DavidKushner.com

WIRED, August 2006

Stephen Cakebread dreamed of making games. Really big games. He toiled away on medical software until he landed a gig at Bizarre Creations, the UK developer behind the Project Gotham Racing franchise, a driving simulator for the Xbox. PGR is famous for its meticulously rendered 3-D vehicles and hyper-detailed environments so rich they can barely be squeezed onto a single DVD.

But being a cog in the 30-person PGR machine didn’t much satisfy Cakebread, now 26. Each title required him to spend hours squashing bugs in the code. “I was getting bored,” he says. So, in 2003, with a budget of approximately nothing, he designed and programmed a game of his own. It was the opposite of the photorealistic PGR games; it was more like Asteroids, the arcade classic. Players pilot a two-dimensional spaceship around the screen, blasting the hell out of incoming squares, circles, and diamonds. He called it Geometry Wars.

Fast forward to November 2005. The new Xbox 360 console launched, and so did two games that Cakebread had worked on. Players mobbed stores and happily shelled out $50 for Project Gotham Racing 3. Meanwhile, Geometry Wars: Retro Evolved was a best-selling title on Microsoft’s pay-per-download service, Xbox Live Marketplace. The tweaked upgrade of Cakebread’s baby – same simple shapes, now with prettier explosions – was available to anyone with 400 Microsoft Points (around $5) and a broadband connection.

Geometry Wars: Retro Evolved has a fraction of the total sales of PGR3. But Cakebread’s simple hobby project is at the forefront of a new trend: digital distribution of console games. From 2004 to 2005, console disc sales in the US dropped by $700 million, according to market research firm NPD Group. Meanwhile, game companies earned $143 million from online console gaming in 2005, a figure JupiterResearch predicts will grow to $2 billion domestically by 2011. At a panel discussion this February, Microsoft’s corporate vice president of interactive entertainment, Peter Moore, described the future of gaming: “Years from now, the concept of driving to the store to buy a plastic disc with data on it and driving back and popping it in the drive will be ridiculous,” he said. “We’ll tell our grandchildren we did that, and they’ll laugh at us.”

Digital distribution means, eventually, the end of the disc. And as with the music and film industries, the structural upheaval will change who makes games and how, opening up the field to the little guys and putting pressure on established players to stay sharp.

Even as the videogame industry’s sales have eclipsed movie box office take in the US, the industry remains hostage to Hollywood’s blockbuster mentality: big budgets, bigger production teams, sweeping prerendered cinematics, slavish photorealism. But, as with Hollywood, the game business is not booming. Total US sales – which include console and handheld titles, hardware, and accessories – have flattened since 2002, and major gamemakers, like Electronic Arts and Atari, are posting big losses.

“I have a sense of crisis about the current situation,” says Satoru Iwata, Nintendo’s ordinarily cheery president. He thinks gamemakers are too focused on bulking up games with killer graphics in order to justify the prices (which can run up to $60). “It’s as if only encyclopedias are being sold, and no other types of magazines or books,” he says.

Nintendo once dominated the industry, but its position was eroded, first by the Sony PlayStation and then by the Microsoft Xbox. Microsoft’s success was partially attributable to the company’s trailblazing online service, Xbox Live. It launched in late 2002 as a way to let console gamers do what PC gamers had done for years – compete against each other online. But once players are hooked into Microsoft’s servers, they can also download content: Since November 2005, Xbox Live Marketplace users have snagged more than 30 million items – everything from new levels to new skins for their UI.

Nintendo’s new Wii console, out later this year, is perhaps the company’s last chance to stay in the game. The controller for the Wii has an innovative, batonlike shape; gyro-scopic motion sensors; and an IR pointer, in addition to buttons and joysticks. It will allow players to move naturally as they play – for instance, instead of hitting a button to cast a virtual fishing rod, they simply make a casting movement. The console’s other secret weapon: an always-on Internet connection that allows players to download games from an online store.

Sony, the current market leader, has embraced the pay-per-download paradigm as well, recently announcing an “e-distribution” system for its PlayStation 3 console, out in November. “We have to change the business model,” says Phil Harrison, president of worldwide studios at Sony Computer Entertainment. “We have to find a new way to reach the consumer.”

Every May at the Electronic Entertainment Expo in Los Angeles, game companies go hunting for the Big Nerd Whoop. They present their new releases, and the assembled horde of gamers roars in collective approval. Sony received a moderately high-decibel BNW this year when it previewed a hi-def version of the popular racing title Gran Turismo. Nintendo got fanboys shrieking when Shigeru Miyamoto – creator of the Mario and Zelda franchises – emerged in a tuxedo and conducted a virtual orchestra with the Wii controller.

But the most raucous cheer came when Microsoft revealed that some 25-year-old game titles – Frogger, Defender, and Galaga – would be available for download from Xbox Live Arcade. “These aren’t just games,” Moore said reverently, “they’re our shared heritage.” Whoop whoop!

