1C Executive Clarifies Digital Distribution Prediction

[Andy Chalk]

1C Executive Clarifies Digital Distribution Prediction

The 1C executive who predicted that PC games will be sold "completely by digital" by the first quarter of 2011 has clarified his remarks and, as expected, that's not quite what he meant.

It struck me as a bit iffy 1C Company [http://www.escapistmagazine.com/news/view/97509-Industry-Vet-Predicts-Full-Digital-Distribution-by-2011], had said that the PC gaming market would be almost entirely digital by the beginning of 2011. "Q1 2011 is my estimate as to when PC games will be sold completely via digital," he said. "I have seen the predictions that by 2013 more than 50 per cent of our revenues will be earned digitally. But if the PC games market has to wait until 2013 then we are all in trouble."

A single year seems like an awfully tight window for such a dramatic overhaul of the entire PC game industry and unsurprisingly, that's not exactly what Still meant. "The quote has dropped slightly out of context, as they often do," he explained. "The discussion was about the tipping point. The point in time where more than 50 percent of a publisher's PC revenue would be gained digitally, and in this respect I think Q1 2011 is not a far-fetched estimate at all."

The 1C Company may not be as familiar to North American gamers as Activision, EA or Ubisoft but it's a major player in Russia and Europe and puts out a serious pile of games. It localizes North American releases for overseas markets but also develops and publishes numerous original games, some of which are quite good but tricky to get on this side of the pond without going digital. In that context, his prediction sounds a lot more reasonable.

"Frankly, 1C are at that point now outside of Russia and Germany (where PC retail holds stong). In the UK and North America we've certainly gained more than 50 percent of our PC revenue over this Christmas by way of downloads," he said.

"Another mitigating factor to consider is that I am talking about revenue here, not units. A PC game going direct from 1C to a digital distribution outlet and retailing at $19.99 gains us $14 per sale revenue, with no inventory or return cost. For the same game, selling out of a box in a retail store, 1C would see about $4 per sale," he continued. "So even if retail is outselling digital by 3 to 1, we still make more on the digital model."

Bottom line: Digital distribution allows publishers to make a whole lot of money from foreign markets that were previously inaccessible and that's leading to some big, big changes in the industry - but for the foreseeable future, the keyboard-and-mouse crowd will still be able to pop in and browse the shelves at GameStop, just like everybody else.



Permalink

 

[Asehujiko]

It's very likely that we indeed advance quicker then the consoles, the PC always does. Wether 1C will be a part of that remains to be seen. As long as they keep shoveling out crap that is unplayable buggy except for a tiny range of hardware, and ripping off existing games while only adding pointless micromanagement time sinks i personally won't be buying much of them, digitally or otherwise.

 

[Therumancer]

I've been something of a fan of 1C for a while, though I consider them more akin to an independant developer (as I mentioned in my reviews) than a real Heavyweight. They play around with a lot of concepts people won't touch, which makes them awesome, but they also have a horrible time with localization and the quality isn't always the best. I'm a big fan of games like "Planet Alcatraz" and "Star Wolves 2", BUT at the same time the animations and voice acting/localization can be truely horrible. I still support them in hopes that they will get better since I see a LOT of potential there (and for the Russian game developers in general).

That said, I think the point that many of these developers are missing is that while Digital Distribution is awesome from the perspective of the game companies, it blows chips from the perspective of the more informed gaming public. The industry gets better piracy protection, lower costs, and easier production. The end users however get nothing, and ultimatly give up a ton of security and power they currently have. You can't burn archival backup copies (which is not unreasonable given the cost), your at the mercy of the services selling the games continueing to exist, and even with tutorials and such your missing out on things like manuals unless you want to pay a ton of cash in terms of paper and ink to print them out. This might not matter to everyone, but it DOES matter to me and a lot of others.

I think the comments by 1C sort of make the point. The differance between $4 and $14 is subtantial when dealing with game sales. However what they are doing is taking all of the money they are saving and pocketing it, as opposed to passing some of that saving onto the consumers. The abillity to produce games more cheaply and lower their prices was originally the point that had garnered initial support.

