in November 2006 was heralded as a
“cheap” game by Vice President Mark Rein with
development costs of “$10million, maybe a little
less” [2]. In the standard development model,
games developers can expect this process to be
funded in advance by the publisher, and in turn will
be awarded a set percentage royalty on the unit
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4th Annual Multimedia Systems, Electronics and Computer
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© 2003 Electronics and Computer Science, University of
Southampton
price minus the cost of the goods. This percentage
is typically 10-15%, although for certain high profile
developers or titles, the royalty can be as high as
40% [1]. In this typical model, the game developer
sees a very small return on the initial investment,
and as such has pushed more developers to
implement online distribution methods in an attempt
to gain a larger percentage profit. Small games, or
titles which would be considered too risky by
traditional video games publishers, can also find a
reliable distribution method from these digital
distribution services, and the increased percentage
profit of around 60% [3] of total sales helps
persuade investors to take a risk on funding these
titles. The video game console manufacturers
Sony, Nintendo and Microsoft are all either
promoting or actually selling their “next generation”
video games consoles, the Playstation 3, Wii and
Xbox 360. Each of these consoles offers a method
of digital distribution, along with several methods
currently available on the PC. Firms such as EA
and Activision are already noting rapid increases in
downloadable content, with Activision’s profits from
downloadable content doubled to around $2million,
compared to results from the previous quarter [4].
Due to the proximity of this paper to the launch of
the Playstation 3 and the Wii, Microsoft’s Xbox Live
Arcade and Xbox Live Marketplace will be
compared and contrasted to Valve Software’s
popular Steam content distribution service.
While writing this paper, several difficulties have
been experienced. These are largely based around
finding sources for information. Several people
have confirmed in private conversation figures but
specifically requested that they not be mentioned by
name as this would be a breach of previously
negotiated contracts.
Also several resources,
although directly related to this paper are either very
expensive, in excess of $600 for one paper, or failed
to return communications regarding the papers. As
such, this paper is flawed with an over reliance on
web based sources, often describing the papers
which should have been used. Also, this describes
a relatively new technology that has not been
discussed in the academic world. No previous
journal articles could be found regarding the subject,
so reliance upon sites such as Gamasutra and
Gamesindustry.biz is heavy as these represent a
balanced view of the industry as informative
magazines, often run by those arranging
conferences such as the annual Games Developer
Conference (GDC).
This paper will aim to compare and contrast several
different online distribution methods currently
available, and also look at the implications of this
technology, including micro-transactions and
episodic content. Section 2 will focus on Xbox Live
Arcade and Marketplace, section 3 on Valve
Software’s Steam, while Section 4 will focus on
impacts on how online distribution of video games
affects the end user, both positively and negatively.
Finally, a conclusion will be drawn in an attempt to
determine the likely success of online distribution of
next generation video games and some
recommendations on how the take up of online
distribution can be improved.
2. XBOX LIVE
th
Microsoft introduced Xbox Live on 15 November
2002 [5] as a premium service with a price tag of
approximately $50 per year. It was initially created
to provide Xbox owners the chance to play titles
online with fellow Xbox owning friends. It was
possible to provide additional content or updates to
Xbox games over Xbox Live – popular games such
as Project Gotham Racing 2 from Bizarre Creations
offered additional tracks and cars at extra cost over
Xbox Live. However, the service was completely
revised for the launch of the more recent Xbox 360
games console. The pricing structure was renewed,
providing two levels of membership – Silver and
Gold. Silver membership is free to any Xbox 360
user and allows people to track their progress
through games, download videos or game
demonstrations and purchase titles in the Xbox Live
Arcade. Gold level membership is similar in cost to
the previous offering, and also allows gamers early
access to content and the ability to play games
online with others.
2.1 Marketplace and Micro-transactions
The main areas of interest within the Xbox Live
service are the Marketplace, where game
demonstrations can be downloaded and additional
content purchased [6], and the Arcade, where quick
games and retro classics can be found [7]. The
additional content available from the Marketplace
varies in both price and scale. For example,
additional levels or items for games can often be
purchased for a specific quantity of Microsoft Points.
