Digital Distributor Focus: Direct2DriveThe rise of digital distribution over the last few years has been rapid, reaching a level last year (according to NPD) where PC games are more often downloaded than purchased at retail. Digital distribution is now responsible for about 31% of US spending on games, according to NPD. The digital distributors in the US are dominated by Steam (owned by Valve Software), Amazon, Impulse (now owned by GameStop), Games For Windows Live (owned by Microsoft), and Direct2Drive (now owned by GameFly), and EA's Origin (formerly the EA Store), along with a smattering of others.
The increasing importance of digital distribution isn't a mystery to publishers and developers. Some publishers (such as Electronic Arts) are developing their own digital distribution platform, while others are working through distributors such as Valve's Steam distribution arm. Meanwhile, developers are seeing a huge opportunity in new ways to bring their games to market without having to sink vast amounts of capital into creating physical inventory and shipping it to stores. The problem they are left with his finding distribution, and more importantly finding their customers.
IndustryGamers is taking a look at the major companies involved with digital distribution to see where this important part of the game industry is headed. The first target of our focus is one of the big players in digital distribution, Direct2Drive, launched in 2004 by IGN. Direct2Drive was acquired on May 25th, 2011 by GameFly, the video game rental service. IndustryGamers talked with Sean Spector, GameFly co-founder and SVP of Business Development and Content, about GameFly's Direct2Drive digital distribution operation.
IndustryGamers: How would you characterize your current market share?
Sean Spector: We are the #2 digital distribution outlet for video games with over 1500 titles for purchase.
IG: What's your competitive advantage; why should customers choose your service?
SS: In addition to the vast Direct2Drive catalog of Windows/Mac titles, GameFly offers a complete library of over 8000 games covering 10 console and handheld platforms, games delivered to your door, and all for a very reasonable price. Our subscribers also tell us they use our service to try games before they buy them to avoid costly mistakes.
IG: Where do you see digital distribution in the next year?
SS: Digital distribution of games will grow over time, but we do not expect fundamental changes in the next year. Consumers are supportive of the consoles and DVD format, and the publishers have a lot invested in this model.
IG: What effects do you think digital distribution has had on the game industry, on game development and game design?
SS: GameFly is a distributor rather than a creator of content, so development and design are really not our expertise.
IG: What sort of volume do you expect over the holidays? Can you provide numbers or statistics?
SS: Hardware and software sales drive new sign-ups for our service, so the holidays are our busy season. We don't provide numbers, but we expect to be up significantly over last year.
IG: What's your company's strategy going forward?
SS: We are combining the best of physical and digital distribution. We recently launched a private beta version of our PC digital client which will enable GameFly members to download and play a library of Windows/Mac games at no additional cost. We anticipate that this will raise the value of a GameFly subscription significantly, available to the public this holiday season.
Another part of GameFly's strategy is to create their own social network based around gaming, with the launch of their GameFly App for iOS and now Android. The app has had 4.5 million downloads on iOS, and provides news and information about videogames as well as ways to share info with other gamers.
“We’re very proud that our mobile App appeals to all gamers, not just GameFly members, giving them top quality news and information, and a very interactive social experience,” said Sean Spector, GameFly co-founder and SVP of Business Development and Content. “With an average in-App session lasting more than an hour, the new social features are a great resource for casual or avid gamers to learn about what’s hot or not, and to meet new people to game with.”
Clearly GameFly has a larger strategy in mind, hoping to cross-sell their game rentals and digital downloads to users of their social networking. They aren't the only companies to see the value of combining social networking with gamers; Apple's Game Center is another example, as is Zynga's recently announced Project Z, and EA's Origin service. Google+ is challenging Facebook as a general social network, and both of them are putting a strong emphasis on games. Xbox Live and PSN are pushing the social aspects of their vast user bases, too. As gaming-focused social networks proliferate, it's going to be hard for users to keep up with all of them. Whichever networks emerge as winners, though, they are all interested in promoting digital distribution, because that's a key revenue source for them.
