KEY TOPICS
Downloading: Not (Yet) a Viable Option Buying Shelf Space
The AOL Model: Do You Need to Actually Sell the Client?
Like any other computer game, the number one requirement for play (and to get paid) is to get the game's player component, the client, installed on a computer. This means distribution, and distribution reach is still king. Two major distribution models have emerged in the online game marketplace: selling the client at retail, as per other computer games, and offering the client for download via the Internet, either free or on a discounted basis.
Of the two, retail sales is still the best method for getting the disc in the hands of the players.
[ Team LiB ]
Downloading: Not (Yet) a Viable Option
There has been a lot of hype in the past couple of years about the possibilities of bypassing the retail channel with online games, offering direct downloads of the client as an alternative. Publishers like the idea of bypassing all the middlemen in the retail process and the need to pay marketing development funds (MDFs), creating higher margins on the client.
Unfortunately, the hype is once again overtaking the reality of the situation. While this is a fine idea and will eventually become a reality, we're not there yet and won't be for years:
With over 90% of the US and world market still on 56k dial-up connections, only the most dedicated gamers will even consider a download over 50–100 megabytes (MB). Compare this with an online game client, which has an average of well over 500MB. It is true that hard-core gamers do tend to upgrade to faster Internet connections when they become available and have remarkable tolerance for large downloads, but they are a small percentage of the overall market. Compare this to the download figures for the much smaller 10MB episodes for Electronic Art's Majestic, of which fully 91.5% of downloads started were never completed.[1]
[1] "Of those who started down the path of registration, only 8.5% completed," EA spokesman Jeff
Brown said. The rest quit halfway through, he said, in part because of the lengthy process, which included over 10 megabytes in software downloads." See "Majestic Headed for Stores Before Thanksgiving," USA Today, October 3, 2001.
Broadband access is growing far more slowly than expected. In 1997, most analysts expected a full 30 million people in the US to be accessing the Internet on broadband connections by 2002; the actual total as of March 2002 is fewer than 11 million connections and, due to the failures in 2001 of cable modem provider @Home and many digital subscriber line (DSL) providers, the rate of new connections slowed throughout most of 2001 and the first quarter of 2002. Broadband access is not expected by the authors to be a major force in the US and Europe until 2005 at the earliest, and possibly not until 2007 or later. And even though Asia is laying broadband fiber far more quickly than the US and Europe, the broadband access numbers in the region are roughly equivalent to those in the rest of the world.
The exception is South Korea, which is, by some estimates, almost 75% broadband-connected. The great bulk of these connections and gameplay happen in cyber cafés, which are unique to that country and are a major force in online games. By some accounts, almost 5% of the total population is registered for one online game, NCSoft's Lineage: The Bloodpledge, which sees the great bulk of its revenues from cyber café access fees. Interestingly, however, the number of home
broadband connections in South Korea is growing steadily and is expected to reach parity with cyber cafés in the next year to two years.
At any rate, for the foreseeable future, publishers should make plans to maximize retail distribution for the client.
[ Team LiB ]
[ Team LiB ]
Buying Shelf Space
Retailers treat an online game like any other game client. This is both good and bad. On the good side, if the title sells well, like EverQuest (EQ) and Dark Age of Camelot did, then you can count on shelf space being available. On the bad side, retailers will want what they always want for a retail game package, namely marketing development funds, or MDFs.
MDFs are the retail world's version of the old organized crime protection scheme; if you want prominent (or even any) shelf space, room for an end-cap, or to have the retailer show your product box cover in their omnibus newspaper ads, you pay MDFs. MDF costs for a Class AAA project can easily run over $300,000.
Retail chains get away with this because shelf space is limited in most stores to 200–300 spaces and publishers send over 1,500 games to the shelves each year. That makes it a seller's market, and chains are always willing to sell. It is part of the cost of doing business, especially in the US.
Another challenge is keeping that shelf space over time. With persistent worlds (PWs) today, and at least for the next three to five years, until we see how the growth of broadband connections in the home plays out, having a unit on the shelf is critical to the acquisition of new subscribers. PW games tend to settle out at low, but consistent, sales rates. Retailers are accustomed to a three- to six-month shelf life for a product that is selling well; getting them to retain your unit on the shelf after that can be difficult.
This is also a problem you might face with a publisher, who is also accustomed to that three- to six-month shelf life and may not see the need to keep a (relatively) low-selling game client on the shelves.
[ Team LiB ]
Magazine Cover Mounts
Game magazines such as Computer Gaming World, PC Gamer, and Computer Games not only mount CDs on their covers, but they also sell access to them. Prices range from $7,500–$15,000, but the magazine takes care of the disc duplication and, if you "own" that month's disc, your art goes on the disc and the disc holder. This is a cost-effective way to reach 125,000–400,000 hard-core gamers.
Remember, however, that there is usually a minimum 90-day lead time on reserving these.
Original Equipment Manufacturer Bundling
Original equipment manufacturers (OEMs) love to bundle software with their hardware as a value-added attraction for potential customers. This runs the full range of hardware, including joysticks, video cards, and on the hard drives of new computers. Some OEMs do huge buys, in the four- to eight-million-unit range. Traditionally, they pay small fees per unit for Class AAA products and take demo versions of only a few very popular products. If you're willing to take no fee or an at-cost fee for duplicating and shipping the discs to them, however, many OEMs would love to talk to you. Bear in mind that the lead time on OEM bundling is quite long, as much as six to nine months.
Downloads
If you're going to offer the client for free, there is no reason not to have a downloadable version available on your web site. You do need to understand that if your client is as large in size as the average online game client—that is, a full CD-ROM of 500–600MB
compressed—the bandwidth needed to download it will cost you somewhere between 50 cents and $1.50 per download. With the cost of goods for a shelf unit now running between $1.50 and $3.00 for most games, this is still significant cost savings, but it is a hard cost that needs to be figured into the equation.
You also need to take into account that you must have registration codes, even for free downloadable clients, or you'll find that the 1% of people in any group who tend to abuse any process will start creating multiple accounts simply because they can, and this can become a significant cost.
Free downloads in general create their own set of problems. For example, how do you limit anonymous downloaders to one download and one account to keep them from just creating new accounts and playing for free on the back of your bandwidth costs? The only way to curb most of this is to insist they not be anonymous and provide a credit card number for registration and issue CD codes, but that also provides a block to entry; many people are still leery of giving away a credit card number in general, and even more are hesitant to do it for something they aren't actually purchasing. Online "pocketbook" initiatives such as Microsoft's .NET and Passport may provide some relief in the future, but only if they become widely accepted.
And that is only one of the problems presented by free downloads today. Like the issue of the commercialization of the Internet in the mid-1990s, companies are rushing in without thinking through all the potential problems.
[ Team LiB ]