Monday 13 October 2014

Why Digital Distribution Platforms Thrive Or Die

Digital Distribution

Why do some services succeed where others fail? Shaun Green reports.

The storefronts via which we purchase our entertainment have changed immensely over the past decade. This seems a statement of the obvious, but it's worth considering that this change was a slow and gradual process and few shifts occurred overnight.

The widely proclaimed death of the high street never came, for example, although the recession of the past half-decade has seen a number of high-street chains close their doors and shutter their windows. Elsewhere we've seen small chains like Ottakers or GameStation gobbled up by their larger brethren. However, despite tough times, independent and specialist music, book and video game shops still exist. It's even possible to find hold-out second-hand DVD shops dotted throughout the UK. There will probably always be some form of high-street retailers hawking goods that are easily available online; once all is said and done, many people simply prefer to take to their feet and peruse physical shelves of items.


Yet today it's trivially easy to acquire almost any piece of entertainment via digital means; the process is largely painless and free of intrusive anti-piracy measures, while prices are often highly competitive with buying physical copies.

In recent years, digital distribution has achieved a sufficient state of maturity that its importance to the future of entertainment consumption and online shopping is without question. But how did we reach the point where this was so, despite all the obstacles that stood between the young turks of digital distribution and the entrenched old guard?

Taking The iWay

The iTunes store was for a long time, and for many is probably still so today, the first thing people thought of when they were asked to name a digital distribution service. Founded by Apple in 2003, it has weathered numerous controversies and aggressively fought to cement its position in the business of selling music.

Before iTunes appeared, the record business was largely dominated by the 'Big Four': Universal, Sony, EMI and Warner. Each of these large corporations had an established culture that was very much born of the way the record industry had been run for generations. Certainly there had been upsets along the way that took these giants by surprise, such as punk in the 70s and independent rock in the 80s and early 90s, but largely it had been business as usual. Then Apple came along and changed everything.

It wasn't a guaranteed outcome, of course. Apple was in the unique position of fully owning every step of the chain in music consumption: as well as its iTunes Store, it also had a free desktop music player, iTunes and the world's most popular portable music player, the iPod (funnily enough, the story of the iPod is also one of Apple fulfilling a market need that its competitors hadn't even fully recognised).

It was also lent a significant competitive advantage by the fact that once the Big Four had opened their eyes to the realities of digital distribution, they refused to work together with one another and instead worked to implement their own storefronts, tied to their own digital rights management (DRM) solutions and often tied to a specific piece of music player software. Today it may seem like madness that so many companies could imagine consumers would be happy to install four or five different MP3 players just so that they could listen to songs from artists in each label's catalogue, but similar strategies remain active today.

The Big Four's solutions flopped alongside many other efforts to build competitors to iTunes. At the time, the era of feature phones was beginning to transmute into the age of smartphones - although the game-changing iPhone was still some way off - and many phones included MP3 players. Attempting to capitalise on this, firms like Motorola and Nokia attempted to sell devices with their own MP3 stores attached. They too were hindered by limited catalogues, overbearing usage restrictions and technical problems.

There was clearly a thirst for what the iTunes Store offered. It took just five days to pass the five million songs sold milestone, and in nine months it had sold 25 million. Four years ago, Apple announced that the ten billionth song mark had been passed.

Today the future of the iTunes Store is not guaranteed. Despite its immense presence and pedigree, music streaming services have become extremely popular, and heavyweight competitors like eMusic, Google Play and Amazon MP3 are also on the field. Even Napster, the first peer-to-peer music sharing application to achieve worldwide notoriety, has reinvented itself as a digital distribution service for music.

Of course, the iTunes Store was never a sure bet; its success is largely owed to a confluence of various factors, admittedly many of them moved into place by Apple itself. But even had Apple not won the record industry war, someone else would have fanned the flames for digital distribution.

Full Steam Ahead

One year after the iTunes Store was born, a company named Valve released a highly controversial piece of software called Steam.

