Kwalee CEO and Codemasters co-founder, David Darling, on the digital revolution, the rise of free-to-play games and the fall of game consoles.

Sony and Microsoft cannot let the retailers dictate game prices going forwards if they want to break free from the current over-priced model, their next consoles, PlayStation 4 and Xbox 720 need to be digital only, or they will fail. Once Apple add an App Store to Apple TV they could take over the living room games industry like they have taken over the handheld games industry with the  iPhone and its flexible pricing and lack of distribution costs. The industry is transitioning from boxed to digital games.

David Darling CBE

If the next generation consoles have media drives like DVD to keep distributors and retailers happy so they can sell physical product this will make the machines uncompetitive. They will not be able to compete on price. The retailers will say to Sony and Microsoft “you can’t sell game X at retail for $60 and then sell it in your App Store for $2.” However, console-makers will need to sell games for $2 or else they will not be competitive with Apple. Nintendo 3DS and Sony Vita are not currently competitive with iPhone and Android game prices.

Digital downloads give publishers instant access to a worldwide marketplace, while cutting out the expensive chain of production and distribution required by boxed games. Developers can learn how to better look after their customers and provide exactly the experience they want. Players can play more games for free and pay just for the content that they want.

Are we in the middle of the biggest revolution that video games have ever seen? Physical media like DVD is dying out and gaming is rapidly moving to digital distribution. If hardware manufacturers such as Sony and Microsoft do not manage this transition soon, they will be overtaken and left behind by companies who are embracing digital distribution wholly and completely. Companies like Apple and Google are not tied to brick and mortar retailers with shackles and are not being held back by them.

Consoles have become like dinosaurs heading for extinction.

The Internet now allows us to reach our audience far faster and far more efficiently than ever before and many consumers are embracing this change. Mobile gaming in particular represents a fantastic opportunity for new indie game companies. This is why I have come back to the games industry with my new studio, Kwalee.

Consoles have become like dinosaurs heading for extinction as their natural retail habitat begins to change. These ancient beasts must now adapt to a new environment where platforms like Steam, Facebook and Apple’s App Store are pushing innovation. People are already playing more games through digital download than physical media. For instance, Angry Birds has had more than one billion downloads, a sales figure totally beyond what can be achieved by boxed games sold in the likes of Game and GameStop. Since 2008, the sales of console games have been falling each year, as shown by this research from July 2011. [Source]

The May 2012 figures given out by NPD (for the US) and Chart-track (for the UK) show an industry which is falling off a cliff. In May 2012 UK sales were down 38% year-on-year and US sales down 28%. This, despite the fact that we had Diablo 3, Max Payne 3 and Ghost Recon: Future Soldier all released in that month.

PlayStation 4 and Xbox 720 need to be digital only, or they will fail.

The old fashioned, dinosaur consoles are massively expensive to develop games for, it is like making a small movie. The size of this risk means that publishers concentrate on sequels and “me-too” clones of successful games, thus stifling innovation. To become an Apple publisher costs just $99 and the apps do not cost much to develop.

Epic Games, creators of the successful Xbox 360 Gears of War series, have announced that their iOS game, Infinity Blade, was much more profitable than their console titles [Source]. SEGA have also announced that they are closing several of their console studios in order to focus on downloadable games for many of their future titles [Source].

It’s no wonder that approaching 800 new apps are published every day and the Apple App Store is heading towards a million different published apps [Source]. This explosion of game development has led to a massive surge in creativity. Apple has unleashed the tiger from the cage.

Players can play more games for free and pay just for the content that they want.

There is an immense amount of innovation on the App Store compared to recent console games. Big sellers on console like FIFA and Call of Duty change very little each year, whereas many apps are exploring entirely new realms of gameplay. Zombies, Run! is a massively innovative title which turns your daily run into a chase for your life using GPS and scary sound effects to make you believe you are running from the undead. More simple fun apps like Fat Booth and Talking Tom Cat have also been hugely successful, taking advantage of the iPhone’s cameras and microphone, respectively. You can even fly a remote control helicopter with your touch screen. iOS and Android offer gamers several things that consoles don’t; cameras, GPS, accelerometers, microphones, touchscreens, compass and last but not least, mobility. All these features provide a technology platform ripe for exciting new ways to play.

As you would expect it is my intention to ensure that Kwalee is focussed on developing innovative and creative games. Our games in development just would not work in the console market, they are targeted at making best use of currently available technology and social platforms – it is our intention to lift the bar.

With digitally distributed games we can cut out physical production, warehouses, distributors and retailers. We can publish our own games, reducing our costs so that we can deliver fun experiences to players for far less cost than a console game. Therefore it is no longer necessary to charge people huge prices to play video games.

Consoles must now adapt to a new environment where platforms like Steam, Facebook and Apple’s App Store are pushing innovation.

Now game publishers can earn money by offering extra content through micro transactions or in-app purchases within otherwise free-to-play games. This model vastly reduces the need for game reviews too. Why bother reading a magazine review of something which you can try yourself for free?

Another major difference is that digital download games are a service rather than a product. This means that even after a game is launched the publisher has instant access to player feedback, which can be used to make improvements. Games can be updated through multiple iterations. In fact with Apple a new version of the game can be submitted every week and with Android even more frequently. On the current consoles this process is slowed by the need for hardware manufacturers to approve each game and they also charge developers a fee for each update they create.

Dinosaur consoles destroyed by the iPhone asteroid!

Over many years at Codemasters I went to great lengths to understand what players wanted, enabling us to produce many number one hits. Now I am in the smartphone market with Kwalee I shall still focus on players’ needs, but this time we will be able to attend to those needs immediately through instant feedback. At Kwalee we have worked on 10 separate revisions of our first free app, Gobang Social, and published them for free to play. The current game is very different to the original version.

When I set up Galactic Software with my brother in 1982 and we supplied Mastertronic with their games, we were embracing a new business model of budget games. Now it has all changed again.

Digital distribution is only a delivery method and the really important thing is making great games.

Luddites are always resistant to change. In the 1812 the new technology they didn’t like was the mechanised weaving loom. In 1986 it was the CD when they preferred old vinyl music records. Today there is resistance to the idea that physical media, such as DVD, and its retailers will disappear completely and give way to digital distribution. But changes are happening very quickly.

I have set up Kwalee as a new indie game company to work with the new possibilities that digital distribution provides to make fantastic, creative games. Our first two free iPhone apps, Gobang Social and Pussy Flip are multiplayer turn-based games. Following these initial titles, we have a number of creative and ambitious games which we couldn’t make for game consoles. It is an exciting journey and a fantastic opportunity to provide fun experiences to new players using these thrilling new platforms. After all, digital distribution is only a delivery method and the really important thing is making great games.

Sony, Microsoft and Nintendo’s jurassic machines will have to evolve in the next gen console era. They need to embrace free-to-play and cheaper digital games. If they don’t, they could become extinct, as new giants like Apple and Google takeover.