See, what 1C just said (and I'll assume their being honest) is that after all their expenses with digital download the actual cost to produce a game is around $6. They were making a profit at gaining $4 per unit in sales revenues. So basically a game should be costing us $10 or in general half the price tag mentioned for them to make the same profit range they were getting before. Even if they lowered the price to $12, they would STILL be making 50% more on their game than they would have been before hand. Lowering prices like that was the origial idea, but with the game industry taking all the money their saving and pocketing it, I see no real benefit to me as a user, and indeed I'm giving up a lot of power that I had before.

At least 1C is honest. For most of you out there I'd remember specifically what was said here.


That said if 1C got bigger/more mainstream chances are I would no longer support them digitally as much as I do now even if there continued to be no other reliable way to get their product.

 

[Jared]

Well, its certainly nice to see a refreshing change of pace...I mean, who dosnt like to reverse what they say!

Ok, im been mean. He didnt really reverse what he said, and the clarification does make what he said more sense but...im still dubious. I think retail outlets for PC games are still going be strong in years to come. Ill accept digital downloads will prolly increase, bit definetly not phase out retail.

After all, who dosnt like to own a physical copy of something they buy

 

[Zer_]

I've been something of a fan of 1C for a while, though I consider them more akin to an independant developer (as I mentioned in my reviews) than a real Heavyweight. They play around with a lot of concepts people won't touch, which makes them awesome, but they also have a horrible time with localization and the quality isn't always the best. I'm a big fan of games like "Planet Alcatraz" and "Star Wolves 2", BUT at the same time the animations and voice acting/localization can be truely horrible. I still support them in hopes that they will get better since I see a LOT of potential there (and for the Russian game developers in general).

That said, I think the point that many of these developers are missing is that while Digital Distribution is awesome from the perspective of the game companies, it blows chips from the perspective of the more informed gaming public. The industry gets better piracy protection, lower costs, and easier production. The end users however get nothing, and ultimatly give up a ton of security and power they currently have. You can't burn archival backup copies (which is not unreasonable given the cost), your at the mercy of the services selling the games continueing to exist, and even with tutorials and such your missing out on things like manuals unless you want to pay a ton of cash in terms of paper and ink to print them out. This might not matter to everyone, but it DOES matter to me and a lot of others.

I think the comments by 1C sort of make the point. The differance between $4 and $14 is subtantial when dealing with game sales. However what they are doing is taking all of the money they are saving and pocketing it, as opposed to passing some of that saving onto the consumers. The abillity to produce games more cheaply and lower their prices was originally the point that had garnered initial support.

See, what 1C just said (and I'll assume their being honest) is that after all their expenses with digital download the actual cost to produce a game is around $6. They were making a profit at gaining $4 per unit in sales revenues. So basically a game should be costing us $10 or in general half the price tag mentioned for them to make the same profit range they were getting before. Even if they lowered the price to $12, they would STILL be making 50% more on their game than they would have been before hand. Lowering prices like that was the origial idea, but with the game industry taking all the money their saving and pocketing it, I see no real benefit to me as a user, and indeed I'm giving up a lot of power that I had before.

At least 1C is honest. For most of you out there I'd remember specifically what was said here.


That said if 1C got bigger/more mainstream chances are I would no longer support them digitally as much as I do now even if there continued to be no other reliable way to get their product.

I don't see how digital distribution is detrimental to the consumer. When it comes to ease of use, digital distribution models work well for consumers. I sound like a broken record in repeating this, but Steam is the perfect example of such a model. Patches aree automatic, pre-purchases are a breeze, you get a lot of perks and a neat community model to boot.

The only downside is that it can take bandwidth, which of course is not really an issue with digital distribution in itself, that's more a problem with ISPs.

Also, the gaming industry is in a very peculiar situation when it comes to finances. A lot of games are getting released too early, and a lot of games simply run out of budget. I know you like to think that developers or publishers are pocketing the cash, but that simply is not so. Only in rare cases do you find companies making huge profits on games...

Digital distribution is indeed the way of the future, because it is indeed cheaper for the software developers. Once it does become standardized you can most definitely expect the prices of games to go down (or their budgets would go up). Either way the consumer is left with cheaper games, or games with more content.