These points can be bought either as a scratch card
from traditional retailers and redeemed by entering
a code into the console, or by registering a credit
card with Microsoft. Different multiples of points can
be purchased, although there is no cost incentive to
purchase more than you need as the exchange rate
between real world currency and points remains the
same no matter how many you purchase. At the
time of writing, 100 Microsoft points are worth 65p
(as of 12/12/2006). Xbox Live Marketplace (XBLM)
is promoting two specific new developments in
digital distribution – Micro-transactions and Episodic
Content. Micro-transactions are small non-essential
additions to a game, such as a new car for a racing
game, or a new weapon for a first person shooter.
Whereas previously these would only have been
available in expansion packs or sequels, these can
now quickly and cheaply be added to a game –
most micro-transactions are below 100 points,
sometimes even free. While larger amounts of
content such as additional levels of game play or
“expansion packs” are also available, microtransactions are marketed as impulse purchases.
Typical content released in a micro-transaction
costs the development studio very little to produce.
In fact, it is often content that was created along
with the game, but left out due to time constraints or
even just unlocking content that has already been
created. As Micro-transactions are a reasonably
new phenomenon, no sales data is currently
available regarding them. However, with around
60% of Xbox 360 consoles connecting to Xbox Live
[8], the potential number of sales outweighs the
small development cost. Episodic content has not
featured on Xbox Live Arcade yet, but will be
discussed later in reference to Steam.
2.2 Xbox Live Arcade and Payment
XBLM is one aspect of online distribution within
Xbox Live, but this is currently not being used to
distribute games themselves, rather only additional
content. Xbox Live Arcade (XBLA) is a complete
digital distribution service for small, low cost games.
Currently size restrictions prevent large games
being distributed via this method as this service is
designed to work without a hard drive attached to
the Xbox 360 in question, thus must save the
content on to a 64mb memory card. The platform
currently features 36 games, priced between 400
(£3.40) and 1200 (£10.20) points [7]. Free trials are
available of every game, so the player can decide
whether or not to purchase the title after playing a
restricted demonstration. The full game can easily
be unlocked without even exiting the title in question
– the Xbox 360 operating system handles
purchasing in a “blade” interface overlaid over the
game. Purchasing a game offers access to such
features
as
shared
leader
boards
and
achievements, where you can check your progress
against your friends or against the whole world.
This community aspect of XBLA is important – the
platform was specifically designed to be easily
accessible to both experienced and casual gamers
[6]. The games have to comply with set guidelines
such as the “10 foot experience” [8], and pass
various stages of certification by Microsoft [9] to
check that the title is reasonably bug free.
2.3 Cross Platform Development and
Financial Statistics
XBLA is currently exclusive to Xbox 360 users.
However, Microsoft is currently in the progress of
implementing Live Anywhere, a service which will
provide features of Xbox Live to PC Gamers,
including support for Xbox Live Arcade titles.
However, due to architectural differences between
Personal Computers and the Xbox 360, it is not
possible to run Xbox 360 titles on the PC without
some additional development.
Microsoft have
attempted to minimise this using XNA, but this is
also still under development. Although currently
limited to Xbox 360, the service enjoys a very high
conversion rate of trial to full games – over 22% as
of August 2006 [10].
Details on percentages made by developers for
Xbox Live Arcade are limited as this is covered by a
Non Disclosure Agreement (NDA) which is signed
by the developer before development of a title can
begin. However, from development blogs figures of
between 65% and 35% of sales have been
mentioned, depending on Microsoft’s involvement in
the title [9]. It is also worth noting that there are
additional costs such as paying for certification if
your title fails the initial attempt. However, even
with development substantially supported by
Microsoft, the developing studio still stands to make
vastly more than through the standard development
model [1]. As such, development costs of an XBLA
title are much lower than a big budget game sold via
the standard development model – estimates by
XBLA developers put this figure at between
$100,000 and $300,000 [9].
