The Good News About Digital Distribution
by Tom Buscaglia

In 2005 at GDC I met the guys from Tripwire Interactive. They had just put their studio together from the team that created the Red Orchestra Mod that won the “Nvidia $1,000,000 Make Something Unreal contest.” Their Mod had also garnered a bunch of “Mod of the Year” awards. Since they needed my legal help, but were tight on cash, we worked out a deal where I agreed to represent them for a percent of revenue. Sort of like an agent, but at a much lower percentage. I do this from time to time with teams that I really believe in. And, I had even done a similar deal with Trauma Studios, the creator of Desert Combat, the prior year’s “Mod of the Year.” So, it seemed fitting.

There was a great deal of interest in the commercial version of the game from several publishers including Midway. And we worked for months trying to close a deal. But eventually it became apparent that even though the folks on the product acquisition side were very interested in the game, the marketing folks were not going to green light the deal because their retail buyers had not heard of the game and would not put in significant initial orders necessary to minimize their risk. So, no deal.

The Red Orchestra Deal

Fortunately, as part of the contest winnings, Tripwire had an Unreal Engine 2.5 license. So, although they did not get the whole million dollars for winning (the total prize money in products, engine licenses and cash totaled $1,000,000 over the entire contest), they had an engine and some cash. So, they put what they had into finishing the game however they could. We continued to look for a publishing partner and began discussing the digital distribution possibility. We looked into a bunch of digital distributors including IGN Direct 2Drive, Trimedia's Digital River Distribution network, GarageGames and Valve's Steam. I assumed that Steam was limited to only Source Engine games and that there was no way the Valve would want Red Orchestra, a WW II FPS game made with Unreal technology, competing against Valve’s own Day of Defeat. But to his credit, John Gibson, the head of Tripwire got in touch with Valve anyway. To my surprise, the folks at Valve were not only interested, they were straightforward and easy to work with. A real pleasure. So, in short order we had our digital distribution deal in place.

Of course, with a digital distribution deal, there is usually no big marketing push from the distributor like there is with a big publisher. But, through Steam we would be selling into the hard core FPS gamer market. And as a result of the Valve deal, Red Orchestra got solid editorial exposure in major PC game publications, including two page “preview” articles in PC Gamer US and UK. The buzz from the Valve deal resulted in a retail distribution deal with Destineer as well. No advance. But access to the retail distribution channel and a solid chance to succeed. And most important, no need to give up the IP rights to the game. That means Tripwire has a chance, maybe not a big one, but a chance to retain the IP to a franchise that they build. And that means long term IP value to the company. And it was the digital deal that made it all happen. So, Tripwire Interactive’s Red Orshestra: Ostfront 41-45 is set for release in March 2006 digital distribution on Steam followed by retail as soon as the media gets manufactured, through the retail pipeline and into stores. Wish them luck!

The Digital Distribution Advantage

Once the digital deal is in place, a retail publisher is in a much less advantageous bargaining position, especially where it comes to IP ownership issues. Digital distributors, at least for the present, have no interest in obtaining IP ownership for the games they distribute. The so-called casual games, or “Pop Games” as I like to refer to them, have been building this model in the PC market for several years. And with the present broadband penetration, the download of full blown PC games is a reality. I recently purchased F.E.A.R. digitally, and that’s a 1gig plus game, unzipped. And we all know of Valve’s success with distributing its games via Steam.

Digital Distribution for Console Gamers

Up until now digital distribution has been something unique to the PC market. But the Xbox Live Arcade (“XBLA”) is changing all that. And Sony and Nintendo are not far behind. The size of the game that can be downloaded on XBLA is limited, which limits things somewhat when compared to PC downloads. But it is a huge potential market. Of course, access is also an issue. AS access to the XBLA pipeline gets clogged with legacy titles from publishers who are already XBLA certified, we are seeing some of the same issues we have now with the retail channel. For example, although MS has no interest in game IP ownership, at least one of the XBLA aggregators is looking to acquire IP rights to the games it distributes through XBLA. But hopefully this one distributor is an aberration and there will be enough less greedy options for developers to just go elsewhere. After all, the marketplace is a great influencer of predatory policies like this and both Sony and Nintendo have different models.

The big question is, will the PS3 and Nintendo WiiWare digital distribution garner the same level of success at XBLA has thus far? I suspect that they both will meet or exceed the relative penetration that MS has. Nintendo’s open marketplace without reserved slots and Sony’s recently announced ability to allow console and PC gamers to play on the same servers with access to user generated content (that’s right kids – user created mods on a console!) will give each a significant discriminating USP (Unique Selling Point) in the market. So, now that Sony and Nintendo are doing digital distribution in their next gen consoles, who knows? They may even do it better that MS.

The Bottom Line

So, I have become a believer in the digital distribution of games. The developer’s royalties are usually two to four times greater than what they are in a traditional publisher deal. This means you can sell fewer units and get by and if you get a hit, you get much more return, even at a significantly lower price point. Also, in most cases the developer retains the IP. This help builds long term value in the Studio, something you cannot get otherwise unless you develop some sort of patentable technology or other licensable tools and technology while you’re making your game. The digital distribution model also opens the door to pure funding deals that do not involve publishers who, frankly, charge much more than the value of the money for the funding they provide. But most important, digital distribution means more ways to get your games directly to the players with as little “middle man” action as possible. That has always been the great promise of the internet and it’s great news for developers. Heck, higher royalties, you get to keep your IP and direct access to your user base. It’s hard not to believe.

Til next time, GL & HF!

_{[Tom Buscaglia, The Game Attorney, writes frequently on subjects of interest to game developers. The above article is for the information and education of members of the development community. Feel free to distribute or disseminate this article. But please include the legend "Copyright 200_, Thomas H. Buscaglia, Esquire" and an active link to in each article posted or published elsewhere.]}

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Date this article was posted to GameDev.net: 8/7/2007
(Note that this date does not necessarily correspond to the date the article was written)

See Also:
Running your own Game Company