 

[Therumancer]

I've been something of a fan of 1C for a while, though I consider them more akin to an independant developer (as I mentioned in my reviews) than a real Heavyweight. They play around with a lot of concepts people won't touch, which makes them awesome, but they also have a horrible time with localization and the quality isn't always the best. I'm a big fan of games like "Planet Alcatraz" and "Star Wolves 2", BUT at the same time the animations and voice acting/localization can be truely horrible. I still support them in hopes that they will get better since I see a LOT of potential there (and for the Russian game developers in general).

That said, I think the point that many of these developers are missing is that while Digital Distribution is awesome from the perspective of the game companies, it blows chips from the perspective of the more informed gaming public. The industry gets better piracy protection, lower costs, and easier production. The end users however get nothing, and ultimatly give up a ton of security and power they currently have. You can't burn archival backup copies (which is not unreasonable given the cost), your at the mercy of the services selling the games continueing to exist, and even with tutorials and such your missing out on things like manuals unless you want to pay a ton of cash in terms of paper and ink to print them out. This might not matter to everyone, but it DOES matter to me and a lot of others.

I think the comments by 1C sort of make the point. The differance between $4 and $14 is subtantial when dealing with game sales. However what they are doing is taking all of the money they are saving and pocketing it, as opposed to passing some of that saving onto the consumers. The abillity to produce games more cheaply and lower their prices was originally the point that had garnered initial support.

See, what 1C just said (and I'll assume their being honest) is that after all their expenses with digital download the actual cost to produce a game is around $6. They were making a profit at gaining $4 per unit in sales revenues. So basically a game should be costing us $10 or in general half the price tag mentioned for them to make the same profit range they were getting before. Even if they lowered the price to $12, they would STILL be making 50% more on their game than they would have been before hand. Lowering prices like that was the origial idea, but with the game industry taking all the money their saving and pocketing it, I see no real benefit to me as a user, and indeed I'm giving up a lot of power that I had before.

At least 1C is honest. For most of you out there I'd remember specifically what was said here.


That said if 1C got bigger/more mainstream chances are I would no longer support them digitally as much as I do now even if there continued to be no other reliable way to get their product.

I don't see how digital distribution is detrimental to the consumer. When it comes to ease of use, digital distribution models work well for consumers. I sound like a broken record in repeating this, but Steam is the perfect example of such a model. Patches aree automatic, pre-purchases are a breeze, you get a lot of perks and a neat community model to boot.

The only downside is that it can take bandwidth, which of course is not really an issue with digital distribution in itself, that's more a problem with ISPs.

Also, the gaming industry is in a very peculiar situation when it comes to finances. A lot of games are getting released too early, and a lot of games simply run out of budget. I know you like to think that developers or publishers are pocketing the cash, but that simply is not so. Only in rare cases do you find companies making huge profits on games...

Digital distribution is indeed the way of the future, because it is indeed cheaper for the software developers. Once it does become standardized you can most definitely expect the prices of games to go down (or their budgets would go up). Either way the consumer is left with cheaper games, or games with more content.

I explained how it is detrimental to the consumer. It gives the consumer a LOT less power and effectively puts us entirely at the mercy of the game companies and the websites they choose to use for distribution. What's more we lose out on materials like manuals, maps, and other things that come packaged with hardcopy games. Not to mention the abillity to sell the game YOU bought for some of your money back (which companies hate, but is is still one of the major benefits of physical ownership) or create physical backup copies of your games in case the original is lost or destroyed. A super virus eats the internet like some of the ones that have caused panic attacks before, and you've still got a game you have on disc.

A lot of the benefits like games automatically patching and the like are not really a benefit to going entirely digital. There have been many games that have managed to include internet connectivity and autoupdating without the actual meat of the game being availible for download. What's more as a consumer whether to patch a game or not should be MY right and under my control, not something that happens automatically without my consent. Some patch comes along that messes things up, or maybe removes a favorite glitch or whatever I reserve the right to not install the patch. Indeed I like to be able to get on sites in many cases and figure out whether or not I want a patch. I have in many cases had patches frag things up and then had to wait for ANOTHER patch, and I learned the lesson about being careful with that the hard way.