The high conversion rate is of particular interest, as
figures of 1 to 2% are considered good in the PC
Shareware market [10]. While traditional shareware
games return a higher percentage to the developer,
XBLA provides several advantages over the more
traditional PC Shareware market. By offloading the
distribution side of the project to Microsoft,
overheads such as hosting and payment processing
are eliminated. Also, sales figures for the Xbox 360
currently stand at over 6 million with 60% of
consoles connected to Xbox Live [8]. With Xbox
360 sales increasing, this market is constantly
expanding, and provides a large potential market for
impulse purchasing of games. The nature of the
console based platform also means that issues such
as piracy and supporting the variations in PC
hardware are minimised.
Content is easily
accessible from within the Xbox 360 Operating
System (Dashboard), and importantly can be played
while the console is not connected to the Xbox Live
Network, unlike many alternative online content
distribution systems.
Once purchased, the title is tied to both the Xbox
Live account of the owner (Gamertag), and the
initial console it was purchased on. The Xbox 360
allows several gamers to share a console by setting
up a different Profile for each user – allowing distinct
save games and settings such as control sensitivity.
On the console where the game was initially
purchased, all profiles can play the full version. On
any other console then the Gamertag that
purchased the title can download the content again
and play the full version without paying extra,
however they must remain signed in to Xbox Live in
order for the full game to be unlocked, and the
game will only be available to that Gamertag rather
than all profiles. The content can be deleted and
downloaded again an unlimited amount of time –
allowing users with small memory cards the ability
to chop and change between games. The longevity
of this will be discussed later in the paper.
2.4 Conclusion
Overall, XBLA provides a solid platform for
developing games. It provides a greater percentage
share of sales than most other methods of
distribution, and has a large captive audience.
Development tools are strong, as are sales figures
for the console itself. However, XBLA development
is proving very popular, and passing concept
approval and certification with Microsoft takes time.
It does not have the instant return on investment
that a simple PC shareware title does, but has been
largely well received within the console owning
community and has the potential to sell many more
copies of a title.
3. STEAM
Initially released at the Game Developers
Conference in March 2002, Steam from Valve
Software was conceived as a system to streamline
multiplayer games and provide patches to keep
these games automatically up to date [11]. Valve
realised the potential market for online distribution
as more and more of their customers played their
games over a broadband connection and so were
able to perform the large downloads that online
distribution of full retail titles demands. Steam’s first
large scale distribution of a title did not come until
th
the November 16 2004 release of Half-Life 2.
Despite development delays of over a year, HalfLife 2 was a highly anticipated title, and as such was
retailed both traditionally on optical media and
online via Steam.
However, Half-Life 2 was
groundbreaking in that it was the first mainstream
game to require an internet connection at least
once, even if you only wanted to play the single
player game.
This decision created serious
backlash for Valve, not helped when key parts of
Steam failed due to the sudden authentication
requests of thousands of newly installed versions of
the game [12]. Although there have been few
further problems with Steam, and those that
occurred have been fixed rapidly, many gamers are
still wary of Steam and as such it is a constant
source of debate whenever a new Steam enabled
game is announced.
