Digital Ash in a Digital Urn

I enjoy reading Lum’s current exploits on Broken Toys. I was, of course, a fan of his back in the day, and I still am (and I really wish I had his habit of posting frequent updates). He recently referred to a piece that Raph Koster wrote about where he sees the next generation in game development going.

I can almost hear the hecklers already. “Hey Moorgard, this sounds exactly like the kind of incestuous cross-blogging you bitched about when you started this silly site.”

At first glance it does, but stick with me.

Raph talks a lot about budgets and revenue streams and distribution channels. That’s his thing, and he’s spent way more time in the corporate conference room than I have. I’m sure his assertion that “Tastemakers and celebrity will matter much more than today as followings are established for certain devs, and as certain editorializers become the way to find fresh content” will send another round of devs scrambling to start blogs for a sense of job security if nothing else, but that’s not what struck me about the article.

As I’ve discussed before, I spent about a dozen years working in music retail. I only ever worked for independently owned record stores as opposed to corporate entities like Tower or Musicland. The kinds of things Raph talks about happening to the games industry bear a strong resemblance to what happened to music retail in the early 90s.

Sales of used music have been a staple of indie record stores for decades, from LPs to cassettes and finally CDs. I started in the late 80s working for a small company called Face the Music in my hometown, just as the first CDs were hitting the shelves. We were already selling used LPs and tapes, and it didn’t take long for used CDs to start coming in.

The record companies hated that, much for the same reasons that game companies hate having retail chains selling used games. See, when you buy an album, you don’t own the music; you have purchased a license to listen to that music in a manner that the publisher has specified. In practice, of course, few consumers see it that way. They think that if they’ve plunked down the money for a new CD, they absolutely have the right to sell that to someone else. And record companies despise that, because neither they nor their artists see any royalties for used sales.

A few years later, I went to work for Applause/Cheapo up in Minneapolis. The Cheapo stores carried (and still have) a massive selection of used music, because they’ll buy anything that comes in the door. Though smaller record labels were friendly with us, the major labels barely acknowledged our existence. Because we bought and sold used music (including promo copies given out by the labels), the majors wouldn’t sell directly to us. We had to pay a higher price through various distributors who buy from the labels and sell product to the stores at a markup.

We sold a ton of new music even without much help from the majors, so it worked out okay. That is, until the price wars began.

Best Buy and Circuit City, along with a few other major players here and there, decided that they were going to use CDs as a loss-leader to draw customers in the door. They started pricing many of their hot new releases for $9.99 or less, which was often below their own cost and was way below the price stores like the one I worked in could get the product for. Consumers were more than willing to go down the street to save a few bucks, and the electronics stores were happy getting people in the door so they could sell them refrigerators and stereos. Record labels happily lapped up the revenue from the big chains while simultaneously slitting the throats of the smaller stores that used to be their bread and butter.

This tactic went on for some time, and it took a terrible toll on record retailers. Many great stores either went out of business entirely (I still mourn for Northern Lights) or were forced to downsize. Cheapo survived the storm thanks to strong used sales. Eventually (after some legal action) CDs mostly stopped being loss leaders for the electronics giants, and things started to look up for indie stores again.

But wouldn’t you know it, it was at this point that the MP3 explosion began. Suddenly even used CD sales were in jeopardy. Digital downloads sent the record industry into a spin for a while, though now most record labels have finally embraced the new sales model. It makes me sad, though, that a whole generation of kids may grow up listening to music without ever setting foot inside a great indie record store.

When Koster discusses the impact digital distribution is having on gaming, I can see a lot of validity in his points. After all, this isn’t the first industry that’s been forced to evolve as media continues its ceaseless spiral toward real convergence. Oh, and guess what, cable TV… you’re next.

Thankfully, gaming companies have protected both themselves and their retailers a bit better than record labels did. There have long been pricing restrictions on consoles and software, preventing even the electronics chains from warring with each other… for the most part. This allowed smaller retailers to remain competitive, and the used game business appears to be booming for them.

What does the future of game creation and distribution hold? By working as a designer on one of those $30-million epic games, am I some kind of dinosaur? I’ll let others in the blogosphere speculate. But there are a lot of lessons to be learned from the recent past. Please, let’s not ignore them.

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