Sunday, April 5, 2009

Digital Distribution is the Future

Music files are small relative to our connection speeds. Ten years ago, in 1999, Napster really started taking off. The average user had a 56k modem with speeds between 2-7kB/s and a 3 MB .mp3 file took between 30 minutes and one hour to download. Today, the average user has a download speed of between 200kB/s and 1.0mB/s. Average game files (full retail games) are 2GB to 7GB and most games take between two to five hours for download. Ten years from today, average end user download speeds should be about four times faster than now (even thought similar speeds are widely available throughout the world already) and game files will seem smaller (even though they will be larger theoretically).

This is assuming server side services like OnLive fail and users still download game files from a server to install them on a system.

This argument is also ignoring the value to the publishers. Packing and shipping represent a significant cost in game production. The costs of delivering a packaged product to the consumer are much higher than the costs of uploading a file across the internet. By digitally distributing content the publisher effectively eliminates the majority of fixed production costs and reduces variable costs by almost 90%. These savings impact the bottom line (Net Income).

However part of this argument is right, there will always be game stores and physical media. Their roles will change, shifting from the central place you get your games into a more niche business, much like record (vinyl) stores of today.

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