Prepare for the Digital Distribution Era

As the debate over the future of the console wages on, the gaming community continues to look for the latest trends that will give one of the leading consoles the edge to push ahead of the pack.

However, some gaming enthusiasts have taken a step back to view the entire gaming landscape and the ways that distribution plays into the future of the industry. As consumers increase their interest in, and access to, digital entertainment content, the gaming industry must reevaluate the way it distributes content – especially in emerging markets slow to enforce international conventions on content ownership.

At this year’s Casual Connect Conference in Seattle, Alex St. John, CEO of WildTangent, predicted the death of console gaming by 2020. He surmised that as the industry shifts its focus from quality graphics to production value it will be less inclined to invest in the development of next-gen gaming consoles. When coupled with rapidly increasing digital content distribution through online and mobile devices, the decrease in console production will cut into the profits and demand for retail console and PC games. With the increased proliferation of affordable, immediate digital content, St. John predicted that the PC and browser will emerge as the dominate “console” within the gaming industry.

Last year, I contributed an article to Jon Peddie’s Tech Watch newsletter that introduced my thoughts about wireless digital content distribution and its future impact on the gaming industry. My comments then and my thoughts now continue to focus on how the inevitable drive to digitize content along with the growing importance of emerging markets and the promise of cross platform design will ultimately drive the industry forward. As the volume and types of available digital content multiplies, consumer buying habits will relate more to how they are able to access this content via new distribution outlets like a PC browser, mobile phone or potentially new yet to be launched consumer electronic devices enabled with wireless connectivity, than to the particular content itself.

Digital Distribution Effects

Over the last few years, the entertainment industry has increased the ways it distributes its digital content and that increased focus has affected every facet of entertainment from videos to books to music to games. In May for example, Apple announced that they will be offering full movie downloads on iTunes the same day they are released on DVD in retail stores, which expands the reach to consumers for entertainment companies beyond traditional storefronts. As a result of this success, game console companies are also looking to establish and expand their digital content distribution into the digital living room worldwide, as consumers require on demand content at the touch of their fingers and from the comfort of their living room sofas. At E3 2008, Microsoft announced a distribution deal with Netflix to stream more than 10,000 movies and TV shows to Xbox Live subscribers. More deals like this are sure to follow.

Within the gaming industry, digital distribution has been a hotly debated topic and on the forefront for the top console and PC game companies. Earlier this year, NPD analyst Anita Frazier stated that the $60 million drop in PC software retail revenue from 2006 to 2007 reflects the industry’s movement towards digital distribution as opposed to more traditional forms of distribution. By redefining what “console” means, and offering new mobile devices to view the latest content, the increased availability of digital content will cause console companies to invest in new wireless options and technologies as well as explore new business models. A precursor of the future to come in terms of business models is Amazon’s 3G-powered Kindle e-book reader. By bundling wireless airtime with the price of content, Amazon has created a simple seamless transparent consumer experience – a model we’re sure to see more of in the future.

Emerging Markets and Piracy

Content providers of all types (not just games) will also be able to better control illegal sales and piracy via digital distribution. Global piracy costs game publishers billions of dollars a year, with Nintendo estimating that it alone lost about $975 million worldwide to piracy in 2007. This trend is especially strong in developing South American, Central American and Asian markets where courts are slow, or even unwilling to enforce international conventions on content ownership. By distributing branded digital content on secure 3G, and eventually 4G networks, companies can protect their content while delivering it to a new market hungry for it. For consoles to succeed in these markets they’re likely to rely more upon digital distribution than disk-based distribution. This is a trend that markets like North America and Europe will also continue to embrace as publishers navigate the very sensitive balance between their existing physical retail relationships and their growing desire to offer more digital content direct to consumers – a dynamic that is less well established in emerging markets. In many cases these emerging market consumers’ first exposure to games will be via their mobile phones seeing as the majority does not own a console or even a PC in their homes. Goldman Sachs estimates that by the end of the next decade, 800 million people will move into the middle class in Brazil, Russia, India and China – more than the populations of the United States, Western Europe and Japan combined. With a potentially large untapped consumer base, the numerous and difficult political, regulatory and economic hurdles in these regions are sure to be overcome. Furthermore, as the on-device experience continues to improve for emerging markets of the world, wireless digital distribution will be the primary method of content distribution on platforms of all types, including consoles.

via Mike Yuen @ edge

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