How much disruption can an industry stand?

How much disruption can an industry stand?

The theme of GDC for me has been the confluence of forces of massive disruption, almost all of which are aimed at over turning the dominance of the current platform holders or channel owners. It looks like a very bad time to be making consoles or thinking about opening a wholesale distributor to me. The question that is really nagging at me is this: “will the consumer support this with actual money?”

Given my biological bias, I am always keen to find an analogy. This one is “large potential predator enters the ecosystem currently dominated by a co-operative group of middle sized predators”. Think of one or two, big, streamed content companies as really huge predators, feeding on consumers, using content as bait. Compare that to the group of predators that are publishers, retailers and distributors. How does the impact of each of them act on the wider ecosystem, especially as regards developers and consumers?

Historically the games industry has been very ready to be early adopters of almost anything new. The earliest PCs (Amiga, C64, BBC, ZX80) were all driven by games. The early Mac recognised games as a force, before becoming the whipping slave of the 3D designer for a while. Consoles were all about games, and it did not take long for phones to realise that the real killer apps were games. Television used games to drive stickiness in users. Gamers have been the butterfly early adopters who have paid, time after time, for the development of channels, devices and services that provided entertainment for them.

What gamers actually got was monopolistic suppliers of very expensive core games, tied into margin sucking distribution channels, desperately user unfriendly Terms of Service, horrible support, and bloated marketing and PR monsters that were designed to push up prices, not push up entertainment.

Gamers fought back by supporting pirates and turning to casual and MMO games in their millions. The old dinosaurs were left wounded or dying, and yet still thumping about the landscape with $60 price points and $bn marketing spends.

So, this year, it has been great to see even more disruption aimed at them. Perhaps it will finish them off, perhaps not, but the real issue for me has not been answered. I still cannot see what is in it for the consumer.

I’m going to deal with streamed games first. Otoy and OnLive are both aimed at streaming very high quality server side rendered content to small or light clients on demand. Both will have games and video. Both will offer community and social features. Both are hugely well funded. Both are aimed at the heart of console manufacturers.

You can forget the hype. In case you have missed it:

* Instant or near instant ‘no lag’ experience
* Rendered at HDTV resolution
* 25fps or better
* No load times
* No downloads
* No piracy

Got that? Want to read the “but” in small print:

* Only in the continental USA
* Only if you have 5Mb/s or better high quality links
* Only if you have 25ms or better last mile
* Probably won’t work all of the time
* It hides, rather than repairs data errors and missing packets (degrading content to keep frame rates up)
* for OnLive at least, it is going to cost you $14.95/month just to connect PLUS games and content rental ON TOP of your ISP charges, satellite TV costs and so on

Even if we can get over the inevitable disappointments that users will experience if they try to play a few hours of hardcore competitive twitch gaming over any current ISP service, we have to look at how the other players in the market will respond.

It also occurs to me that the streamed content companies will have a fearsome lock on the consumer, as they will tie them in to long term contracts, and be strongly allied to other content producers (such as movie and television channels). If they take hold, they will be very hard to dislodge. Once established, they will be strongly in control of all access to the consumer. They will lock down all cash flows from the consumer. Have developers, publishers and ISPs thought that through yet?

I expect to read a lot more soon about three problems with the streamed games innovation, despite its power to disrupt, it has made four new sources of grief for itself:

1. Console owners cannot enforce “exclusive content”

2. Owners – especially “mom”  – who now have to chose between $500 every 5 years for a console + $60 a game and (say) $250 every year to a streamed game service (final costs for Onlive to be announced in July 2010, with Otoy following)

3. Software developers will (inevitably) have to develop for the server renderer and take account of Internet lag. And they will end up eating that development cost while having no direct interest in the sales revenue being piped to their publisher over longer periods of time (as revenues will be ‘per hour’ as opposed to ‘up front on retail sale’). Given most developers go bust in the period between gold master and break even, the risk of developers failing – even if they make a great game – is suddenly much higher

4. Traditional publishers are going to lose at every point. Retail sales will fall. Their ability to suck advances from wholesalers and distributors will fall. Console owners won’t be paying them up-front for exclusives. Developers are going to want more money. Customers are going to want support. Revenue from the streamed services will come over much longer periods, greatly extending their risk and deferring their break-even point.

What bothers me is that those elephants are clearly standing in the room, but no one is mentioning them. They won’t go away unless someone deals with them. Why are so many people wow’ed by the gloss and visuals and not asking the basic questions about the impact on the ecosystem?

Can we get over these problems? I hope so. To do so, the streamed services must show a willingness to support development, pay advances and negotiate a tricky line between the console owners and publishers. Someone has to lose here, and I really hope it is not the consumer or the developer.

If that happens, I can see really big advantages. Not least of which, consumers will be able to interact with content much more ‘immediately’, and developers will be able to get more information on what is liked faster. We might even get to a world of proper episodic content, and confluence between video / film and game content. Which would be nice.

It boils down to this: if the service is good and if the content is desirable, then these streamed services will thrive. If not, then consumers will not pay, and they will fail. Just remember that it not only has to benefit the consumer, but has to support the ecosystem that provides all the lovely content, or this will fall over. What we really do not need to happen (as consumers or developers) is to find that we replaced one set of top predators (publisher + retailer) with another (streamed content company). If we don’t sort out the ecosystem questions first, we could find that we are locked in to a tyranny that is of no benefit to anyone.

Will consumers support it? The jury will be out later this year.

Can the industry support this disruption? That is going to take longer to find out, and by the time we find out, it might be too late to go back.