3.1 Episodic Content
As well as pioneering online content distribution,
Valve Software has been a driving force behind
Episodic Content. The principle behind episodic
content is that development times for large games
result in three to five years of slog before the title is
ready for release. By splitting the game in to
chapters, development can focus on creating and
releasing the game one chapter at a time. This
gives the developer a much more steady income,
and increased financial security – both becoming of
increasing importance as development costs
increase and more projects are scrapped mid
development. Not only does Episodic Content
result in the ability to release games faster, it also
results in lower perceived costs. Each episode
tends to sell for a medium to low price, and as each
game is composed of several episodes, the cost of
the game can be split between these episodes. In
fact, there is often potential for the developer to
make more money if the game proves popular, as
the total cost when each episode is added together
can total more than the prices traditionally charged
for full PC titles. Episodic Content can also be used
to judge the interest in a series – rather than create
the full game only to have it sell poorly, story lines
can be adapted to fewer episodes as the result of
poor sales, or vice versa should sales warrant a
more detailed plot. This is especially useful for
games which would find obtaining a publishing deal
using the standard development method difficult. A
recent example of this includes the adventure game
genre, which has been largely abandoned, including
the halting of key titles mid development in recent
years. Telltale Games are working on several such
games, and have chosen to self publish them,
releasing them in an episodic form. As such, games
such as Sam and Max, which were once very
popular, now can be enjoyed again thanks to the
benefits of the decreased costs of electronic
distribution [13].
3.2 3rd Party Developers and Revenue
Split
Initially, Valve was the only developer to use Steam.
While third party modifications to games such as
rd
Half-Life 2 were distributed via Steam, 3 party titles
were lacking. In October 2005, Rag Doll Kung Fu
by Mark Healey was released as the first
independent title available on Steam [14]. Since
then, many other titles have been released
developers other than Valve. These range in scale
from full scale commercial games such as Dark
Messiah Might and Magic from Arkane Studios and
Medieval II Total War by The Creative Assembly to
smaller indie titles such as Darwinia and Defcon by
Introversion Software to many arcade-esque titles
from self published developer Popcap Games [15].
Sadly Steam sales are a closely guarded secret,
presumably part of the non disclosure agreement
that developers or publishers sign with Valve when
arranging distribution of their product on the Steam
platform. However, the revenue split for Steam
titles was reported as 60% to the third party and
40% to Valve, putting it in line with other electronic
distribution methods [16].
3.3 Purchasing Content
Purchases from within Steam all take place in
United States Dollars, and currently by credit card
only. Plans are in place to allow payment via
PayPal, a popular international payment system
owned by EBay.
Titles on Steam can be
downloaded as many times as you want, and kept
on many computers simultaneously, however they
can only be played if the currently active Steam
account has paid for them. In theory, players can
use Steam in an offline mode once the initial
authentication of content has taken place, however
problems have plagued this feature since its
introduction to the point where it is considered
useless by many. The Steam interface provides
users a way to track the activity of their friends, and
to view existing downloaded games as well as
purchase others. However, due to the nature of the
deals negotiated between Valve and certain
developers or publishers, some titles are only
available in specific countries. Rather than hiding
these titles, they are displayed along with others in
the main Steam storefront and only display a tiny
warning when more information on a specific game
is requested. An example of this is Medieval II Total
War by The Creative Assembly which states “Direct
delivery of this game via Steam is available only to
customers in North and South America.”.
3.4 Piracy and Cheating
Steam is also used by Valve to deal with piracy and
cheating concerns. Following the launch of Half-Life
2, Valve banned 20,000 steam accounts for using
pirated versions of the game which could easily be
found on peer to peer file sharing networks [17].
However, this banning did little to stop piracy in that
copies of Half-Life 2 were later made available that
ran without Steam hence avoiding this copy
protection. Anti-cheating services are also provided
within Steam, which are designed to identify and
ban cheaters from playing online. Each Steam
account has a specific Steam ID which servers can
then be set to ban. Few games are distributed only
on Steam – most are also available via traditional
optical media.
Thus piracy for these titles is
relatively easily obtainable by distributing the data
as present on the original media, and a hack to
remove the CD check. As such it is likely that piracy
factors are not a key choice in the deployment of a
game via Steam, although no such details are
available from Valve or third party developers.
possibly £100m across the market as a whole.” [18]
This is often demonstrated by the large number of
second hand titles displayed in retailers, which is
unsurprising given that margins for new software is
less than margins for pre owned titles. Steam
provided a way to sell a copy of Half-Life 2 once it
had been registered to your Steam account, but the
additional hit of $10 and the fuss required in faxing a
copy of your receipt to Valve was such that it often
worked out cheaper to purchase a new copy. XBLA
currently offers no way to sell games if you no
longer want to play them; you only have the option
of deleting them and recovering the space that they
occupied.
