Should indie developers invest in boxes?

A sequence of things that happened this week made me realize that something that seems over-obvious to me, may in fact not be so obvious to others in the same position. It’s all to do with how independent developers look at retail, or rather, how they don’t look at it.

Is it really that stupid to make sure your games can be seen by anybody who enters a shop ?

Here’s what happened:

Wednesday evening I get a mail from Tom @ Evolve PR telling me

“Ehhh… this little post from RPS has a lot of comments from people going, “what the hell?” — obviously I would also agree that digital is probably the best way for indies to get big numbers these days, but yeah… might be worth hopping in and commenting a little bit?”

So I go look, expecting the interview to be online but to my surprise it’s a teaser with the header “retail important to indie PC studios”. My initial reaction is something along the lines of – yeah, so what – that’s not particularly interesting – but then I check the comments section, and to my surprise people are actually debating the very point.

Next, in an email discussion with a fellow friendly developer, Sergei, our enigmatic publishing director, proposes hooking up said developer with an excellent local distributor. To our surprise, the developer’s reaction is lukewarm, saying that he prefers his German publisher to deal with all aspects of retail distribution in Europe. When we tell him, but your German publisher doesn’t have any retail presence outside of Germany, he tells us, yeah, but he’ll make a deal with others and then he’ll pay me royalties – it’s a lot of easier for us that way.

We obviously go silent at that – why would he prefer a cut from a cut instead of going direct? It’s not like the German publisher could force him to accept a European deal in return for financing the game – he’s self-funded, and made plenty of money from his previous game.

Then I do an interview with Gamesindustry.biz  and again, the interviewer expresses surprise at the fact that we’re trying to get our game in retail, and we spend quite some time discussing that particular bit.

So I started wondering, am I missing something here?

Larian’s distribution strategy can be summarized as follows, sorted by how we prefer a sale to be made.

  • 1. Direct Sales – Via Larian Vault & forums. Full control, largest margin, allows direct contact with our players.
  • 2. Steam – Reliable, report on time, pay on time and regularly, are very developer friendly
  • 3. Other digital sales – Easier than retail, monthly payments, you occasionally ned to yell a bit to get your money.
  • 4. Retail in key markets – It’s possible to work with civilized companies that are ok, even if they are stressing for the moment.
  • 5. Retail sales in non-key markets – Need to work with either finished goods deals, so sales/messaging can be controlled – be damned sure about who you are dealing with.

It’s true that points 4 & 5 can be interesting from time to time, so we have some key rules in place to avoid future frustration

  • Work with publishers/distributors that have direct access to retail in their territory.
  • Ensure that numbers we expect are feasible within their market,
  • Make sure there’s incentive for them to push our games.
  • Make sure sell-through can be controlled and offer reasonable return/price protection policies.
  • Make sure PR & Marketing are cooperative efforts with the option of taking the lead if necessary

It’s no rocket science, and I can’t figure out why you wouldn’t want to do retail, even if you prefer direct or digital sales.

The only real reason I can think of is the fear that the margins might be lower. So I did some calculations.

The numbers I’ve seen from my own games but also other games show that 70% of digital sales are made via promotions where reductions between 30% to 75% or even more are offered to players. That clearly impacts the average revenue per unit in digital (though for players it’s great ;) )

Retail has the same thing, they call it price protection and obviously you also have to deal with returns, but all in all it’s a lot less elastic than digital.

Comparing the two, I ultimately arrived at the conclusion that in today’s market you end up with a net per unit in retail being approximately 70% of net per unit digitally. Or in other words, you need to sell 3 units in retail to get the same money you’d get from 2 units digitally. That’s clearly a difference, but it’s not that significant that you can say, retail isn’t worth it.

Unless, that is, the retail audience is the same as the digital audience.

Now, I don’t have numbers on that, but anecdotic evidence, together with the observation that even Valve still puts a lot of effort in their retail presence, leads me to believe that the overlap is not as great as press headlines would lead you to believe.

Besides there still being many other players out there that don’t like buying something digitally, you also need to factor in that broadband isn’t omnipresent yet, especially in Eastern Europe. And if you’re not in a store, you can’t reach those players. On top of that, being present in stores is also a form of marketing.

So my take is that if you’re not doing points 1 to 5 as an independent developer, you are most definitely losing revenue, revenue you can use to make better games and increase your independence. Of course, the retail margin starts eroding rapidly if your business model for being in retail is one in which you get a cut of a cut (and in some cases, of a cut)

But, given that so many people are questioning my reasoning, please take this post as an open invitation to correct me. If our strategy has a fatal flaw, I’d like to know now rather than later ;)

P.S.

Never in my career did I expect I was going to be defending retail as a model ;) And for clarity’s sake, I’m not saying retail is the future, but it’s here now and you should use it for what it is.