What's more, I am less than trustworthy when it comes to the idea that the game industry will generously choose to lower their prices once everything has gone digital. Or rather it's not a matter of "Trust", it's simply that I'm not stupid. An industry that engages in routine corruption to avoid competition, and coordinate price hikes is not exactly going to convince me of it's overall benevolence and concern for the consumer. Simply put the game industry is going to gouge us for every penny they can get.


The guys from 1C above pretty much summarize the issue. Digital Distribution allows them to more than triple the amount of money they are taking in on a product. As you can see from what they are already doing, they are not lowering their prices, but simply grabbing all that cash as pure profit. I have no doubt that it's EXACTLY the same for all the other companies involved. It also incidently shows how Steam can run all of these incredible sales given that the profit margins on Digital Downloads become so ridiculously huge.

The thing is though that STEAM represents an exception, other digital services are rarely that "generous" and truthfully once the brick and mortal stores are out of the picture, why bother to to even do that? Oh sure, Valve seem to be a group of good guys, but if Digital Downloads get big enough, eventually they are going to sell out or hire people to manage their business more profitably just like every other similar group of people have done since the dawn of time. I am hardly naive enough to suggest trends and policies based on the desperate hope that we might see an exception. Besides even if STEAM did present an exception, they are ONE service when we're talking about the PC gaming landscape as a whole.

As far as my beliefs that distributors and publishers are pocketing the money goes, yeah... I believe they are getting too greedy. The big expense in game development is the labour costs. When your looking at tens and hundreds of millions of dollars being thrown to these design teams, and then at what it's being used to produce, it raises some pretty good questions. Questions which the gaming industry tries to talk around, bt since they aren't accountable to anyone (capitolism and everything) it's not like the consumer base can ever find out. The bottom line is that since it's all about human resources that money goes into someone's pockets, and whomever those people are, are splitting millions upon millions of dollars for a couple years work banging a keyboard in a cubicle. I am hardly a communist (and am actually very capitolist when you get down to it), theyt have every right to make enough money but that is mitigated by the right of a consumer to sit here and say "that's bloody ridiculous". Of course I think half the problem is that nobody in power has bothered to really investigate the gaming industry and it's labour/competition/business practices at this point, probably because nobody in power really understands just how much money is involved there right now.

All of the above is well off subject, but basically it comes down me wondering where the heck the half a billion dollars spent on Modern Warfare 2 (between marketing and making the game) went given that all they did was make a good, but not especially groundbreaking FPS game, and advertise it pretty much like any other game (without anything even remotely as creative as the Dante's Inferno campaign I might add). Either a lot of people got greedy and were demanding huge paydays for very little work, and passing the bill on to the consumers, or someone was heating their offices by forking money directly into the furnace.

 

[The_root_of_all_evil]

Whoa whoa whoa there...

The 1C executive who predicted that PC games will be sold "completely by digital" by the first quarter of 2011 has clarified his remarks and, as expected, that's not quite what he meant.
"I have seen the predictions that by 2013 more than 50 per cent of our revenues will be earned digitally.

... The point in time where more than 50 percent of a publisher's PC revenue would be gained digitally, and in this respect I think Q1 2011 is not a far-fetched estimate at all."

Even for the most basic of standards, that's two years difference, buddy.

 

[Worgen]

if they had released kings bounty armored princess in box form I would have paid more for it

 

[ZippyDSMlee]

I've been something of a fan of 1C for a while, though I consider them more akin to an independant developer (as I mentioned in my reviews) than a real Heavyweight. They play around with a lot of concepts people won't touch, which makes them awesome, but they also have a horrible time with localization and the quality isn't always the best. I'm a big fan of games like "Planet Alcatraz" and "Star Wolves 2", BUT at the same time the animations and voice acting/localization can be truely horrible. I still support them in hopes that they will get better since I see a LOT of potential there (and for the Russian game developers in general).

That said, I think the point that many of these developers are missing is that while Digital Distribution is awesome from the perspective of the game companies, it blows chips from the perspective of the more informed gaming public. The industry gets better piracy protection, lower costs, and easier production. The end users however get nothing, and ultimatly give up a ton of security and power they currently have. You can't burn archival backup copies (which is not unreasonable given the cost), your at the mercy of the services selling the games continueing to exist, and even with tutorials and such your missing out on things like manuals unless you want to pay a ton of cash in terms of paper and ink to print them out. This might not matter to everyone, but it DOES matter to me and a lot of others.

