Meltdown panel considers options in distribution

SEATTLE--The game industry is full of people who try to predict the future of gaming. But very few of these pundits are as qualified to comment on this topic as the movers and shakers on Wednesday's panel discussion, "The Next Round--Predictions and Thoughts." One of the last sessions in Microsoft's Meltdown conference for game developers, the panel provided a chance for attendees to benefit from the insight of executives from BioWare, Irrational Games, Microsoft Game Studios, Midway, Valve, and Warner Bros.

Game industry journalist Geoff Keighley moderated the panel, which yielded some interesting conclusions. First, more realism will drive budgets higher and force companies to focus on quality to drive sales; second, companies will likely find ways to monetize online gaming; third, online distribution is inevitable; and finally, the ninjas of Wal-Mart are out to do great bodily harm.

Well, that last one was just speculation by Valve cofounder Gabe Newell, who joked that every time he talked about Wal-Mart in public, he had a feeling the company was going to send corporate ninjas to silence him. Newell made this remark during a discussion of brick-and-mortar retailers' opposition to online game distribution, and though he was joking, his comment keenly illustrated just how much influence Wal-Mart exercises over the game industry. According to Lee Jacobsen, senior VP of business development at Midway, Wal-Mart sells 27 percent of the console software in the US--it's understandable that publishers want to stay on the company's good side.

Interestingly enough, opinions differed on Wal-Mart's position on online distribution. Some panelists felt the company was strongly against it, while Newell said that from his perspective Wal-Mart was more laissez-faire--the company had "gotten over their fear of the Internet through seeing how Dell and Amazon operate." Valve's Steam online distribution system is "a little worrisome for them, but not seriously." Of course, as the developer of one of the most anticipated games of the last few years, Valve negotiates with retailers from an enviably strong position: Retailers need Valve much more than Valve needs them.

No matter how things turn out in the short term, the panel agreed that in the long term, online distribution is inevitable. In the words of Shane Kim, general manager of Microsoft Game Studios, "content is king." The sales channel is less valuable than the product, and eventually publishers and developers will be able to go their own way. In fact, that process is already starting. After the panel ended, we asked Newell if Valve would offer the Steam distribution system to other developers and publishers, and he responded that they were already working on deals.

Ballooning budgets are a common concern of game developers. Every technological advance enabling better graphics or improved sound creates a demand for more complex content, which in turn requires more resources. The end result is "skyrocketing costs." Though it's a common concern, the panelists didn't come to consensus on how this problem should be addressed. Warner Bros. sees the increased realism as an opportunity--games are becoming more similar to the movies and TV shows that are the company's area of expertise. The company believes its abilities to create compelling content in other media will transfer to interactive games. Kim agreed that as customer expectations rise, character and story development are increasingly important. However, no one on the panel explicitly agreed with Warner Bros.' stance that the skills needed to create compelling interactive and noninteractive media have significant crossover.

At one point, the conversation turned toward monetizing online gaming--a hot issue for both Microsoft, with its Xbox Live platform, and Valve, a leader in online play. There are a number of issues involved in this: What will the content be? How will it be delivered? How will companies bill? As Ken Levine, cofounder of Irrational Games, pointed out, MMOs have the best current solution to this problem: The key product is the service, not regular content updates, and MMO developers receive a steady cash flow that's very different from the irregular earnings of most game developers.

Newell changed the topic a bit with a suggestion of another way to even out cash flow--200,000 subscribers paying $5 a month would give Valve enough money to produce four hours' worth of Half-Life 2 gameplay per month. He thought over this calculation for a moment and concluded: "Achievable!" Considering that Valve has millions of loyal customers, if anything, Newell was too conservative. The model has a lot of potential, though it doesn't directly monetize online play.

So the future is wide open: Will online gaming in the future be an all-you-can-eat model like Xbox Live and current MMOs? A pay-as-you-go model like the one that Newell proposed? Or something else that drives gamers to pay by the minute or per match? There was little consensus on this question, but time will surely tell.