At the time, Valve was a company widely recognised among gamers, particularly on the PC, thanks to its critical and commercial hit Half-Life. Outside of the games industry, however, it was not well known - just another moderately successful company in what was still often regarded from the outside as a niche entertainment medium.

Steam attracted a lot of flak in 2004, partly for its technical problems and partly for what it was seen to represent. The concept of digital distribution was a hot topic at the time. It was beginning to be recognised that the entertainment industry liked to see their customers as essentially paying for licences to use their product - whereas customers saw themselves as buying ownership of a product. Many gamers outright rejected the idea of buying digital copies of games and not having the ability to install them from a disc, as was traditional, which was partly natural resistance to change and partly mapped to the licensing versus ownership conceptual battleground.

In a world where 'the cloud' is regularly referenced in TV advertising for all manner of products and services, and where digital copies of games are bought in their millions not only on PC but also for consoles and handheld devices, such concerns seem quaint. At the time, however, these fears were justified. Online stores still insisted on DRM solutions that were so intrusive and difficult to work with that downloading and installing pirated copies was often an easier and quicker solution than actually paying for it.

The aforementioned technical problems with Steam included the fact that it was a terrible system resource hog and that launching games linked with a Steam account required authentication with Valve's servers. Given that internet connections at the time were not hugely reliable, that many people were still transitioning to broadband and that Valve's own servers occasionally went down, there was a lot of resistance to the whole concept underpinning Steam.

Fortunately, Valve had an ace up its sleeve: Half-Life 2. The sequel to its previous hit was made available only via the new Steam client. Like its predecessor, it was an immense success both critically and commercially, and guaranteed that Steam quickly gained a huge install base. Over time, the company refined the software, adding its own back catalogue to the platform, and it steadily encouraged other developers and publishers to do the same. Steam was further expanded with tools, helping its users to set up dedicated servers for online play and allowing developers to push patches and updates to their games through the Steam platform, alongside many other features and innovations.

In the ten years since its inception, Steam has come to virtually dominate the digital distribution of games - to the point where few PC gamers do not make extensive use of its services.

Rising Stars

Valve is far from the only games company to dabble in digital distribution. As far back as 2001, the US-based software company Stardock had established an early platform for its software. It called its system Stardock Central, and it was used to sell and distribute its own software, which included Windows power tools and Ul enhancers, alongside games like The Corporate Machine. It briefly switched to a subscription-based model two years later, before switching back to the original concept the same year that Steam launched with a platform now called Impulse. Stardock began to offer titles from other developers and publishers via its platform, although it was far from an extensive catalogue.

Alas, Stardock sold the Impulse technology and brand to US game retailer GameStop in 2011. Although the platform still has some popularity in the US, it's no longer on the radar of users outside that country.

Another early competitor for Steam was Direct2Drive, which today is part of the GameFly service. Direct2Drive was, in its time, a fairly substantial contender in the marketplace. It did not make use of a separate client as Impulse and Steam did, but instead offered direct downloads from a website, with optional download manager software available. Its catalogue included 3,000 titles from over 300 publishers before it was acquired by GameFly - a not inconsiderable range. Today it still runs as one of two services under the GameFly name, with the other being a subscription-based service that sends discs via the post (if you live in the US).

Various other competitors appeared as Steam, Impulse and Direct2Drive began to demonstrate success. GameTap was established in 2005 by a major US broadcasting business and offered a worldwide subscription-based model that allowed users access to a range of games. Different levels of membership allowed either access to older console and arcade games running in emulators or the service's entire library. It was acquired by a French company with a similar business in 2008. Perhaps the biggest constant of GameTap has been change, with its subscription model and catalogue continually changing.

GamersGate appeared in 2006 with a software client but later jettisoned the client in favour of a one-shot micro-download manager. Since 2009, the service has been marketed as a lightweight alternative to using client-based services, particularly Steam. Another competitor with a less flimsy unique selling point is Good Old Games, launched in 2008, which initially offered classic PC games that had been updated or patched so that they ran on modern operating systems. The service proved immensely popular as older gamers jumped at the chance to revisit fondly remembered classics and younger gamers investigated what all the nostalgic fuss was about.

