While retailer GameStop has stated that it has nothing to fear from digital distribution for the foreseeable future, the company today took another big step toward addressing the unforeseeable future, appointing Chris Petrovic as the new "general manager of digital media."

Petrovic most recently served as vice president of digital media at Playboy, of all places. In his role as GameStop's digital distribution manager, Petrvoic will oversee "the development and execution of a digital acquisition strategy" by leveraging GameStop's existing stores to drive digital sales.

"While we are currently one of the leaders in the online PC game retail space through our recently relaunched GameStop Casual Digital Store," said GameStop CEO Daniel DeMatteo, "we are also committed to supporting our unique and vast footprint of brick and mortar stores and knowledgeable associates with a smart digital business platform."

GameStop launched a new online casual games store powered by RealNetworks last week, and already offers digital sales of PC games by way of Trymedia.

Though sales of digitally distributed games are quickly increasing, and the impending launch of Microsoft's Games on Demand store, Microsoft says that it will likely be some time before new games are released digitally and in retail stores on the same day.

"There are a lot of complex issues to deal with here, especially if you start talking about day-and-date release with retail availability--which is not something that we're talking about at all, today," said Microsoft VP Shane Kim to Fastcompany.

"And publishers have to do some technical work in order to enable this," added Kim. "But when it comes to us saying we want Games on Demand to enable day-and-date release of new titles, then there's certainly a lot of work we would need to go through."

When it comes to that "work," it seems that handling the transition without upsetting retail partners may be a large part of the process.

"We're not anywhere close to that world today," reiterated Kim. "We have great relationships with the retail channel--they're important partners. We sell a lot of hardware and software through retail channels. We have to be smart about how we approach this business."

While the economic malaise continues to soften corporate earnings results and retail sales charts, digital distribution outlets are reporting comparative gains in online sales.

Valve now says that year-over-year Steam sales have risen a significant 97%, while competitor Direct2Drive has logged a 56% boost, according to IGN.

In the console sector, Xbox Live saw a 73% year-over-year increase in paid downloads, with the wildly popular Battlefield 1943--a game which sold... Read more

During a quarterly earnings call, Electronic Arts executives expressed their optimism for the digital download market on reports of strong financial progress in the sector.

EA CEO John Riccitiello reported that the company had seen its digital direct revenue grow to $400 million in the last fiscal year, while CFO Eric Brown noted that digital game distribution alone nearly doubled in revenue year-over-year to $80 million.

"This is a big year for us," said Brown. "The online part of our business is growing as much as 60% year over year."

"In terms of distribution, the way we look at a lot what's happening in the future is, we've got probably a billion PCs out there in the world," he continued. "Very rapidly the PC is becoming the largest gaming platform in the world, just not in a packaged-good product."

"As you look at what that means in terms of distribution of product, we think that's incredibly exciting because it's going to open the market to new demographics, new countries and new types of gameplay," he added.

Capcom vice president of strategic planning Christian Svensson has said that PC digital distribution is now more important to the company than retail sales.

"No question in my mind. Digital distribution on PC ties directly into our strategy," said Svensson in response to Rock Paper Shotgun's question of whether digital channels were now taking precedence over retail at the company.

"We will probably do as much digital selling as retail in the current climate," added Svensson, who noted that Capcom is currently one of the leaders in console digital distribution as well.

Svensson also explained that, much like Valve, Capcom is taking a global view on the PC in order to maximize its distribution.

"We have brands that are very appealing, but the platform of choice in many countries is not a current-gen console," he said. "The PC is global, and it's ubiquitous. And quite frankly, the more people who shy away from that platform, the bigger the opportunity."

Nintendo of America president Reggie Fils-Aime has said that while the digital distribution market is increasing, there will always be a need for the extra memory storage that retail games offer.

"[Digital distribution is] a nice added business model, but it's not something that's going to take over retail game sales," said Fils-Aime to VentureBeat.

One of the major additions to the Nintendo DSi is its extra memory capability, including on-board and SD card storage. This has allowed Nintendo to create an online store for the DSi that will offer digital downloads of games such as Brain Age.

"We'll be able to see the sales growth and plan for [the digital download market]," added Fils-Aime. "But I guess similar to home consoles, the consumer will want an experience that's best delivered through physical goods, simply because of the memory size required. There will always be those opportunities for big, in-depth games on retail products."

Resistance 2 creative director Ted Price recently made similar comments about the longevity of retail in an interview with Shacknews.

"I think that digital distribution is here to stay," said Price. "But at the same time, I think that there are enough people who appreciate the fondle factor, having a physical copy of the game in their hands, that games' retail will stick around for a long time too."

Bungie audio director Marty O'Donnell has served up three multi-million-selling games with the company, but that hasn't stopped him from noting the effects of used game sales on developers such as his studio.

