While digital distribution has been encroaching on traditional retail in several areas of the entertainment industry, it’s rapidly gaining ground in the videogame world.
Steam, the largest digital distributor of PC games, reported Monday that its user base had hit 30 million active accounts. That rise in users, not surprisingly, has meant a surge in income as well. Steam sales over the past 12 months are up 200%, according to Valve Software, owner of the service.
Steam is on track for its sixth straight year of seeing sales double or better. Its new user growth has climbed 178 percent in the past 12 months. (At present, 6 million users access the site each day.)
The service offers more than 1,200 games. It’s available on both the Mac and PC and will tie in with the PlayStation 3 next year with the release of “Portal 2.” It has become the default distribution platform for many PC game releases, as retailers have given increased shelf space to console games over the past several years.
“Steam is on track to record the biggest year in its six year history,” said Gabe Newell, president of Valve. “The year has marked major development advances to the platform with the introduction of support for Mac titles, the Steam Wallet and in-game item buying support, and more. We believe the growth in accounts, sales, and player numbers is completely tied to this work and we plan to continue to develop the platform to offer more marketing, sales, and design tools for developers and publishers of games and digital entertainment.”
When Steam started eight years ago, though, it was a gamble — and a pretty big one. Valve launched the service alongside “Half-Life 2,” its long-anticipated first-person shooter — in part because it was in the midst of a feud with its publisher. The service acted not only as a separate distribution channel, but also as an effective piracy blockade. Players could not play a game without first authenticating their copy through the service.
It wasn’t long before other publishers — ranging from Ubisoft to Take-Two Interactive Software — jumped onboard. Competitors now estimate the company holds a 70% share of the PC digital distribution market.
Its customers are incredibly loyal, often preferring to buy their games electronically, even when retailers offer loss leader pricing. (Steam, too, knows the advantage of a good sale, however. Each week, the site offers a catalog game at a low price for a limited time–re-igniting interest among players in the brand and helping publishers exploit titles that normally wouldn’t be contributors to their bottom line.)
The PC market is often given second-class citizenship by game publishers, but Steam’s impressive growth and regular sales achievements have raised eyebrows, and spawned competitors.
Electronic Arts wraps digital distribution (on both PC and console games) into the same bundle as in-game advertising and monthly subscription fees from massively multi-player games. But those digital revenues were up 33% this year to $570 million. They’re expected to grow to $750 million in fiscal 2011.
Activision-Blizzard–makers of this year’s top PC game titles, including “Starcraft II: Wings of Liberty” and the upcoming “World of Warcraft: Cataclysm”–work with Steam on some titles, but tend to use their homegrown service, Battle.Net, for their big guns. By doing so, they’re able to expand sales on games that might otherwise find no PC audience, but raise margins on games that are sure hits.