  • http://www.facebook.com/Dragonseekers Sergei Klimov

    I’d like to also add that just this morning, we discussed a pretty cool idea of a new game… which we will need to finance… and whereas digital can pay you post-factum, after you deliver your game and the customers buy it, it’s the retail deals that make it possible to finance new projects, still.

    I can go to Germany, Poland, Russia, UK, even US, and ask, if we deliver X game – will you sell N units? And if yes, would you mind signing up with us? Which will in turn allow me to go to the finance people and say, guys – here’s what we have, if we develop X – we get N units shipped – and we’d like to borrow development funds on the basis of which. And so it happens.

    With only digital, though, it will be a much, much tougher sell. Guys – here’s the idea, we *think* it will be cool, but nobody else is willing to back up this thinking with a contract or an order. It’s a bigger jump. No problem if we don’t need too much money for content, but lately it’s all about content-heavy projects here at Larian.

    Retail is still OK. And good retail distribution is great. If you can build a relationship with the right distribution company in your key territories, you’ll have excellent partners focused on delivering your game to the customers, and you’ll have more happy customers as a result.

    Not to mention that when CD Projekt Blue or KOCH/Deep Silver roll out a Collector’s Edition in their territories, it’s an awesome thing to hold in your hands as you walk home form the store ;)

  • Arne

    Could someone answer this to me: to what kind of people is digital selling the most attractive? I guess to novice, younger (12-18) or sporadic gamers purchasing retails should be the easiest thing to do. And surely you don’t want to ‘forget’ novices? They’re the future!
    Or do I assess them wrongly?

  • melianos

    Do you think you will sell boxed versions of Dragon Commander (and project E) through the larian vault ? Maybe even some Collector’s Edition or the like ? I’m a big fan of the cloth map I have from Ego Draconis :) (and the CD, but more of the map)

    I’m one of those that buy boxes and like to see them taking space in shelves.

    • http://www.lar.net/ Swen Vincke

      Yes, we have plans in that direction – we already sell boxes of Monkey Tales, so there’s no problem expanding that to retail boxes in the future. If we manage to pull off what we’re planning with the collector edition for Dragon Commander (which will be quite expensive for us), then it’ll probably be the channel we promote the most for that.

      • melianos

        You planning to include a jetpack ? :D

        • http://www.lar.net/ Swen Vincke

          Oooh, I’d love to – think you can afford  10K€ for an extremely limited collectors edition ?

          • melianos

            Let me check my monopoly first.

            By the way, nice cover for Ego Draconis, and great cover for DKS :)

  • Illusive Man

    It seems that you’ve got the point : why Valve still needs to deal with EA to distribute their retail games while they’ve the “almighty digital platform” with STEAM ?

    Retail still count for not-PC-centric games ( PC players always forget about Consoles players until they have to complaint about something and spit on them ) and collector edition ( as Serguei said earlier ).

    For example, The Witcher 2 Dark Edition on Xbox 360 was n°1 best-seller videogame on Amazon.fr in less than 24 hours ! N°1 of Top 100 for all videogames on the site !
    That’s a LOT of pre-order for a 80€ edition…

    Now it has drop to 30th place and I don’t know if Amazon.de or Amazon.com have recorded such affluence within the first days of pre-order, but still it shows how retail can be important I guess.

  • http://www.lar.net/ Swen Vincke

    Just saw this reported linked in a comment on http://www.rpgwatch.com/forums/showthread.php?t=16090 Figures support that digital is definitely growing strongly, but retail is still pretty strong, even on PC. 
    http://www.newzoo.com/ENG/1587-National_Graphs_2011.html

    I actually wonder how much of the digital PC/Mac split represents Mac.

  • Alrik Fassbauer

    Could it be that digital = younger generations and retail = older generations of gamers ?
    I wonder – and I often see hints towards that.
    I guess there’s a reason why the term of the so-called “digital generation” has been couned …

    • Arne

      That’s exactly what i was talking about: there are 2 ways to think about it:
      1) young == not the traditional way ==> digital platform
      2) young == harder to deal with internet purchase ==> retail. First you need a credit card, second, will parents trust this platform? True, most people are now used to online banking so maybe point 2 is less applicable. Still lot of guesswork. Anyone more familiar with this statement?

      • Arne

        (young = age<18)

    • Illusive Man

      Younger or older, gamers should read EULA of digital platforms.
      Some things like “DOES NOT GUARANTEE CONTINUOUS,[..] ACCESS TO [...] YOUR ACCOUNT AND/OR YOUR
      SUBSCRIPTIONS(S).” worth to think about it before filling digital bills.

      Players can take care of CD / DVD boxes for years but digital games are not so easy to keep.
      ( tip of the day : always backup HDD :D )

  • Alrik Fassbauer

    I meant coined … An anecdote from the time before last December : A couple with a kid – the parents seemed to be in the late 40s and early 50s, at least that was my impession – were looking for a Zelda game. They wanted it for the PC. They didn’t realize that Zelda was console-only, until I explained it to them. During our chat they reminded each other of how much fun they had while doing console playing in the 80s … With Zelda, of course. They still had fond memories of that. And they were like others in this age I have met who wanted slower games with not much action, but with more emphasis on the use of the brain. And they are not the only ones in their age thinking so. almost everyone in this age I talk about computer games says that : They want less action, slower games that rather demand some sort of logical thinking.