"It's hard to gauge the effect of used game sales on Halo, but I'm sure it's big," O'Donnell told GamesIndustry. "Complaining about sales when you have a multi-million seller is somewhat difficult to justify, but it seems to me that the folks who create and publish a game shouldn't stop receiving income from further sales."

Gaming mega-retailer GameStop reported that a staggering... Read more

Yesterday, we covered an interview with GameStop CEO Dan DeMatteo in which he predicted continued shortages for the Nintendo Wii this holiday season. In the same interview, DeMatteo had a few things to say about digital distribution, many of which could be expected of the leader of the gaming world's biggest brick-and-mortar retailer.

"The first digital distribution was Napster and it was illegal. Let's just start there," he commented, starting a lengthy diatribe in which he credited GameStop's famed used game trade for making "the average value of a current generation game ... about $20" after accounting for GameStop's buy and sell prices for used games.

David Perry, the founder of now-defunct Shiny Entertainment and CCO of Acclaim Games, felt the need to publicly respond to DeMatteo's treatment of the digital distribution industry, and in so doing wrote an even more lengthy letter to GameDaily. "I'm a major fan of GameStop," he began, "[but] I hate to think someone this powerful can put out this kind of nonsense in an interview and confuse professional investors."

The entire text of Perry's letter follows:... Read more

Though many celebrate consoles for bringing video games into the mainstream, developer Lorne Lanning believes that consoles are holding the industry back due to rising development costs.

"I think the consoles are a problem," he told GameDaily BIZ. "Years ago I was excited about consoles, but anything that makes development more expensive, rather than better, faster, cheaper, I think is a step backwards."

The creator of console titles such as Oddworld: Abe's Oddysee (PC, PSX) and Oddworld: Stranger's Wrath (Xbox), Lanning sees the PC market as more exciting because the platform allows "for more smaller games to be sold that can be delivered to anyone who's connected at much lower price points."

He added: "There's a big difference between spending $50 or $60 on a game and hoping I love it and buying a game for $5 and then buying additional content for that game, so by the time I have invested $50 in it I really love it and I've personalized it a lot more to what I'm interested in."

Curiously, Lanning makes no mention of the cheap downloadable games that are available to PlayStation 3, Xbox 360 and Nintendo Wii owners. While full-fledged console titles are usually priced between $40 and $60, downloadable releases are typically priced between $5 and $15, with more content often available post-release.

Five years is virtually an eternity in gaming years, but that hasn't stopped analyst Michael Cai at Parks Associates from looking that far into the future and predicting that online-enabled consoles like the Xbox 360, PlayStation 3 and Wii will generate $8 billion in revenue in 2013, as relayed by Gamasutra.

Cai sees growth in digital distribution services for games and videos as well as "avatar-based microtransactions" for services like Xbox Live avatars, PlayStation Home, and subscription fees for Xbox Live and console MMO games.

Underpinning all that growth will be an ever-increasing user base with broadband internet connections. The report notes that Microsoft currently leads the online market with the successful Xbox Live Marketplace, but Sony and Nintendo may catch up in the near future with their respective marketplaces PlayStation Store and Wii Shop Channel.

Online sales on consoles are currently in the hundreds of millions but rapidly expanding. Microsoft, for example, made $180 million in the last year. Counting digital sales on PCs, Electronic Arts earned $90 million in just three months. Meanwhile, across the entire PC market, digital distribution was worth nearly $2 billion last year.

As some predict that digital sales and downloads of video games will soon render traditional retailers obsolete, Electronic Arts European publishing manager Jes Uwe Intat doesn't think that retailers will disappear across the next twenty years.

"I think there will still be a need for a physical distribution starter, and then services and additional content can be distributed online," he told GamesIndustry.biz.

That firm belief, Intat noted, comes from the ever-expanding size of games.

"We used to be below 1 GB, but we're now building games that have 8, 9, 10 GB--and if broadband distribution is going to allow 10 GB to be distributed in half... Read more

Amid increasing revenues for digitally distributed games and downloadable content, a Microsoft executive affirmed his belief that digital sales will eventually overtake those of games sold in traditional retail channels in the near future.

"There's no question digital will overtake physical," said Xbox Europe marketing vice president David Gosen, as reported by MCV. "It happened in music and will happen to our industry."

Speaking at Microsoft's UK Gamefest development event, Gosen added that the success of Xbox Live Arcade and downloadable content for games such as Harmonix's Rock Band and Neversoft's Guitar Hero III illustrate a "convergence" in... Read more

Independent developer Hothead Games and gaming webcomic Penny Arcade today announced Greenhouse, a website that will focus on selling downloadable independent games for PC, Mac and Linux.

Hothead and Penny Arcade's RPG Penny Arcade Adventures: On the Rain-Slick Precipice of Darkness, Episode One will be the first title to release on the platform. No date has been announced for the title's debut, though it will sell for $19.95 and is expected this spring.