I think the comments by 1C sort of make the point. The differance between $4 and $14 is subtantial when dealing with game sales. However what they are doing is taking all of the money they are saving and pocketing it, as opposed to passing some of that saving onto the consumers. The abillity to produce games more cheaply and lower their prices was originally the point that had garnered initial support.

See, what 1C just said (and I'll assume their being honest) is that after all their expenses with digital download the actual cost to produce a game is around $6. They were making a profit at gaining $4 per unit in sales revenues. So basically a game should be costing us $10 or in general half the price tag mentioned for them to make the same profit range they were getting before. Even if they lowered the price to $12, they would STILL be making 50% more on their game than they would have been before hand. Lowering prices like that was the origial idea, but with the game industry taking all the money their saving and pocketing it, I see no real benefit to me as a user, and indeed I'm giving up a lot of power that I had before.

At least 1C is honest. For most of you out there I'd remember specifically what was said here.


That said if 1C got bigger/more mainstream chances are I would no longer support them digitally as much as I do now even if there continued to be no other reliable way to get their product.

I don't see how digital distribution is detrimental to the consumer. When it comes to ease of use, digital distribution models work well for consumers. I sound like a broken record in repeating this, but Steam is the perfect example of such a model. Patches aree automatic, pre-purchases are a breeze, you get a lot of perks and a neat community model to boot.

The only downside is that it can take bandwidth, which of course is not really an issue with digital distribution in itself, that's more a problem with ISPs.

Also, the gaming industry is in a very peculiar situation when it comes to finances. A lot of games are getting released too early, and a lot of games simply run out of budget. I know you like to think that developers or publishers are pocketing the cash, but that simply is not so. Only in rare cases do you find companies making huge profits on games...

Digital distribution is indeed the way of the future, because it is indeed cheaper for the software developers. Once it does become standardized you can most definitely expect the prices of games to go down (or their budgets would go up). Either way the consumer is left with cheaper games, or games with more content.

I explained how it is detrimental to the consumer. It gives the consumer a LOT less power and effectively puts us entirely at the mercy of the game companies and the websites they choose to use for distribution. What's more we lose out on materials like manuals, maps, and other things that come packaged with hardcopy games. Not to mention the abillity to sell the game YOU bought for some of your money back (which companies hate, but is is still one of the major benefits of physical ownership) or create physical backup copies of your games in case the original is lost or destroyed. A super virus eats the internet like some of the ones that have caused panic attacks before, and you've still got a game you have on disc.

A lot of the benefits like games automatically patching and the like are not really a benefit to going entirely digital. There have been many games that have managed to include internet connectivity and autoupdating without the actual meat of the game being availible for download. What's more as a consumer whether to patch a game or not should be MY right and under my control, not something that happens automatically without my consent. Some patch comes along that messes things up, or maybe removes a favorite glitch or whatever I reserve the right to not install the patch. Indeed I like to be able to get on sites in many cases and figure out whether or not I want a patch. I have in many cases had patches frag things up and then had to wait for ANOTHER patch, and I learned the lesson about being careful with that the hard way.

What's more, I am less than trustworthy when it comes to the idea that the game industry will generously choose to lower their prices once everything has gone digital. Or rather it's not a matter of "Trust", it's simply that I'm not stupid. An industry that engages in routine corruption to avoid competition, and coordinate price hikes is not exactly going to convince me of it's overall benevolence and concern for the consumer. Simply put the game industry is going to gouge us for every penny they can get.


The guys from 1C above pretty much summarize the issue. Digital Distribution allows them to more than triple the amount of money they are taking in on a product. As you can see from what they are already doing, they are not lowering their prices, but simply grabbing all that cash as pure profit. I have no doubt that it's EXACTLY the same for all the other companies involved. It also incidently shows how Steam can run all of these incredible sales given that the profit margins on Digital Downloads become so ridiculously huge.

