The Potential of Online Distribution

As reported by Gamasutra, a joint study by DFC and GamerNDA, showed how the nimbleness of online distribution may extend a games shelf life dramatically. The study tracked user activity for Left 4 Dead across the PC (via Steam) and the XBox 360. While throughout most of the study, the PC and XBox activities were relatively on par with each other, the two major deviations were to the advantage the PC numbers. These deviations were attributed to promotions offered by Steam.

DFC's main takeaway from the study is that the flexible, quickly-adaptable nature of online distribution services like Steam allow for developers to use a broad variety of promotions and incentives to keep their game communities fresh; individual promotions like the Survival Pack had a positive effect on both platforms, but it was the one-two punch of that DLC plus the follow-up free weekend through Steam that had the mot meaningful impact on the game at any point on either platform.

This shows that one of the potential advantages of online distribution: the ability to easily slash prices to dramatically increase shelf-life. However, while the number of users may have increased on Steam, it was primarily due to substantial price cuts and free trials that were not necessarily available (at least not in the same volume) for XBox. Thus, while the number of user's increase, the revenue stream per user most likely plummeted as well. Due to the nature of these promotions, more users do not necessarily equal more money. What I would like to see are the week over week revenue streams for the PC v. XBox 360, to compare if the revenue stream under Steam tapered off more slowly than the revenue stream for XBox.

But despite my comments above, I don't think that these numbers are completely useless. What they do show is that nature of online distribution permits developers to extend what have become increasingly short shelf-lives for games. Naturally, by offering promotions, the revenue per user will diminish, but the secret will be to offer the right incentives at the right time to get those users who would not normally purchase the game (or the service) to do so, ultimately garnering more revenues than you would have if no discounts were offered.

To the Great White North: My Apologies

Since my post about Canada being placed on the USTR Priority Watch List, I have received some comments from some Canadian brethren that my initial post makes Canada out to be in the same boat with Russia and China in regards to piracy, which was certainly not my intention. Upon reflection and further review of my initial entry, I can see how it can be interpreted in that manner. I have since updated the post further to reflect that my initial thoughts were aimed at the US developer who deeply wishes to retain the full US protection of his IP.

Whether or not Canada actually belongs on the Priority Watch List is another debate completely. Here are some links to explain the debate over the controversial USTR report:

• A history of Canada and the USTR relationship
• The Copyright Alliance Response
• and Michael Geist's Response

Canada Placed on USTR Priority Watch List for Copyright Piracy

Edited for clarification purposes May 12, 2008

It has been announced that the United States has placed Canada on the Priority Watch List of the worst offenders of copyright piracy. This news may leave many developers wondering how this will effect how they conduct their business both in dealing with Canadian content providers and when distributing their products.

It is important to note what the Priority Watch List actually is. The watch list is created by a the US Trade Representative, who represents the US in international trade negotiations. The Priority Watch list includes countries that, while may not contain significant rates of piracy, do not have what the US believes are adequate IP protections. Thus, just because Canada is on the Watch List does not mean that it is in the same boat as Russia or China as far as the likelihood that a work will be pirated. What it specifically means is that, in the US governments opinion, the IP protections provided by Canada are insufficient compared to the protections provided by the United States. So, if a US developer is deeply concerned over the protections of his work in Canada and wishes the same protections offered in the US, he may wish to take a few measures.

Of course, if dealing with Canadian content providers, a US developer should check that the provider is reputable and willing to provide references. Further, the US developer should beef up any IP protection and indemnification clauses in the development contract and ensure the contract provides that any disputes under the contract will be brought under U.S. law. It is important to note, however, that just like dealing with providers in other Priority Watch List nations, it may be more difficult to enforce and collect any damages due under the contract due to the international nature of the agreement.

As far as prohibiting piracy after distribution, one of the glaring problems is that, unlike China or Russia, the Canadian and US markets are virtually one in the same due to the cultural, linguistic, and geographic proximity of both countries. This makes it much more difficult to strategically reduce Canada's access to a product by traditional methods, such as avoiding a marketing strategies that would target that particular region and not publishing the product in the regions native language.

One possible solution, if the developer distributes its products online, involves refusing to transact with purchasers with Canadian billing addresses. Or, alternatively, if distributing its product through a publisher, the developer can request to limit the geographic region of the development agreement such that the publisher may not distribute the product to Canada. Of course, the latter solution depends on the ability of the developer to negotiate the term in to the contract. But, such a request should not be considered unreasonable due to the fact that it is beneficial to both the developer and the publisher to reduce the effect of piracy in Canada.

However, by attempting to eliminate the Canadian market, the developer should be aware that this will also result in the loss of all sales in Canada. Ultimately the developer will need to weigh the costs and risks of loosing a game to piracy in Canada against the costs and risks of cutting Canada out of it distribution channels. In my opinion, nine times out of ten, the losses sustained by removing Canada from distribution channels will aways be more than what actual losses a developer will receive due to copyright infringement or piracy.

New Financial Services Firm for Indies in the UK

Today, Gamasutra announced that Industry vet Gary Tucker is forming Eightbyte, a London-based financial services firm specifically focused for independent developer.

According to the article, Tucker says, "I believe that the industry, survives and evolves by bring new creative ideas to market, and independents are best positioned to generate that innovation -- if they survive and thrive."

While Eightbyte will only be serving the UK for now, hopefully the model will prove successful and it will expand to other regions, like the US, or other firms will follow suit.