According to the company, Greenhouse was "built to supplement other online game delivery platforms," such as Valve's Steam, which provides Penny Arcade comics to its users.

"There are so many great games out there that you don't hear about," explained Penny Arcade business director Robert Khoo. "They're too niche or too risky in terms of game play for the top publishers to be comfortable with distributing. We want the Greenhouse to be an alternative for these developers."

A beta of Greenhouse and its downloading application are currently available at www.playgreenhouse.com.

An NPD analyst says that the $60 million drop in PC software retail revenue from 2006 to 2007 reflects the industry's movement towards digital distribution, GameDaily reports.

Analyst Anita Fraisure notes that the data, which currently does not account for digital downloads or subscriptions, is no cause for concern.

"As we've seen from a number of our studies, the PC continues to be a top platform in terms of total game playing time," said Fraisure. "I don't think this slight decline in retail sales is anything more than a reflection of a shifting of distribution channels."

The latest numbers reveal that PC sales accounted for only 14% of total revenue for game software sales in 2007. But without a comprehensive perspective of online activity, Fraisure says, the implications of the gap remain unclear.

"Video games software sales, and even just the console portion of that figure have been greater than PC retail sales every year that we've tracked. Yes, the (console and portable) video games retail sales have really exploded, but again, until we can get a measurement of dollars spent online, we won't have the true picture."

Steel Penny Games today revealed itself to the general public, announcing its intent to focus on digitally distributed titles. The developer represents the latest studio centered around digital distribution, a category that includes Blazing Lizard, the Kuju-owned doublesix, Wideload Shorts, and many others.

The first release out of Steel Penny, which was formed early last year by ex-Naughty Dog tools engineer Jason Hughes and background artist Andrew Gilmour, is a puzzle game starring the cat-dog duo Bruiser and Scratch (pictured above). It is slated to arrive on WiiWare in mid-2008.

Said to launch in early 2008, WiiWare marks Nintendo's latest addition to the online Wii Shop Channel. Unlike the Virtual Console portion, which sells straight ports of old games, WiiWare will focus on original titles.

Thus far, Virtual Console sales have brought in almost $32 million, and many are hoping for a repeat of that success with WiiWare. Advocates of digital distribution argue that such a model--recently introduced in the realm of consoles via Xbox Live Arcade, WiiWare, and PlayStation Network--allows for more creativity, lower project costs, shorter development time and higher returns.

Last week, after it was revealed that download service Triton had gone out of business, 2K Games and 3D Realms announced that everyone who had purchased Human Head's Prey through Triton would be receiving a boxed copy of the game free. Days later, major publisher Activision announced that it is throwing in its support for digital distribution heavyweight Steam. There is a lot of room for innovation and convenience in digital distribution, but the risks are substantial as well. I explore various possibilies in The Potential Profits and Perils of Digital Distribution.

Various games rereleased on Valve's service have seen success that is undeniably significantly improved from their original releases, be it online or in retail stores. The service's existing install base alone is a huge boon for developers, and the resulting amount of concentrated word of mouth that results among online gaming communities is likely greater than what could be achieved even if simultaneously releasing on several competing services.

Of course, there are always downsides to any one product or service holding heavy domination over the market. As competition decreases, so does competitive pricing, and many gamers have already expressed frustration with downloadable game pricing not offering enough of a savings, and in some cases no savings, over retail purchases. There's also the issue of the problems that would occur if the dominant service suffered widespread technical difficulties or downtime. Such risks would have even more impact if digital distribution ever manages to capture a hefty chunk of the game sales market. For that matter, until it does that, certain other factors such as pricing are unlikely to improve. Particularly in the case of games that have a retail release as well as an online release, retailers and publishers handling brick and mortar deals fight tooth and nail to ensure that download services do not undercut retail stores. In the industry's current state, operators of download services have little leverage against such demands.

Exent Technologies has announced today that they are partnering with Microsoft to bring many of Microsoft Game Studios' PC games to the digital distribution arena. Exent, whose technology powers Yahoo! Games' games-on-demand service, already has a similar partnership with publisher Atari. However, the press release did not specify if Microsoft's games would be made available through a Microsoft-only service (like Atari on Demand), or whether they would be integrated into larger services such as Comcast on Demand.

"Microsoft is committed to helping expand the PC game industry. By making our titles available through Games-on-Demand services, we can broaden our reach to new audiences and monetize additional release windows." said Ed Ventura, Director of Franchise Development, Xbox Worldwide Content and Marketing at Microsoft. Exent's distribution channels help us to extend the lifecycle of our game catalog and to build a firm foundation for the future.

With Exent's technology, Valve's Steam service, Nintendo's upcoming vintage game download service for Revolution, Microsoft's Xbox Live Arcade, and the eventual release of the Phantom console, digital distribution is starting to heat up.