The thing is though that STEAM represents an exception, other digital services are rarely that "generous" and truthfully once the brick and mortal stores are out of the picture, why bother to to even do that? Oh sure, Valve seem to be a group of good guys, but if Digital Downloads get big enough, eventually they are going to sell out or hire people to manage their business more profitably just like every other similar group of people have done since the dawn of time. I am hardly naive enough to suggest trends and policies based on the desperate hope that we might see an exception. Besides even if STEAM did present an exception, they are ONE service when we're talking about the PC gaming landscape as a whole.

As far as my beliefs that distributors and publishers are pocketing the money goes, yeah... I believe they are getting too greedy. The big expense in game development is the labour costs. When your looking at tens and hundreds of millions of dollars being thrown to these design teams, and then at what it's being used to produce, it raises some pretty good questions. Questions which the gaming industry tries to talk around, bt since they aren't accountable to anyone (capitolism and everything) it's not like the consumer base can ever find out. The bottom line is that since it's all about human resources that money goes into someone's pockets, and whomever those people are, are splitting millions upon millions of dollars for a couple years work banging a keyboard in a cubicle. I am hardly a communist (and am actually very capitolist when you get down to it), theyt have every right to make enough money but that is mitigated by the right of a consumer to sit here and say "that's bloody ridiculous". Of course I think half the problem is that nobody in power has bothered to really investigate the gaming industry and it's labour/competition/business practices at this point, probably because nobody in power really understands just how much money is involved there right now.

All of the above is well off subject, but basically it comes down me wondering where the heck the half a billion dollars spent on Modern Warfare 2 (between marketing and making the game) went given that all they did was make a good, but not especially groundbreaking FPS game, and advertise it pretty much like any other game (without anything even remotely as creative as the Dante's Inferno campaign I might add). Either a lot of people got greedy and were demanding huge paydays for very little work, and passing the bill on to the consumers, or someone was heating their offices by forking money directly into the furnace.

This is true to a point its all about the DRM used if they use a setup that runs as an offline game until its authenticated then you get the all of it unlocked this should be a trend that starts up more over time.

The trouble as I see it they want to much control over something they just can not and should never have such finite control over, I do not use STEAM because they have yet to make it run perfectly after you install it.....it requires the net to play even offline and you know for retail disc stuff if it wants to go online and authenticate it no just no I wont buy it and if I do its 10$ and I bypass the DRM which is still my right DMCA be damned.

Digi distro is a doubled edged sword if they move in the direction of "attrition" multiple cheaply priced no DRM sales they would maximize their profit potential if they move in the direction of "WAR" fighting the consumers and crackers alike they will lose and lose money while they are at it.

The problem is they are going to ahve to get away from trying to look at unsold or X or y as lost sales it dose not work like that...if anything its un happy consumers you have not reached and pissing them off more is not helping things...

In the end I guess I support the ideal of digi distro but not how its currently handled....

 

[Fire Daemon]

I had a feeling that this fellow was miss quoted when I read the other article and hey, it looks like I was right. I can find myself agreeing with thus guy as well, as far as PC games are concerned of course. Digital Distribution is certainly gaining support and if not next year than in the few following that I can see DD becoming a major part of the sale and purchase of games. You'll probably see more online sales of multiplayer games than single player games, why pay for something and then download it if you can download the same thing for free?

I'm not a big fan of Digital Distribution though. I like to own something, have the physical copy in my hands or on the shelf. Sure, it can get broken and can't be retrieved but I don't have to sacrifice a huge chunk of my download limit and time getting on my computer, I can return it if it doesn't work or if I don't like it, I can give it to my friends for a lend and they in return can give me a lend of their game (not all PC games obviously) and I can hold onto it for pretty much as long as I please and I will always have it and can play it until my PC becomes too advanced or my consoles bite the dust and there will always be a way to get around the PC problem and I can always buy a new and working console.

 

[Cynical skeptic]

Well, when you translate from Russian to English, things are going to get screwy... which is a big reason why 1C games tend to be friggin awesome.

Context: Piracy is HUGE in russia. Hard copies aren't worth the discs they're printed on. Any time a new anything gets released, its on the streets within seconds for $2-3. I mean actual piracy too. People selling burnt copies of video games, movies, and music with inkjet produced covers inserted into bulk purchase jewel/clamshell cases. They even have pirate movie theaters turning profits over there. Its INSANE.

So, yea, 1C can easily claim most of their revenue will come from digital downloads in under a year.