More and more games being distributed digitally

The days of going to your local Best Buy or GameStop to purchase the latest video game may be coming to an end.
Instead, consumers will increasingly buy and play games distributed digitally over the Internet, if recent trends and some big announcements at the Game Developer Conference in San Francisco are any indication. On some newer game platforms, such as the iPhone, digital downloads are the only way consumers can get new games. Even on older platforms, such as Nintendos Wii, downloadable games are becoming common.
It feels like were on the verge of a digital distribution revolution here, said Mitch Lasky, a partner with venture capital firm Benchmark Capital and a former video game industry executive.
Recent developments point in that direction:
OnLive, a Silicon Valley startup, unveiled a new service at the conference that will allow consumers to play top-quality, high-definition games on their PCs and even their TVs without a console or packaged games. OnLive, which was founded by WebTV creator Steve Perlman, will stream games to consumers over the Internet. Consumers will be able to play them on their TVs via a low-cost networked device.
Zeebo, another startup, unveiled its own gaming service at the conference that is targeting consumers in emerging markets such as Brazil and Mexico. Traditional console hardware and games have seen few sales in such markets because of their high costs and piracy issues. Zeebo plans to get around those and other problems by distributing games purely digitally over cell phone networks.
In his keynote speech Wednesday, Nintendo Chief Executive Satoru Iwata emphasized the importance of digitally distributed games. The company sees them as a way for small, third-party developers to reach consumers who own its game consoles. Already, about 90 percent of the games offered in Nintendos Wiiware store where consumers can digitally download original games for the Wii are from publishers other than Nintendo, Iwata said.
Your big idea can succeed without a big investment, Iwata said in his speech.
Indeed, new game services such as OnLive, which was unveiled Tuesday, could mark the beginning of the end for the physical distribution of games, Michael Pachter, a financial analyst with Wedbush Morgan, said in a research note.
Digitally distributed games arent new, of course. During the dot-com boom, game publishing giant Electronic Arts launched to push online gaming, for instance. And so-called massively multiplayer online games, such as World of Warcraft, have been drawing a large following for years now.
But the core of the video game industry is still built around the distribution and retail sale of packaged games for video consoles such as the Xbox 360 and, to a lesser extent, the PC.
The problem with the retail model is that its costly and inefficient. Pachter estimates that 20 percent of the price consumers pay for individual games goes to retailers, and another 20 percent goes to the console maker, which typically manufactures the game discs and packages and charges developers a licensing fee to make games for the console.
Game publishers also have to worry about overestimating demand for games, because they typically eat the cost when games go unsold, analysts say. And they often bear the cost of discounting games.
Publishers have complained about the sale of used games by retailers such as GameStop, noting that they dont get a piece of such sales and that they cut into demand for new games. And thats not to mention the need to fight for a piece of the limited shelf space of retailers.
Consumers seem to be embracing the shift to digital distribution. Apples iPhone has become an important emerging game platform. Online casual PC games, which are distributed only over the Internet, have been one of the fastest-growing categories of video games in recent years. And massively multiplayer online games have drawn millions of users.
Still, GameStop may be around for a while. Digital downloads mean lower costs, but that tends to engender more competition, making it harder for any one game or game company to stand out. Lower costs also tend to lead to lower prices, which may limit the total amount of sales companies can see and limit the ambitions of their games.
And slow Internet connection speeds may discourage companies from making available large-scale games and consumers from downloading them.
But many in the industry are convinced that the future is upon us.
I dont know if its a perfect storm, but (the digital downloading model) is becoming more prevalent, said James Lin, chief executive of Digenetics, which has developed technology that developers can incorporate in their games.
Contact Troy Wolverton at or (408) 920-5021.