Why are gamers partying like it’s 1979? These old arcade mainstays are still fun in their simplicity and directness, and now digital distribution is turning them into easy impulse buys. Since they were designed to run on old-school hardware, files are small enough to send as an email attachment. (New games can fill up a whole DVD and take hours to download, even over a high-speed broadband connection.)

Nintendo looks especially poised to benefit from downloadable retro games. At E3, geeks waited in line for hours to play 1991’s Super Mario World on the Wii. The company will offer a “virtual console” featuring 20 years’ worth of geek faves from its back catalog. Nintendo could also use digital distribution to find an audience for entirely new styles of gameplay. For instance, the company recently demo’d a bizarre game concept in which the Wii controller is used like a cooking utensil to stir the contents of an onscreen wok. It’s hard to imagine shelling out $60 for it, but you might spend a few bucks on a download.

Likewise, the typical blockbuster game release could be broken up into a series of downloadable episodes. New levels for existing titles can be disseminated in a steady stream. Add-on weapons for Halo 3 could go on sale days after their completion. It’s this new freedom that gets gamemakers like Miyamoto excited about digital distribution. “We have a chance to be experimental again,” he says.

But digital distribution is also great news for indie game companies, which would no longer have to pay a huge percentage of their revenue to a publisher that packages the product and gets it onto store shelves. In addition to rousing the hardcore gamers at E3, a profusion of indie games – many of which are similar to lo-res retro games by budgetary necessity – could woo casual gamers flummoxed by the 14 buttons on a standard Xbox 360 controller. “In a few years, people will regard the current generation of games as odd and anomalously complicated,” says Jason Kapalka, chief creative officer of PopCap Games. “They intimidate the average person.” The Seattle-based developer had tremendous success on the PC with addictive puzzle games like Bejeweled and is now working on simple “Reagan-era arcade games” for Xbox Live. “It’s like rediscovering your roots,” he says.

Companies that are banking on online distribution will first have to solve the problem of online billing. Customers may be willing to pay 25 cents for a virtual machine gun, but what if it costs the seller a buck to process the purchase? Microsoft’s solution is to sell points in large increments. Players can buy 1,200 Microsoft Points for about $15, then hit Xbox Live Marketplace to buy games like Geometry Wars: Retro Evolved or accessorize games they already have: 60 points to test-drive a Ferrari 612 Scaglietti in Project Gotham Racing 3; 200 points to upgrade your cute female avatar’s wardrobe in Kameo: Elements of Power; 400 points to add new battlefields to the WW II shooter Call of Duty 2.

Some companies can build their entire business around downloadable add-ons. In South Korea, a PC game called Kart Rider is played by more than 12 million people – a quarter of the population. The lo-res racing game is given away for free, but players have spent tens of millions of dollars on upgrades to pimp their virtual rides.

Sony’s Harrison perks up at the mere mention of Kart Rider. “That will be the business model for the future of games,” he says. Then he shows off the online shopping service for the PlayStation 3 and demos the next installment of the video karaoke game SingStar. Players will be able to surf through a song library and, say, pay $2 to download a Madonna video that they can listen to or sing along with (the game scores players on how well they stay in tune). Instead of just relying on whatever the developer puts on a disc, SingStar players can create their own unique version of the game with a personal music library.

Flexible, downloadable games like SingStar are a hint of what the entire gaming industry will look like five years from now. Digital distribution and ultrawideband Web connections have the potential to eliminate the need for discs entirely, yet console makers are still engaged in a disc format war – the PS3 will ship with a Blu-ray drive, and Microsoft is releasing an HD-DVD drive for the Xbox 360. Both companies are even touting the ability of these new discs to play movies in even higher hi-def. That struggle, however, is ultimately meaningless. “I’d be amazed if the PlayStation 4 has a physical disc drive,” Harrison says.

Back at E3, high above the swarming geeks and flashing lights in Nintendo’s fortified VIP lounge, Miyamoto is playing tennis with Steven Spielberg; they flick their Wii controllers as if they’re holding tennis rackets. After a few giddy forehands and backhands, Spielberg raves about how intuitive the Wii controller is. The film director is a die-hard gamer, and he’s now a gamemaker as well – he recently inked a deal with EA to make his own games with Doug Church, a creator of the innovative System Shock and Thief franchises. Church looks on as the two titans play. “Spielberg meets the Spielberg of games!” gushes one PR flack.

As he volleys, Spielberg says he understands the popularity of games like Kart Rider; to him, the accessories and upgrades mean that the games are no longer contained by computers. “It gets them out into the world,” he says. But he stops short of explaining how he might use digital distribution to market his own game. When I ask about that, Spielberg puts his hand on Church’s shoulder and says, “Ask this guy.” In the next decade, Hollywood may be turning to the game industry for answers, not the other way around.