If you sell access to content, start looking for a new business

Posted: July 10, 2011 in Online games business

Interesting article from gamesbrief.com

Nicholas Lovell:

Earlier this week, I gave a lecture to 25 students on a game design course. I asked them to put their hands up if they had bought a CD this year. Not one person put up their hand. I have a two year old son. We don’t own any DVDs of Bob the Builder or Chuggington, because we can get access to enough of his favourite programme of the moment via the BBC iPlayer. I consider myself a core gamer (at least I did until I had the aformentioned son), but I haven’t bought a single game so far this year. Instead I’ve been playing freemium games such as Stronghold Kingdoms, Cityville and Millionaire City.
These datapoints, while anecdotal, are symptomatic of a fundamental change sweeping through all the media industries. As we transition from atoms (CDS, DVDs, books) to bits (MP3s, streamed movies, ebooks), the cost of making one more copy falls to zero. The original costs of content creation remain broadly the same, but distribution costs trend towards zero.
That means that charging a premium – and possibly any price at all – for that content becomes harder.

It is harder because brands realise that when distribution costs are zero, they can fund and seed content that is high quality and far-reaching. Barclaycard invested a six figure sum, perhaps as much as €250,000, into the creation of Waterslide Extreme, which took the premise of their television advertisements and turned it into an iPhone game. Over 10 million downloads later, the brand is happy and millions of consumers have had a high-quality, free experience.
It is harder because companies are taking advantage of close-to-free distribution to develop new business models. Zynga has a secondary market valuation of $7 billion based on a business model of allowing users to play their games entirely for free, but with the opportunity to spend money on virtual goods or faster progress in the game. ngMoco and Playfish, both of which sold for around $400  million last year, allow users to play their games for free on the iPhone and Facebook respectively. These companies are developing new business models predicated on giving basic access to their content for free.
It is harder because once DRM is broken (which it always will be), pirates can distribute your content for free.
In short, when people with motivations different from yours – whether they be pirates, competitors with different business models or brands, push their prices down to zero – it will be very difficult to compete.
It won’t be possible to charge for basic access to content
So much so that, on a ten year view, I don’t believe it will be possible to charge for basic access to content at all. We will all expect to have access to all the music, all the books, all the television and all the games that we could ever want. Sure, someone could invest in content and tell me that I can’t have it unless I pay. But there will be so many alternatives, both legal and illegal, that the model of paying access will be close to impossible to sustain.
On the other hand, content creators will still need to be paid, and there has never been a better time to be a content creator. I am much less positive about the future of content distributors such as publishers though. In my next column, I will look at the things that consumers will pay for if they won’t pay for access. Things like self-expression, status, emotional connections and achievement. The trick will be working out how to harness the power of the Internet to distribute your content for free and still find a way to persuade consumers to pay you enough to pay for its creation in the first place.
Now excuse me, I got a Kindle for my birthday yesterday, and I’m off to download Great Expectations and The Wind in the Willows.
For nothing.

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