Music, movies, games – the way we enjoy either of those three mediums changed massively during the past 100 years. In this blog post, I want to elaborate on the opportunities and threats that come along with the distribution of video games online as both, profitability and complications are most noticable in this medium.

The changing distribution channels over time for music: From analogue all the way to optical and finally digical distribution.

Things did not change very much ever since video games started to be sold for home use in 1972 until the dawn of the internet. The format changed from cartridges to magnetic formats over to various forms of optical discs, but the idea was always the same: The game has to be manufactured, packaged, shipped and put up on display in a retail shop. The consumer will have to go to a shop that sells the favorite game and return home after purchasing the game.

I’m writing this as a response to the video game industry blog “NotEnoughShaders.com” who wrote a very well researched article about the rise of development costs in the industry and how it drives small companies out of business if they don’t find alternative distribution channels. The idea of downloadable game content that cuts out the traditional supply chain and is directly delivered to the customer was already introduced in the mid-90’s by Nintendo in Japan with their Satellite Download-Service, but only became common practice around 7 years ago when many major manufacturers introduced their own digital distribution methods such as the Xbox Live Marketplace (Microsoft), the PlayStation Network Store (Sony), WiiWare and Virtual Console (Nintendo) as well as the App-Store (Apple) and Steam (Valve). As technology advances and gamers expect more impressive graphics and diverse gaming experiences every year, development costs skyrocketed throughout the past decade (1).

The video game industry experienced a rapid increase in development costs over the past 10 years. This was mostly caused by the introduction of high definition technology and higher expectations in terms of storytelling and graphics.

For example, a one of the most successful games of the year 1998, Resident Evil 2 for PlayStation, had only 33 people working on it with a budget of approximately $3 million dollars (1). 2012’s Resident Evil 6 employed over 600 people and the budget most likely approached $100 million dollars – an increase of over 3300% in a bit more than 10 years.

With such increasing costs, many developers and publishers seek additional sources of income or try to optimize their supply chain. By using online distribution channels, companies such as Nintendo or Electronic Arts can not only safe all the money that was formerly spend on supplying games to retailers, but they also have better control about the distribution of their products and can aim advertisements more directly and customized to their customers tastes.

The advantages of online distribution are obvious: Download-traffic costs next to nothing to a company, therefore once the break-even is reached, variable costs are basically zero and the company earns pure profit for each additional sale. In addition, consumers can get access more directly and easier to the software they want, from everywhere in the world as long as there is internet access. This distribution method is heavily discussed in the gaming community, however, especially because of the increased empowerment of companies increases scepticism among gamers and users of this new service. A negative example of online distribution is the recent SimCity release in March this year, a game that can only be played with an established internet connection. Players were downloading the game for the full retail price, but overloaded servers prohibitied customers from using their product – and EA refused to give refunds and even threatened customers to ban their online accounts (3) (which would also delete all the customer’s previous purchases from the EA online store) if they cancel the purchase by contacting their credit card company (2).

SimCity’s technical problems caused a lot of disappointment among gamers and damaged the company’s reputation in the scene. Supposedly unrelated to this issue, EA’s CEO John Riccitiello resigned only days after the “always-online” debacle (4).

Some observers regard this recent development of increasing coercive power on paying customers as very negative, but companies will not refrain from using online distribution channels because it means almost zero variable cost for each sale. Still, the answer to the question whether companies will agree to loosen their grip on the customer with “always online software” and strict DRM or if they will continue to chain each consumer into a framework where they are exposed to the rules made by the company will remain open.

Sources

1) http://www.notenoughshaders.com/2012/07/02/the-rise-of-costs-the-fall-of-gaming/ , retrieved March 23rd

2) http://ca.news.yahoo.com/blogs/right-click/simcity-problems-bad-worse-always-online-servers-called-004720433.html , retrieved March 23rd

3) http://www.theverge.com/2013/3/7/4076104/amazon-stops-simcity-digital-orders-customer-complaints , retrieved March 23rd

4) http://business.financialpost.com/2013/03/18/electronic-arts-ceo-john-riccitiello-to-step-down-march-30/ , retrieved March 23rd

It is the seamless transition between a movie and a commercial, the subtle distraction of our thoughts away from the story line towards a brand name, the billboard next to the highway of the film reel.