3.5 Conclusion
4.2 Problems with Purchase Procedure
In conclusion, Steam provides easy access to
approximately 90 games, with a rapidly expanding
catalogue and list of supporting third party
developers and publishers. It has had a rocky past
when dealing with large volumes of purchases, but
seems to be maturing into a solid electronic
distribution platform. It has proven a driving force
for Episodic Content and automatic updates of
online titles, and established itself as a largely
global service which is surprisingly rare.
Another complaint with both Steam and XBLA is the
way in which content is purchased. All transactions
on Steam are carried out in United States Dollars.
This can result in an additional charge from the
credit card provider if you are located outside the
United States, or a less than favourable exchange
rate. Steam also does not hide content that is
currently unavailable in your region, which can be
disappointing as it is not well indicated. XBLA hides
content not available to your region, although by
registering a free account based in that region it is
still possible to download and purchase content.
Because XBLA works with the Microsoft Points
system, it is quite possible to end up with a useless
amount of points left over after a purchase. In fact,
the current pricing of XBLA titles and the current
available amounts of XBLA points seems to directly
cause this – titles tend to be 400, 800 or 1200 points
whereas top up amounts are 500, 1000, 2000 or
5000. So in both systems, payment processing
does not work in favour of the user.
4. ONLINE DISTRIBUTION AND THE END
USER
With the continued adoption of Online Distribution
services such as Xbox Live Arcade, Marketplace
and Steam, users now have a large library of games
which can easily and quickly be obtained. As well
as a large catalogue and access to new content at
any time, the principles of micro-transactions can be
applied allowing games to easily buy additional
items that they want rather than expensive
expansion packs. Episodic content also allows
impatient gamers to get their hands on new games
even faster, and with spending spread out over time
rather than all in an initial lump. However, Online
Distribution has many disadvantages for the end
user as well. It prevents users from selling games
that they no longer play, is often more expensive
than actually buying a title and can cause problems
when equipment fails or when companies providing
the online distribution service close down.
4.1 Second Hand Market
The inability to sell second hand copies of games
significantly inflates the purchase price of games.
Many people purchase a video game, complete it
and then sell it on once they are no longer
interested in playing it. According to MCV, the preowned games market “...is believed to be worth as
much as £50m a year to leading chain GAME and
4.3 Expense
With the decreased cost of electronic distribution in
comparison to physically posting a game box to
your door, you would expect games to be cheaper
on online distribution services than their retail
versions.
However, many titles are easily
obtainable from retailers for less than or the same
as the online distributed version. An example of this
is Dark Messiah Might and Magic, which is available
from popular online shopping site Play.com for
£24.99 including postage, which makes it
approximately $47.35 at base rate as of 20/11/2006
[19]. So even without factoring in a less attractive
rate from credit card companies the Steam
download is more expensive. And whereas games
prices often fall quickly, or can be found second
hand in stores such as Game or Gamestation,
prices in Steam remain fixed for a much higher time.
A good example of this is the critically acclaimed
game Psychonauts, developed by Double Fine
Productions and published by Majesco in the United
States. It is currently being sold on Steam for
$19.99 but can be found for as little as $6.99 on
Amazon.com as of 20/11/2006 [20]. This disparity
between the perceived cost saving of no optical
media, no manual and no box and the price of the
boxed copy in retail results in many people simply
not bother with online distribution services unless
there is no other option.
4.4 Longevity
Finally, the longevity of these platforms is unknown.
Although online distribution is still a relatively new
technology, at least one high profile distribution
service has failed and resulted in people being
unable to play their games until the developer
provided a patch. Prey, by Human Head Studios
and 3D Realms was distributed via Triton from the
now defunct DiStream. The collapse of the Triton
online distribution service resulted in people who
had reinstalled their game being unable to play as
the authentication service had been taken offline.
