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Digital distribution not a holy grail - Zelnick

Take-Two CEO sees growth in downloadable revenues, but impact on profit margins isn't that dramatic

Digital distribution is changing the industry, but some industry watchers may be overstating the impact it makes on publishers' bottom lines. In an appearance at the Credit Suisse Annual Technology Conference today, Take-Two CEO Strauss Zelnick discussed the publisher's agnostic approach to digital distribution when asked how quickly he sees company revenues moving to downloadable sources.

"We're indifferent, because we can't choose how a consumer wants to consume," Zelnick said. "We need to be everywhere. We need to be flexible to make our products available. The margin dollars are a bit higher, but not so much higher I can say in good conscience to you, 'Here is the holy grail of our business. In addition to all of the great stuff--new generation, wind at our back, high quality, a vastly more rapidly growing area of entertainment consumption than anything else--All of that good news would be even better news, which is that our entire model switched from one to another that has a higher margin.' That's what people want me to say, but it just doesn't have the benefit of being true."

Currently, Take-Two brings in between 15 and 30 percent of its revenues from digital sources, Zelnick said. Some quarters might even edge a bit higher than that if they're driven by catalog spending.

"It is almost certainly true that people will consume more and more digitally, as they do, for example, with music. But right now, physical distribution is still 70-80 percent of our business. And physical distribution partners are our primary distribution partners, and happily so."

That said, Zelnick said on a personal level it's "hard to believe we won't head into the 50 percent land relatively soon" when it comes to digital revenue share. He also added that, much like with music, he sees no structural ceiling to just how far the industry could shift toward digital.

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Latest comments (9)

Jeff Kleist Writer, Marketing, Licensing 6 years ago
It's nice to see someone talking sense on this subject

But the comparison to music is pretty inaccurate. Music is consumers by most people passively. It's a bite size three minute experience that's typically The soundtrack for something else. Games are completely interactive, and thousands of times the sizes download and store.

In addition, music is typically at most a teo dollar expenditure. Most people have an issue spending over $15-30 on something thry can't touch or resell. Sure, there's going to be a larger number of people in games who are going to go digital, But the kind of dominance you see is music is likely a pipe dream.
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Morville O'Driscoll Blogger & Critic 6 years ago
But the kind of dominance you see is music is likely a pipe dream.
I think it's all convenience, right now, and gaming is soon going to hit the point where the people who find it most convenient to go digital will plateau. By that I mean, digital games are only convenient - and thus worth the loss of a physical product - when you have a good internet connection. Anyone with cable/fibre has more to win going digital than to lose. But ADSL? As I've noted before, I live about 1 miile from Sheffield city centre, in the suburbs, and I'm on ADSL. Shadow of Mordor took me one full week to download. Same with CoD:AW. I ended-up paying a little over-the-odds for a physical copy of Dragon Age Inquisition, because Amazon could deliver it faster than I could expect to download it. This is actually another way in which digital music differs from digital games: unless you go .flac, you can download an album (even on ADSL) in a very short space of time.

At this point, the industry should seriously start to lobby governments and councils to increase internet capability in suburban and rural areas - because when games are 40gb downloads, it's going to affect all publisher's revenues.

Edited 2 times. Last edit by Morville O'Driscoll on 4th December 2014 7:23am

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Jeff Kleist Writer, Marketing, Licensing 6 years ago
@Morville

I'm on DSL as well, thought softly u because I haven't been bothered to clean my house to the point id low am a anger to see it to install FIOS :)

If I laid off anything more hardcore than web browsing, a 50GB game would take me 4 days

There are still plenty of places, like much of Canada with hardcore stupid data cape, and all the ISPs are desperate to force them on US customers. Of course, I'm ire if Microsot and Sony paid the appropriate kickbacks, such things would be exempted.
Microsoft's system would have been interesting, where the discs are merely a delivery mechanism. It would have also allowed a future where flash drives could be stuck in a kiosk. I think that's merely delayed though, and that E3 is going to be mighty interestng
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Show all comments (9)
Morville O'Driscoll Blogger & Critic 6 years ago
It would have also allowed a future where flash drives could be stuck in a kiosk.
I really want to see this kind of thing. Basically, shops sell the serial or a key for a game, and rent out USB sticks with the same game on them. Say, 15 deposit - more expensive than a USB actually costs, so no-one's going to steal it. They take it home, install from USB, return the stick to the store, get their deposit back.

Just step back and think about how much paper and plastic we waste on games. I mean, walk into a Game or HMV and just marvel at the environmental damage the industry wreaks, just to sell some data and a key to legitimately play. Think of how much simpler it would be. Cheaper, too, not just on production, but store space - no more racks and racks of cases.
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Jeff Kleist Writer, Marketing, Licensing 6 years ago
@Morvill

Running those data centers is actually st so polluting, and you can't recycle the juice they use

I've participated in extensive studies, and with Netflix and the app store, the poor browse ability buries a lot of titles there's no moment of discovery, you're limited by patience and what the algorithms thinks you'll like. That's why Best Buy is moving into the "showcase" business, renting floor space to Microsoft, Samsung etc for a store within a store. I don't know how many movies are in my collection because it looked great on the shelf at the video store, and even a lot of teenagers find games because they're briwsing the cracks at GameStop.
I see the kiosk as an answer to broadband challenged areas, to keeping games available at retail that isn't quite worth doing another run on, and keeping small developers collecting royalties. There's already a huge problem with getting lost in the App Store shuffle, and huge money on making the "Deans list" on iTunes or Steam or PSN or XBL. So give that plastic a chance to find a good home, and pulp what diesnt
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Jamie Knight International Editor in Chief, Playnation6 years ago
" think how much cheaper the games will be "

quite literally, and I mean this most sincerely............

WOOOOOOOOO - HA -HA - HA -HAAAA!

ROFLCOPTER!!!

:) :) :) :) :) :) :) :) :) :) :) :) :) :) :) :) :) :) :) :)
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Nelsun Rivera Mixed Media 6 years ago
It is an inevitability that Digital will overtake physical. When is the true question. I see a future where any "physical" distribution of a product that can be delivered digitally will be at the customers request. Soon we will not be limited by a disc. The data can be stored on a tiny chip such as Samsung Tiles or Sony Tags. That limited Edition of Assassins Creed 2050 Statue!? Yes, it will BE the product. Just place it near your device or display since a device may not even be required in the future and your content will be ready and available. Think Skylanders, Disney Infinity or Nintendo figurines type of deal. We are heading in that direction and it is coming faster than we think. Wearable tech is already on shelves. So I see that eventually physical will be more of a luxury than a requirment. What an age we live in. Such a state of flux. Cant imagine what things will be like in 2050. At this time it is only manufacturers and developers that are puzzled as how to maximize profits without making the consumer feel like they are getting the short end of the sticks.
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Jeff Kleist Writer, Marketing, Licensing 6 years ago
The "burn able" NFC TAG WASsony's used game lockout DRM that they scuttled ehen tryfound out that Microsoft had a used game ecosystem in place. An NFC chip embedded in the disc would be read by the PS4, and then matched against an online database, and then blacklisted.

They'll just stick with the current offering of a serial code in the box with the statue. NFC chips to validate games have lots of problems, and anything that actually transmits requires batteries and expensive parts
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Digital and Physical will both have its place, obviously Digital with a lower price point, better carbon footprint and pre load prior to release will make it appealing. IN contrast, those living in less connected areas and enjoy physical booty/merchandise can have the best of both worlds...it just does mean Game retail shops will be more indie instead of large sprawling retail chains.
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