Comment: Extinction looms for physical distribution of entertainment media

It's been interesting to watch the gradual shift in attitudes to digital distribution within the games industry over the last few years. While few major companies in the industry have failed to pay lip service to the burgeoning distribution channel, the number who have made any form of material commitment to the concept is even smaller - and a few years ago, the ambitious technology firms who had set up shop in this space could often be heard bemoaning the failure of most game companies to grasp the importance of the Internet as a content distribution medium.

The reasons for that were simple. Firstly, game publishers were desperate to avoid saying anything that might annoy their partners in traditional retail and distribution, most of whom have studiously spent the last few years sticking their hands over their ears, singing loudly, and hoping that the Internet will go away if they keep their eyes closed for long enough. Secondly, a significant number of top executives in the videogames industry simply, honestly, did not believe that digital distribution was anything other than a science fiction pipe-dream.

All the usual arguments were trotted out, most of which have become painfully familiar to anyone who follows the entertainment business - be it music, film or games - and each of which is just as utterly incorrect now as it was five years ago. The Internet will never be fast enough? Tell that to people in Scandinavia or Japan on Internet connections of over 100mbit, or even to people in London paying less for 24mbit connections now than they used to pay for modem dial-up in the Nineties. Broadband will never be mass-market enough? Well, how many people who play videogames do you know with a dial-up connection these days? Enough said. Piracy will be rampant, and people won't respect intellectual property? If anything, the kind of encryption and server-based technology used in digital distribution will reduce piracy, not increase it.

So it's down to the old bugbear; the idea that a huge proportion of the population will always want to buy physical products, because getting a physical item for their money is a major part of the purchase process for people, and digital purchases are "unsatisfying".

Once upon a time, some people in the videogames industry probably even believed that - just as the retail and distribution communities, heads firmly in the sand, continue to believe it. Now it sounds more and more hollow with every repetition, but fearing the wrath of retail, the repetition continues. Dr. Jens Uwe Intat, European sales boss of the industry's biggest publisher, Electronic Arts, told us this week that physical media for entertainment products will be "antiques" within a decade; when pressed on whether this meant the end of the line for traditional retail, he trotted out the argument about some people wanting to buy physical products, but frankly, even he didn't sound convinced. We heard the same from NCsoft's president, Tak Jin Kim, last year, when the man who has become one of the richest men in the Far East through an entirely online business model told us how committed his firm is to traditional retail - and he, frankly, didn't sound terribly convinced either.

What's changed? What has changed is that back when people truly believed that physical media retail had a long-term future, the music business was still going strong - and today, CD sales continue to decline, while iTunes has a monopoly on the growing legal download market - a business model which many music execs feel has been forced onto them by Apple. Meanwhile, the vast online music piracy problem continues unabated, having sprung up under the feet of music execs while they pretended that the physical nature of CD purchasing would protect them from online piracy, failed to predict the importance of digital music players, and plotted to make billions by selling consumers music they already owned all over again on a new physical format, SACD, which has now almost entirely disappeared off the radar.

It's now becoming clear to even the most traditional of senior executives in the games and film businesses which way the wind is blowing, even if it's only a brisk breeze so far. This isn't a minor upheaval in the business of getting content to consumers, it is a fundamental change to how that entire value chain works. Certainly, there are those who will argue that physical product is going to be important for decades until they're blue in the face, but it can be argued that this is simply because they don't understand the sheer scale of the change that this industry is about to witness. The business world teaches us that individual companies can rise and fall, but only history really shows us what happens when an entire business ecosystem sheds its skin and evolves. When cars and trains replaced horses, blacksmiths, one of the most common businesses in the world up until that point, disappeared. The clever ones learned to become mechanics - but it's probably not a million miles from the truth to suggest that a large number of them sat around in inns instead, telling each other confidently that "people will always want horses."