When I read Melody Han’s post about Lamborghini’s relation to the Batman-movies, I felt challenged to write more about the topic of product placement. It is not new, it is actually older than one may think. Being introduced in the early 20th century in silent movies, definining cinema classics such as Fritz Lang’s “M” (1931) already featured a banner that advertised “Wrigley’s PK Chewing Gum” in the background for a continous 30 seconds (1). However, the ways of implementation and how much product placement could be found in big movie and TV productions changed a bit over time. The simple banners in the background had transformed into characters using products and mentioning their brand names such as in one of the most famous examples, the “Back to the Future” movies from the 1980s. While the use of a DeLorean DMC-12 is surprisingly not part of sponsored product placement (the company ceased to exist prior to the first movie’s release), the movies feature many other companies’ (sometimes fictional) products by e.g. Pizza Hut, Texaco, Pepsi and Mattel.

Marty McFly always orders Pepsi, regardless if he is in 1955, 1985 or 2015.

Other companies are even more aggressive in promoting their products by simply promoting the entire movie: “I, Robot” (2004) was supported by Audi who even developed their very own concept car “Audi RSQ” to be featured as Will Smith’s automobile in the movie set in 2035 Chicago. While a very futuristic concept, the car was still recognizable as Audi and increased brand awareness of the company and increased the hype for future Audi sportscars: 2 years after the release of “I, Robot”, Audi launched their R8-model, the first high-performance car in the company’s history, which highly resembles the RSQ from the movie. This is a prime example for how a movie was used to test a target market for its reaction and subsequently release a product to react to the determined demand.

The Audi RSQ (top) was exclusively developed to be used in the movie “I, Robot”. 2 years after the movie’s release, Audi launched the “R8” (bottom picture), which resembles the futuristic concept car in many design aspects.

In 2013, the methods of product placement are more diverse and full of opportunity, thanks to the internet and the possibility to change content simply by clicking a button. I want to raise awareness of the development of product placement in interactive content such as video games. Companies such as Electronic Arts have already introduced this technique as early as in 2004 (“Burnout 3” featured in-game graphics with advertisements for other games published by EA) and have since developed more subtle and effective methods to include brand names into the gaming experience: In SimCity (released March 2013), players can build so-called “Nissan Leaf Charging Stations” for electric vehicles (3), which increase happiness among nearby citizens and increases eco-friendliness . The implementation fulfils a gameplay-purpose as well as raising brand awareness.

Driving a Nissan will make your Sims happy. The player will proceed in the game and knows that Nissan was the reason.

But just like with all other marketing strategies, there is always a threat to it. EA’s latest implemenetation is smart, but the previously mentioned example of billboards in “Burnout 3” was disliked by many customers and further damaged EA’s reputation as a “money-making machine” who do not care about artistical coherence (4). The same can happen to movies, when product placement is not always as charming and memorable as when Mom McFly “hydrates” a Pizza Hut-branded pizza for 2 seconds in a Black & Decker “Hydrator”: In one episode of “Sex and the City”, a show that collaborated with Apple for almost a decade and always prominently featured their products in the spotlight, much of the episode’s airtime is spent on how the Apple store has a solution for a computer problem and how easy it can be avoided if she had followed their recommendations in backing up data.

Particularly intrusive product placement has the ability to backfire for the sponsor and can cause negative reactions among the target audience, who actually just want to watch their favorite show or play a well-designed game.

Even though over 80 years have passed since Fritz Lang’s “M” hit the theatres, the old recipe is still the same: Product placement can be entertaining, fun and even enhance the experience and authenticity of the medium that is consumed, but the paradox secret behind outstanding implementation is to make its appearance almost unnoticably subtle, like a hydrated pizza in 2015.

Mom McFly hydrates a pizza (wrapped in a Pizza Hut-branded wrapper) in a Back & Decker “Hydrator”. A great example for very obvious product placement, that is still funny and charming and is well embedded into the story of a movie rather than disrupting it.

Sources

1) http://www.businesspundit.com/wp-content/uploads/2011/12/M_Wrigleys-600×464.jpg , retrieved on March 10th

2) http://www.blogcdn.com/blog.moviefone.com/media/2009/09/bttfbottle-%282%29.jpg , retrieved on March 10th

3) http://productplacement.biz/201304045078/branded-entertainment/nissan-product-placement-in-sim-city.html , retrieved on March 10th

4) http://thumbbandits.com/index.php/2010/01/burnout-3-takedown-review/, retrieved on March 10th

5) https://www.youtube.com/watch?v=YWSZJXhOvBw , retrieved on March 10th

6) http://files.myopera.com/jdlien/blog/pizza_hydrated_comparison.jpg , retrieved on March 10th