Today, GOG is increasingly publishing new releases from smaller developers alongside its refurbished classics and continues to distribute games without any kind of DRM. Uniquely among videogame digital distribution platforms, users are trusted to not abuse the system. This has resulted in the service being broadly well regarded, despite stunts like the 2010 hoax in which the site was shut down during a redesign and social media accounts claimed the business was closing. Although the rest of the world didn't seem to find this quite as funny as the Polish business itself, GOG managed to weather the storm.

GOG is a service that arguably reflects the nostalgia that is such an important part of modern gaming culture and business. Other digital distribution services can be seen as reflecting other aspects of gaming. Desura, initially a platform that helped modders get their work in front of players, today offers a wide range of independently developed videogames via a storefront, offering an auto-patching system much like Steam's. OnLive is a subscription-based service that could never have worked before the high-speed broadband we depend so much on became widespread: it allows players to stream games directly from OnLive's servers, playing titles without ever having to download and install the games themselves.

Other Media

Music and games are far from the only media that have been revolutionised via digital distribution: books, film and TV have also come in for the same treatment. Amazon can be largely credited with popularising the ebook and ereader, although it was not the first to release either. As for film and TV, services like Netflix and Lovefilm grew from offerings that sent DVDs to customers via the post to largely digital services, allowing streaming of films and episodic TV shows.

Regardless, it's interesting to look over the short history of digital distribution, which is littered with failed businesses and services, and iTunes and Steam provide particularly interesting case studies. The lessons taught by both winners and losers are highly instructive.

iTunes, for example, succeeded because it offered a service or product for every step in the chain from buying to listening to music, because its catalogue was not limited to only those artists signed to certain labels and because it made buying and downloading music relatively simple. The many failed competing services from the Big Five record labels and other businesses, such as mobile phone network carriers and hardware vendors, did not understand these simple strengths, offering services that were limited and annoying to use.

Although Steam had a highly troubled beginning, it succeeded partly because it demonstrated its creator's foresight regarding the internet and PC gaming and actively sought to grow the idea of digital distribution even in the face of user resistance. It also put together a strong catalogue of titles, but this alone does not distinguish it from all of its competitors.

What led Steam to dominance was firstly the pedigree of the company behind it (games like Half-Life 2, Team Fortress 2, Portal and Left 4 Dead are at the top of their class) but also its efforts to provide tools as part of the service that were useful to both developers and players, even where there was no direct financial incentive to do so. Today, Valve's financial position is so strong (it remains a private company and is valued at $2.5bn) that it has the freedom to do almost anything it wants, but it was not always so. It should be remembered that Steam's dedicated involvement in championing and improving PC gaming predates its immense financial success.

Digital distribution in PC gaming still involves healthy competition for Steam. One of the biggest games publishers in the business, Electronic Arts, famously offers its latest titles only via its own service. Origin, and Good Old Games continues to grow in strength.

Others have not performed so well. GameTap's offering changed so often that many users abandoned the inconsistent service, while Direct2Drive and Impulse ended up shut inside the borders of the USA. OnLive proved to be a little too ahead of its time: the broadband connections of 2011 and 2012 weren't enough to offer the quality of service it promised. The company was sold for a pittance in 2012, although a limited service does still exist today under its new owner.

Looking over these successes and failures, it's clear that the real winners are those that made the process of purchasing and using digital goods fast and convenient, and that recognised that their customers wanted a high-quality service they felt they could trust rather than one that assumed they would be willing to jump through hoops. It helped that alongside convenience and trust came innovative tools and features that enhanced or streamlined the way people used their purchases.

It's likely that this will continue to be so in future. Modern giants like Apple, Valve, Amazon and Netflix are today significant forces in driving progress within their respective sectors and increasingly appear in political and business debates - particularly concerning net neutrality. Despite their wealth and popularity, however, they should be sure to remember that their customers use them because of that foundation of convenience and trust - and if either of those contracts is broken, it is likely that users will abandon them in droves.