Firing the middlemen: How blockchain can reshape digital distribution

Tackling the monolithic digital distribution platforms head-on, Korrobox has revealed how it plans to put an end to the middlemen using blockchain technology.

Founded by former Blizzard, Riot, and Twitch employees, Korrobox aims to remove the middleman from digital distribution and eliminate the costs associated with payment handling and fraud, passing the money back to developers.

With platforms like Google Play, the App Store, and Steam taking a 30 per cent cut of game sales, developers are losing out argues Korrobox CEO and co-founder Benjamin Huang.

Korrobox estimates that after the platform fees, licensing fees, and marketing, the average developer only earns $6 for every $20 game they sell on current platforms.

"Developers are not getting their fair share of the profits given all the effort, dedication, and risk that goes into developing and marketing games," reads the start-up's white paper.

Speaking with GamesIndustry.biz, Huang explains how Korrobox is poised to disrupt the status quo by decentralising distribution .

"The main reason these platforms exist is they have a huge user base, they handle payments, and they handle DRM," he says. "We could take blockchain technology and do the latter two -- payments and DRM -- without a middleman.

"The thing that's unique about Korrobox is that we're the first [digital distribution] platform that's going to take Ethereum - we take Bitcoin as well but that's very expensive to transact on - and we're going to be the only platform that is not a middleman."

Using smart contracts built on blockchain technology, Korrobox can entirely remove the need for a centralised distributor to act as a conduit for the transaction.

Smart contracts, simply put, are a programming protocol that considers all conditions of the contract and makes sure that every aspect is fulfilled before the transaction is completed. It sounds obvious, but the higher security of blockchain means that it theoretically can't be tampered with.

"Riot was almost shut down by Visa because there was so much fraudulent activity on there it couldn't process payments because they were such a risk"

"It means that the developer has generated the game access token, and makes sure that the player purchasing the game has funds in their Ethereum wallet, and once both of those things are fulfilled, then it makes the transaction happen," says Huang.

"So instead of us processing the transaction and granting access to the game server, we just help developers set up this smart contract that then fulfills the order."

Without a middleman, there is no one to take a cut but there is also no one to adopt the risk of inadvertently accepting fraudulent payments.

Video games are one of the most common channels for laundering stolen credit cards, but with blockchain there can be no fraudulent transactions.

"One of the main reasons a developer cannot handle their own payments is because the expectation is that someone is going to use their game to launder stolen credit cards," says Huang.

"It's something that happened with Riot, seven or eight years ago. Riot was almost shut down by Visa because there was so much fraudulent activity on there it couldn't process payments because they were such risk."

Attracting an audience won't be easy, Huang concedes, especially in a market flooded with similar blockchain effort. However, he hopes that conscientious consumers who want to give more to their favourite developers will favour Korrobox over something like Steam.

With so many blockchain distributors competing for oxygen, Korrobox has taken the atypical path by not having an initial coin offering, something Huang says gives his platform a distinct advantage.

Unlike many new platforms, Korrobox is using Eterheum rather than its own platform specific currency. While ICOs have attracted a great deal of attention in recent months, with start-ups raising millions of dollars in the blink of an eye, developing a platform specific currency has one potentially crippling drawback.

The problem with a platform specific cryptocurrency, Huang explains, is its instability. Demand ahead of a game release would spike, causing the currency value to inflate, making it more expensive for the consumer. Conversely, when the publisher then tries to resell the coin for a currency they would normally use, the demand would have plummeted, making the coin worth less and leaving the publisher out of pocket. As that currency is only accepted by that platform, it essentially becomes worthless. Everyone loses, except perhaps the cryptocurrency operator.

"That's fundamentally the problem with an ICO and fundamentally the problem with issuing a new coin, it doesn't actually work out, the economics are flawed," says Huang.

"Fundamentally the problem with an ICO and fundamentally the problem with issuing a new coin, it doesn't actually work out, the economics are flawed"

"We thought about it so much, even our advisor said we could raise $10 million in funding really easy and we could not worry about the pressure of making it a business for at least a little bit. But we were like yeah, that shit doesn't work. I don't think I can convince a developer to use this one-off coin only for my platform - it's not attractive."

Korrobox development director Matt Sorg recently published an article explaining the economic problems with ICOs. Based on his arguments, while Korrobox still has to compete against Steam, Google Play, and the App Store, it should have an edge over its other blockchain rivals.

Of course, if Korrobox intends to offer this free and secure distribution platform, then how does it profit from the endeavour?

According to Huang, Korrobox plans to give developers the tools to build a secondary market of peer-to-peer sales on top of the platform. Developers have tried in the past to create real money auction houses, but efforts have been fraught with failure.

"Blizzard was one that tried to do it and ran into problems because there was a stack overflow problem with Diablo III where people were able to create crazy funds by duplicating gold and all sorts of other stuff through the auction house because there was a bug on it," says Huang.

"Even Blizzard has trouble doing real money auction houses so this lets smaller developers attempt at it and do it in a very secure way without much risk."

As a result, skin resales, real money auction houses, and tradable in-game items all have black markets built around them that are rife with fraud and require the presence of a tenuous middleman to oversee transactions.

But once again, through the use of smart contracts, players can trade in-game items freely without the need for an escort site. By providing a safe, reliable alternative to these black markets, developers and publishers can provide more options for players to trade items among themselves, knowing that the transactions cannot be exploited. Korrobox then takes a five per cent cut, while the publishers take ten per cent and the rest goes to the seller.

Some recent blockchain distribution startups have suggested the possibility reselling full digital games peer-to-peer, but that's not something Korrobox intends to facilitate.

"No developer, no publisher, would want a used game to be sold," says Huang. "It actually doesn't make sense in terms of their incentives. Even if they get a very large cut, say even 70 per cent of that transaction, they would rather sell it to the second person at the discounted price instead of having someone get the game removed from their inventory and lose complete access. They would much rather sell the game at a reduced price to that second player. Economically it doesn't make sense, they don't want to do it."

Essentially Korrobox is attempting to build a new consumer market from scratch. It has even developed its own platform specific customisation avatars which users can buy, sell, and trade items for. The avatars are also open to developers, giving them a free license to make legitimate games with the assets for the Korrobox platform.

Huang estimates Korrobox would only need 50,000 monthly active users for a liquid market using this model. From there, it can begin to chip away at the monoliths' control over distribution.