Digital distribution of video games

In the video game industry, digital distribution is the process of delivering video game content as digital information, without the exchange or purchase of new physical media such as ROM cartridges, magnetic storage, optical discs and flash memory cards. This process has existed since the early 1980s, but it was only with network advancements in bandwidth capabilities in the early 2000s that digital distribution became more prominent as a method of selling games. Currently, the process is dominated by online distribution over broadband Internet.

To facilitate the sale of games, various video game publishers and console manufacturers have created their own platforms for digital distribution. These platforms provide centralized services to purchase and download digital content for either specific video game consoles or personal computers. Some platforms may also serve as digital rights management systems, limiting the use of purchased items to one account.

Digital distribution of video games is becoming increasingly common, with major publishers and retailers paying more attention to digital sales, including Steam, PlayStation Store, Amazon.com, GAME, GameStop, Xbox Live Marketplace, and others. It is particularly popular for PC games. According to a study conducted by SuperData Research, the volume of digital distribution of video games worldwide was $6.2 billion per month in February 2016,^[1] and reached $7.7 billion per month in April 2017.^[2]

This article possibly contains original research. (May 2022)

The main advantages of digital distribution over the previously dominant retail distribution of video games include significantly reduced production, deployment, and storage costs. Games purchased digitally are legally licenses and not sold, meaning consumers do not have legal ownership and cannot resell their games.^[24]

Compared to physically distributed games, digital games cannot be destroyed because they can be redownloaded from the distribution system. Services like Steam, Origin, and Xbox Live do not offer ways to sell used games once they are no longer desired. Steam offers a non-commercial family sharing options.^[25] This is also somewhat countered by frequent sales offered by these digital distributors, often allowing major savings by selling at prices below what a retailer is able to offer.

Digital distribution also offers new structural possibilities for the whole video game industry, which, prior to the emergence of digital media as a relevant means of distribution, was usually built around the relationship of the video game developer, who produced the game, and the video game publisher, who financed and organized the distribution and sale. The heightened production costs in the early 2000s made many video game publishers avoid risks and led to the rejection of many smaller-scale game development projects.^[26] Gabe Newell, co-founder of Valve, the developer and intellectual property rights owner of Steam, described the disadvantages of physical retail distribution for smaller game developers as such:

The worst days [for game development] were the cartridge days for the NES. It was a huge risk – you had all this money tied up in silicon in a warehouse somewhere, and so you'd be conservative in the decisions you felt you could make, very conservative in the IPs you signed, your art direction would not change, and so on. Now it's the opposite extreme: we can put something up on Steam, deliver it to people all around the world, make changes. We can take more interesting risks.[...] Retail doesn't know how to deal with those games. On Steam [a digital distributor] there's no shelf-space restriction.

— Gabe Newell, Rock, Paper, Shotgun^[9]

Since the 2000s, when digital distribution saw its first meaningful surge in popularity, an increasing number of niche market titles have been made available and become commercially successful, including (but not limited to) remakes of classic games.^[27][28] The new possibilities of digital distribution stimulated the creation of game titles from small video game producers like independent game developers^[29][30] and modders (e.g. Garry's Mod^[31]), which before were not commercially feasible.

Nearly all digital distribution services today take a cut of the revenue of each sale to cover costs for running the storefront, the distribution of content, and other facets. According to a 2019 study by IGN based on published data and interviews with publishers and developers, this is nearly 30% for the personal computer storefronts, including Steam, GOG.com and Microsoft, for console services for Nintendo Switch, PlayStation 4, and Xbox One, for mobile app stores including App Store and Google Play. Some exceptions to this are itch.io where the developer is free to set the rate, Humble Bundle which takes a 15% cut in addition to an additional 10% that the buyer can select to go to charity or to the developer, and the Epic Games Store (EGS) which has a 12% cut.^[32] This 30% cut is consistent with past licensing for development on video game consoles since the Nintendo Entertainment System.^[33]

Surveys from 2019 to 2021 found developers and publishers desired to see a reduction of industry-standard 30% take, since this would increase the amount of revenue they would see from each sale.^[32][34] Epic Games' Tim Sweeney, prior to launching the Epic Games Store, had estimated that the current costs for delivering game content to buyers required as low as an 8% cut on sales revenue, and launched the EGS with its 12% cut to demonstrate this.^[35] Microsoft announced it would similarly reduce the Microsoft Store cut for Windows products from 30% to 12% by August 1, 2021.^[36]

• Cloud gaming
• Downloadable content