GDC was exciting this year. It was completely clear that the era of online gaming has fully arrived and that the massive wave of interest at the event is no longer focused on consoles but on online gaming opportunities. The two major themes of the show revolved around social gaming and on-demand gaming, specifically a new service launching from a company called OnLive which purports to enable people to play traditional PC games as streaming video over the web without installing them. What’s exciting to me about this year is that this is the first time in many years that the game industry’s future has been so wide open that it’s difficult to predict.
I must confess that I’m a little hesitant to make sweeping predictions about future changes to the game market in these times. I’m sure, for example, that ultimately games will become a broadcast media that are predominantly monetized via micro-currency and advertising. I’m sure that consoles as we know them will fade into the history books within a very few years. These insights however lack the depth, vision and specificity I would prefer to convey because the market has simply become so turbulent that there are any number of ways it may unfold.
Take the much anticipated launch of OnLive for example. It’s a great sounding idea – streaming games that require no installation, can be played anywhere, and are stored in the cloud with support for spectating! Sounds great; it’s too bad that it’s doomed. Is anybody out there aware that Valve is doing a 9-figure downloadable gaming business for premium titles already? Although Valve is so wildly profitable that they have little need to hype the company to investors, I suspect that Gabe Newell is smiling to himself and thinking the same thing I am. This is going to be a fun show. Does anybody remember how many failed companies there are who have had the same idea and perfectly workable technology solutions for delivering premium games over the Internet?
I do, I also built a successful downloadable service that includes premium games and here’s where the idea always breaks down for everybody who tries it:
False assumption #1: There is real value in solving the delivery problems for retail games online
Delivery has been solved adequately many times over to no great regard. Yahoo’s download on demand service was a major failure generating a tenth of the revenue from popular retail titles as unbranded casual games were generating for them. GameTap crashed and burned. IGN’s download on demand service after many years of promotion and a huge gaming audience never amounted to more than an eight-figure business. Try-and-buy, subscription and rent-to-own business models have all failed. Valve is the most successful download-on-demand service for retail games and game delivery is a well solved problem for them. Online delivery obstacles have not been the barrier to Yahoo’s, IGN’s, GameTap’s, Valve’s or WildTangent’s growth in this area.
False assumption #2: Traditional game publishers want your help
No, they do not. They are slaves to the retail channel and public markets. Although they always have enterprising and exuberant new people who see the future and value of online publishing, the companies they work for can never overcome their desperate attachment to the retail channels that completely dictate their world. No matter how much they want to explore online opportunities they cannot afford to risk their channel relationships or most valuable new titles on unproven new online distribution channels without enormous revenue guarantees and strict restrictions on pricing, business models and market availability. The result has always been the same; you can get a hit new game from a publisher only with a huge revenue guarantee and strict limits on how it can be sold OR you can get a dusty old game that has run its course in retail on flexible terms. These companies cannot afford to change or gamble their best games on new online channels that are not already larger than their proven retail relationships. You can hide that problem with VC dollars for a while but eventually they run out.
False assumption #3: The games can be adapted to more flexible online business models
No they can’t. Even if the publishers were inclined to allow it, there are two pervasive problems. The first is that the DRM technologies used to protect retail games make it nearly impossible to adapt these games to better online models. Second, many traditional game publishers don’t even own or control the source code to the games they publish. They couldn’t modify them to work in new ways if they wanted to. Even if these statements weren’t true they would still fail for another reason, which is that the very formulation of retail games is contrary to how all content MUST be sold online: with a “free” trial in some form. Retail games are not designed to sell themselves via free trials. They rely on huge marketing budgets, big brands and the promise of being great games to get consumers to buy them sight unseen. Unlike online games which rely entirely on their pure play value and addictiveness to sell themselves, retail games rely on strong marketing to sell.
Conclusion
The hard to accept reality is that traditional games designed for retail distribution are simply dead in an online world and frankly the publishers of these games will ultimately die with them because they can’t afford to adapt. Streaming the same content “on-demand” won’t save them. The exciting part of this change is that it’s a brave new world for new companies to step in and create the next-generation EAs and Take-Twos. I’d list Activision as well but they’ve already effectively been bought by World Of Warcraft. I would not be surprised to see successful future games that are designed to be delivered as streaming video, but a new streaming delivery technology will not create a new online second life for this dying genre of content.
11 Comments
April 9, 2010
Good article, Alex. I might add a false assumption #4, which is that there is a large market of non-gamers who want to play traditional PC games. Folks who are dormant PC gamers or who have never played PC games don't do so for a reason. They may Facebook games or other browser games (shorter time investment, easier controls, lower cost), but I can't see them suddenly jumping in to play Crysis just because they can suddenly do so without buying a new PC.
April 9, 2010
It is doomed because it is not a good technological choice. CPU cycles are cheaper than bandwidth. I'd rather pay a few hundred for a box that can render to 1080 or higher smoothly with high quality than watch compressed 720. And I don't want to deal with input lag.
