Microsoft Makes Headway with Digital Distribution

Posted by jgaudiosi :: Emerging Business Models

Xboxe3Microsoft had a very good E3 show with a large selection of great playable Xbox 360 games. In addition to being in the driver's seat for next generation console sales (Bill Gates' forecast of 10 million units sold by year's end is not being doubted by most analysts), Microsoft is clearly in the lead with Xbox Live and its digital distribution business. Xbox 360 gamers have performed 24 million downloads since November 22, which is a large number considering how few consoles have actually entered the market place. With hardware now in the retail channel, these downloads will increase this year and beyond. Microsoft saw a large spike in downloads E3 week, when it offered free access to everyone to partake in the show. Over 1.5 million gamers connected to Xbox Live last week to download trailers for games like "Halo 3" and new maps to "Call of Duty 2" and new quests for "The Elder Scrolls: Oblivion." These gamers downloaded over 5 million pieces of gaming and entertainment content over the week.

Microsoft is also in the driver's seat with in-game advertising, thanks to its purchase of Massive last month. In-game ads and Xbox Live are the perfect complement to one another. Microsoft's offerings of movie trailers and music videos is a form of marketing for Hollywood. And placing new ads inside of games will open up new opportunities for big corporations to get their brands in front of 18 to 34 year old gaming eyeballs.

With both Sony and Nintendo offering digitally distributed games, and Sony planning other entertainment offerings via PS3 and its PlayStation Network Platform, next gen games will open new opportunities for game developers. For the first time in console history, game makers can create smaller games specifically for Xbox Live Arcade. Or they can create episodic content for established games, as Rockstar Games is doing for the Xbox 360 version of "Grand Theft Auto IV."

I spoke with David Perry this week. He made an interesting point about digital distribution. Retailers have no problem selling used videogames, which in essence cannibalizes sales of new games. So game makers should have no problem exploring digitally distributed gaming opportunities. While retailers aren't going to go away, they also don't have room on shelves for every game. Xbox Live Marketplace is one example of how game creators can target a large (and growing) audience willing to pay for good content.

E3 showed that there are a huge number of gamers out there willing to go online to download content about games. Microsoft is riding a high with its Xbox 360 and Xbox Live initiatives. Sony will have plenty of entertainment to draw upon when it goes live this November 17. And a lot of people are looking forward to Nintendo Wii's Virtual Console. By next year, when these new consoles start to make a presence beyond the core gamers, the way games are made and distributed will evolve.

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