Power to the people: Publishing, tomorrow

Tim Schafer has scared everyone a bit. And rightly so. In raising well over $1m for the new Double Fine project via Kickstarter in a day or two, he has shown the games industry that a community exists which is willing to pay a premium for a quality product, years before it is released, with very little real detail about what it is, or will be.

Tim’s success has served not just to highlight the buying power of the point-and-click adventure community (which has recently supported some truly fantastic indie titles: particular favourites here and here), but to ask some big questions about games publishers. After all, if developers can go directly to end users and finance production themselves, without a great deal of marketing or even a demo product, and distribute the final product online, what need is there for a publisher?

Quick recap:

Back in the good old days, publishers had two big jobs to do: Financing and marketing/distribution. The first job pitted publishers against each other in competition for the best concepts, creatives and development houses to back. The second pitted them against each other in competition for customers – as they took their finished products to market.

The gaming value chain c. 1995

This is an oversimplification, sure. Games publishers were often much more collaborative in the development process, and a number of big-name development houses were acquired by publishers who recognised the benefits of the two functions working closely together. However, broadly speaking, the value chain shown above worked (ten or fifteen years ago).

But some big technological shifts have disrupted the parts of the value chain where publishers used to play most effectively:

Firstly, the physical delivery of content (at least in the form of a CD, a DVD or a gaming cartridge) is likely a thing of the past. With online content delivery systems now being a (consumer-preferred) reality on both PC and console systems, as well as being the very basis of the growing mobile gaming platform, the physical sale of “the game” as-an-object is fast becoming redundant. This change in distribution technology poses a challenge to “Job 2” for the traditional games publisher.

Secondly, there is a growing possibility that established or new developers could finance projects through communities of gamers, rather than seeking finance from established games publishers. This change in developer behaviour, brought about predominantly through technology enabling online communities to be venture capitalists, poses a challenge to “Job 1” for the traditional games publisher.

The new value chain

So, the growing perception in the industry is that publishers are being pushed out at both ends of the value chain. And it’s certainly true that there are significant pressures disrupting the market at both ends. However, things may not be as grim for games publishers as they appear…

The first problem: Online-only content distribution

Arguably, this disruption is a much bigger problem to other segments of the distribution network – segments which relied more heavily than publishers on the “physical game” being sold. While it probably rang out a death-knell for the high-street video games retail model years ago, the online distribution of content model has mostly been adopted by publishers, albeit with varying degrees of success.

When the current shift towards online gaming libraries is completed, there is no reason to think that the highest-value games franchises will not be part of these libraries. It is up to publishers to develop their own content distribution systems (a la Origin), or work within established networks (a la Steam). This is a challenge to publishers requiring a change of focus, but is no reason to suspect their future extinction. More on this issue another time – it’s not the talking point here.

The second problem: A publisher-less world of game-development and finance

Contrary to the prevailing feeling in other online blogs, I believe this form of disruption offers a substantial opportunity to publishers, rather than representing a sustained threat.

Firstly, it is important to recognise that the well-established franchises (the FIFA, the Madden, the Call of Duty etc.) are likely to be unaffected by this development. These games are multi-million dollar, multi-million user franchises with much more predictable revenue streams and product pipelines, and as a consequence, these games are likely to allocate finance and generate revenue in an organic manner.

But for new game developers, or developers looking to finance new concepts, it is still not clear that the Kickstarter route to venture capital is viable. Double Fine’s success in raising so much so quickly, as noteworthy as it is, surely owes a great deal to Tim Schafer’s excellent reputation as a developer. Although consumers were not buying a franchised product as well-established as Madden or Half Life, how many gamers with no knowledge of Grim Fandango or Day of the Tentacle said to Double Fine, “shut up and take my money”?

For new game developers, with no product or development history, the pursuit of finance is likely to be as difficult as ever.

The gaming community as a publishing opportunity:

As much as the emergent power of the indie gaming community (in determining which titles “hit” or “miss”) represents a threat to traditional publishing (in so far as it diminishes the power of marketing to determine consumer habits – the consumers will choose for themselves), it also represents a real opportunity to smaller publishing houses with a keen sense of what this community wants. Clearly the publishers which passed on Double Fine made a mistake – simply giving Tim Schafer the $400,000 he wanted and then putting the project on Kickstarter would have locked in a solid profit. But beyond Double Fine, the community is clearly ready for games with lower production value than Call of Duty or Halo. And with intelligent, not expensive, marketing/online distribution and gaming concepts designed for this community, the opportunity for smaller publishers to build strong portfolios is as big as ever.

Tim Schafer is right that publishers aren’t evil. But they are missing a trick, and are letting future gaming classics slip through the net.

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