  • BearishSun

    We’re indie and we’re going digital only simply because we have no other choice. Little funding we managed to gather for our project is long gone, and we’re just trying to get a break into the industry with our first project.

    I think this is a similar situation with many indie developers, we just don’t have any choice until we either make some money or some publisher recognizes us.

  • http://twitter.com/Bagdadsoftware Christoph Hofmann

    In advance: Firstly this post is a bit on the long side, sorry for that, and secondly I’m writing from a purely gamer’s perspective (and a bit as a games-journalist). I have no numbers or arguments to validly proof or disproof the points made and I can only speak for myself naturally. But perhaps I can help to give a little more perspective outside the whole wars waged in the forum threads with their heated arguments.

    Personally I’m one of those persons who still prefer a boxed copy over a digital one. No matter how good a game, if possible I’ll refrain from buying it until it gets such a release. Of course I’m certain that I already have missed and will certainly miss many more very good products by holding this course in the future but as long as retail is not dead, I’ll hold it. I go even so far and buy a game a second time once a retail version hits if I only had it digitally before (if possible from the developer directly of course).

    So the question is: Why do I do it?

    Well for one I do it to show the responsible company my appreciation for putting it out there. Then I’m also a collector. Worse: I’m that kind that just has to have the best Collector’s Edition — so, yes I would think about buying a 10k-Version of Dragon Commander even without the jetpack :) And it just isn’t the same collecting something if you can’t hold it in your hands and put it on your shelve no matter how ugly the cover, how non-present the extras or even manual is. But the most important point is perhaps that I’m one of those, well not just old generation of gamers but buyers in general for whom it’s a very strange and somewhat unsettling feeling seeing your money (which is also just a number on the screen) disappear into the ether and getting just a file for it in return. A file which has no meaning, which can vanish in a second into nothing. Something useless which I don’t feel like I really own. Of course I understand that I don’t own the software to begin with. I just bought the license to use it. So basically it shouldn’t matter if it’s represented by a physical or digital thing. But for reasons I can’t explain, it does establish a stronger bond of ownership. And not just for me but also to many others. Does the newer generation feel different? I don’t doubt it. They grew up in a digital age (although I myself are only in my late twenties) and have perhaps never bought a physical case in their life.

    Still I think there is a potent market for releasing a retail copy still out there (repeating points a bit now) — at least in Central Europe and Eastern Europe. Not just because still many people aren’t able to download a game with 500 MB in a reasonable time-frame not to speak of 2, 5, 15 GB. I myself only have 2 MBit/s and always curse the PR Managers when they only send out a download key for the review/preview copy. But also because it does in my opinion indeed strongly increases the visibility for a title. And not just in a physical store like GameStop, but also online at Amazon, OkaySoft and other such companies. And especially indie-titles will profit from that, because let’s be realistic: Until a title is in a bundle or on Steam in an offer, only a small percentage of people will hear about it. And no, Minecraft is not a valid counter-argument. It was a one-time phenomenon for which the stars aligned just right. Those thousands and thousands other indie-games out there? No dice. And even if they are in a bundle or on sale? Only a fraction of the people actually play those longer. It gets bought because it’s on sale not because the buyer is actually interested in the game. So more visibility is very important to really establish a developer and make the buyer be more invested in the game.

    And you know what? There are companies out there that have specialized themselves on exactly the market of bringing indie-games to retail. Here in Germany the most prominent is certainly Headup Games (http://www.headupgames.com), bringing stuff like Super Meat Boy, Limbo, Terraria, The Binding of Isaac, The Tiny Bang Story and so on into stores (with a bit of extras as further incentives for buyers), followed by Daedalic Entertainment which have just begun to tap into that market with titles like Gemini Rue. Of course they pick mostly game that are already successful digitally but sometimes there also something in there, that’s not a big hit yet or even still in development. Yes, they are a small company, so they don’t have to have those multi-million sales. But their success shows me, that going retail doesn’t hurt neither the games nor the developers either. It’s more of the opposite: They help make it even more known, not just by putting something in the store but also by launching what is basically a second PR-campaign.

    So in conclusion: Yes, today digital distribution is the way to go. There’s no doubt about it. But retail is still alive and kicking and there’s no reason to ignore the profits which can be made with it. There are good, if perhaps somewhat small publishers out there who know that. And there are many willing buyers out there who appreciate not just the publisher but also the developer for it.

    And I’m glad Larian Studios sees it the same way.

    • Lar

      Thanks for that Christoph – we recently did a visit to several German retail publishers/distributors and you their numbers show that there’s still a lively market for retail games, even indie games. Machinarium for instance did quite well in retail in Germany.