The game was released towards the beginning of
July 2006, and by the end of September the digital
download service had been closed, leaving
customers who had purchased the game without
any information for several days. Eventually 3D
Realms arranged to ship boxed copies of the game
to those who had purchased it, however as of the
time of writing people have yet to receive them [21].
This raises an important issue with all online
platforms – if the authentication servers are taken
offline then would the company provide a patch to
remove the dependency on them? Luckily for Triton
customers, one dedicated programmer is producing
a patch that does exactly that [22]. Valve claim to
already have such a system in place in case of
emergencies, yet the license agreement for Steam
specifically states that such action is not mandatory.
5. CONCLUSION
Over the past 35 years, the video games industry
has undergone tremendous changes. Development
costs have spiraled along with the processing power
of computers and consoles alike.
With an
expanding market for casual games or shifts in the
way large titles are developed such as microtransactions and episodic content, online distribution
looks to have a successful future. With impressive
growth recently [8], services such as Xbox Live
Arcade / Marketplace and Steam will attempt to
continue this into the future. However, they will
have to address several key issues in order for
online distribution to effectively compete with
traditional retail outlets.
The first, and arguably the most important is
assuring customers that their service is reliable and
that they will provide the end user with a way to get
at their software long after support for the service is
withdrawn or the company has faded from
existence. Large scale disasters such as the rapid
collapse of the Triton service need to be shown as
the extreme rather than the normal, and service
agreements need to be reviewed and edited to
show confidence to potential customers, both in
their product and the ability to make amends should
the unthinkable happen. While platforms such as
Steam are now beginning to settle down and
mature, others such as Xbox Live Arcade are still
much younger.
Microsoft need to persuade
consumers that Xbox Live Arcade will still be
accessible even after the Xbox 360 has been
replaced by its successor. So far, Microsoft has
done a good job of this – the original Xbox can still
use Xbox Live, even if it cannot use the new Xbox
360 only features. However, directly competing
online services are being provided by Nintendo and
Sony in their next generation consoles which will be
released shortly. Both have their own plans for
online distribution of content and it will be difficult to
judge the success of Xbox Live Arcade, and digital
distribution of console games as a whole until these
new machines are better established.
The second key factor preventing greater use of
online distribution is the price.
While initially
heralded as a way to get games for less, the price
difference for titles sold online is very small
compared to their offline equivalents where they are
available. Many will judge that the reassuring
nature of having a “real” DVD containing the game
to be worth the small extra initial cost. This extra
cost can easily be offset by selling the game once
the owner has finished with it. While offering
customers the ability to sell games would put a
significant dent in new sales, it would attract people
who were unwilling to pay the full price, and would
allow a further profit to be made on the transaction,
either in the form of a percentage of sale value or as
a fixed fee. While this is unlikely to be implemented
due to the impact on full price sales, ensuring that
the online distribution prices remain competitive with
the market value of the game is just as important.
While prices are reduced on services such as
Steam, they are rarely reduced at similar rates to
those from online retailers such as Amazon. Xbox
Live Arcade gets away without reducing its prices
simply because it is targeting a different
demographic – the casual gamer who will buy a
cheap title on impulse after fiddling with the demo
for fifteen minutes. Steam must face the reality that
most of their users who are members of the service
will also have accounts with Amazon.
The final key factor will be securing exclusive
content of sufficient high quality that people will
continue to use the service. Both Xbox Live Arcade
and Steam show advertisements to the customer
tempting them to buy new games. Xbox Live
Arcade
will
even
automatically
download
demonstration versions of new titles to your Xbox
360 while you are playing other games. Techniques
such as preloading content so you can play the
moment the title is ready to be released, or offering
the ability to play selected titles early will give
people sufficient reason to purchase the game via
an online distribution service rather than have the
optical media posted to them.
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GarageGames,
http://makeitbigingames.com/blog/?p=35
last
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