Should the Gaming Industry Follow Radiohead in D2C?

RadioheadThough others have hinted at it in the past, Radiohead’s move to offer its latest album, “In Rainbows,” as a direct download — for a price set by the consumer — is a first among high-profile bands. It’s also a watershed moment in the music business, and one the game industry would be foolish not to pay attention to. The lesson is simple, really: Create a fair and consumer-friendly way to free the media.

Consumers Want Freedom

Consumers now want the freedom to use their media as they wish. When it comes to music, they want to listen to songs in their cars, on their PCs and on their living room stereos. They want to create mixes and playlists and share them with friends; to rip apart songs and create mashups. They want to customize their experience of music.

Part of the push is a backlash against harsh DRM technology. As Yahoo’s (YHOO) Ian Rodgers recently commented, “If the licensing labels [offering] their content to Yahoo put more barriers in front of the users, I’m not interested….I won’t let Yahoo invest any more money in consumer inconvenience.” Apple (AAPL) is experimenting with DRM-free music for iTunes, and Amazon (AMZN) last month launched the beta version of its MP3 download store with 2 million DRM-free songs.

In gaming, region encoding is perhaps the worst offender — the consumer doesn’t want to have to buy a Japanese PlayStation just to play Japanese import games. Don’t make her do that.

Creators Want Control

The other side of the equation are the artists who, like Radiohead, have become fed up with having to funnel their product through the Byzantine process of publishing on a label, only to get, more often than not, royally screwed. Why would any artist choose to sign away their creativity like that? Because until recently, there was little choice. But then came the wave of independent labels and the rise of the indies, and concurrently (not coincidentally) the explosion of the digital download. Now artists can choose not to sign, even if they don’t have the draw of Radiohead. Independent musician Jonathan Coulton, for example, has been quietly building his one-man music business for two years.

Is this a route that independent game studios can take? Well, many of them already have. Valve, makers of the highly acclaimed first-person shooter Half-Life, have their own distribution label, called Steam, in addition to a retail distribution deal with EA (ERTS). For indies, sites like Kongregate offer revenue-sharing programs for content creators. GameTap, the subscription-based streaming game service, has launched an Indies label. And venues like the Independent Games Festival (IGF) increasingly raise the profile of talented game developers and small studios, allowing them a greater degree of access to both consumers and to deals with publishers on their own terms.

The Big Platform Problem

But the game industry also has its own unique obstacle: the lack of an agnostic, standard platform for game software. For instance, I want to play the outstanding downloadable game, Everyday Shooter (see the lovely trailer), from 2007’s IGF winner Jonathan Mak. But I can’t, because it’s only available through the PlayStation Network, and I am not about to drop five hundred bucks to play one downloadable title.

This sort of platform lock generates some of the biggest behind-the-scenes battles between publishers and developers in the wrangle for exclusivity, and creates painful development headaches for studios trying to produce multiple SKUs of a product on time. And while Microsoft (MSFT) has created tools like XNA to facilitate development, the game creator can ultimately only reach the percentage of the market that is the install base of the platform.

If Downloads are Loss Leaders…

Another problem is that games make the bulk of their revenue through game sales. Kim Pallister, who works on strategy for Microsoft Casual Games, noted this when I asked him what he thought games could learn from the music industry. “A really interesting thing is to think about the ‘If it’s all free, the money’s in concerts/live performance’ angle for music. Is there an equivalent for games?” The answer, of course, is that there isn’t — at least not yet.

Game developers are looking for it, but it’s a process, one that is expressed by what marketing analyst Seth Godin refers to as the “mediocre middle.” These are the mediocre members of the music industry that sit between the innovators and the winners, waiting and watching to see what will happen. The same is already proving to be true in gaming: The indies have jumped to digital distribution because they couldn’t get deals with publishers; and Valve, like Radiohead, has the clout to innovate without fear and with less risk. Everyone else is waiting, and watching.

The question now is, how will the publishers respond? As Radiohead singer Thom Yorke said to Time Magazine,
“I like the people at our record company, but the time is at hand when you have to ask why anyone needs one.”