And CPU cycles will continue to get cheaper while bandwidth to the home has plateaued with DSL & cable modems. There will not be a fiber build out except in dense lucrative areas.
April 9, 2010
Excellent article. I've been following OnLive since they started accepting testers for their service. I am as concerned about the bandwidth 'issue' possibility as everybody else is. I am referring to the fact that too often do I find the 'net bogged a bit and I can't get some content to show in a reasonable amount of time.
Another concern is their business model. Say that you want to use their service. You sign up, buy a couple of games that cost you about , oh $80 maybe (2 $40 titles), then you decide to leave after a couple of months whether the service is good or bad. You just don't want to play in the cloud anymore and want to play the games on your actual machine. Do we get to install the games we paid for? Or did we purchase an OnLive license only?
April 9, 2010
"Retail games are not designed to sell themselves via free trials."
Thats the only real issue I have with your article Alex. Since the Playstation 1/Saturn days until today(360/PS3/Wii) demos(free trials) have been a hugeeeeeeeeeeee selling point for both console and pc gamers. Take the Xbox 360 for instance. 90% of all purchasable marketplace content(which equates to tens, if not hundreds of thousands of content) is available in a free trial demo/sample. I'm not just talking about game demos, I'm also talking about previews for downloadable movies and tv shows and even music samples for downloadable music. And this more than anything has influenced my purchase decisions, as has been the case with demos since the already mentioned PS1 generation. Clearly I'm not the only one who used demos as a determining factor or rather or not to but a $60 game or other media purchase.
So while there may not be demos/samples for every single thing on Xbox live marketplace, there is for the majority of media(games, videos, music) content. And although I don't game on pc's, I'm sure that they have just as much access to demos and samples as us console gamers do. Other than that, nice article.
April 9, 2010
Nice article. I think it is hard to accept reality is that traditional games designed for retail distribution are simply dead in an online world and frankly the publishers of these games will ultimately die with them because they can't afford to adapt.
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April 12, 2010
I agree with some points, but not the "doomed" part. I have followed OnLive for quite some time and have been very impressed with the concept. Although larger studios might be tied to the distribution chain, OnLive could be a massive hit for smaller studios without proper distribution resources.
Since their "micro console" is so cheap (hopefully bundled with some intermediate membership as well) I see a large market for casual gaming on the TV (not so much on the PC/Mac, since computer gaming seems to be dying desperately anyway (read: Ubisoft DRM)). I'm cheering for new technology instead of the "that will never work, because I know so" mentality.
Also, since your point "Retail games are not designed to sell themselves via free trials." was so elegantly trashed by the previous author, your logic is a bit broken as a whole.
April 12, 2010
People wouldn't subscribe to OnLine to play lesser, independent titles. The only way a subscription model would work is to give gamers access to AAA titles in a more cost-effective way than retail.
Unless there is a value proposition like Netflix or Gamefly, then who would sign up?
So if publishers of AAA games don't play ball with OnLive, then yeah, its doomed.
April 12, 2010
If you read my post, you would have noticed that I mention the greater possibility of casual gaming on the TV, rather than AAA games on the PC. OnLive will probably never replace existing hardcore gaming, but it opens the possiblity of a new market. How many AAA games are available on the iPhone, would you recon? These aren't the most poplular ones either. I think OnLive could really hit home in this area providing they have a similar business model as the iPhone.
April 12, 2010
I only agree with your starter argument: "ultimately games will become a broadcast media that are predominantly monetized via micro-currency and advertising". You then go on to explain why this will never occur. I don't know if OnLive will succeed or not, but if not OnLive, someone like them, and very soon.
First it happened to music.
Now it's happening to TV shows and movies.
Video Games are next.
Entertainment industry insiders all applied your "False Arguments" 1, 2 and 3 to their business and in music's case got themselves kicked in the head for their lack of foresight. Bandwidth and CPU cycles continue according to Moore's law and OnLive (or something like them) will succeed very soon at a cloud near you.
April 12, 2010
The basic problem with OnLive is that the speed of light isn't just a good idea, it's the law. Games that rely on low latency will never succeed with additional lag imposed by streaming visuals from remote servers. There are plenty of games that don't rely on low latency, of course, but some of the biggest hits have been games that rely on fast action. Halo? Call of Duty? Leave those type of games out and the service looks less attractive.
Meanwhile, games proliferate at the lower price points (down to free-to-play), and thus put price pressure on every platform. I don't see how OnLive succeeds with their pricing model, at a time when all the growth in the industry is coming from low or no-cost games.
April 13, 2010
Alex is a great interview and always a good read, but we'd just like to say and me and James don't 100% agree with everything he's writing. The idea that all publishers of console games (and consequently, those games themselves) will go down when retail sales start to fade strikes me as unlikely - are those gamers going to be satisfied with offerings like Runescape, or are they just going to go away and never game again? I can't see either happening.