At the Game Business Law summit, Valve talked about Steam, digital distribution and the PC market. Interestingly, Valve sees pirates as "tons of undiscovered customers."
Dallas, Texas — At the Game Business Law summit at SMU's law school today, Valve's Jason Holtman addressed the business models behind the company's popular Steam service.
Holtman, who serves as director of business development and legal affairs, says that Valve has sales in excess of 30 million units in their ten-year history. Steam launched in 2004. He remarks, "We're more than just a game company -- we're a platform holder, distributor, publisher..."
Running through the numbers behind console sales, Holtman points out that there are more PCs in the market than all the consoles combined. In fact, in 2007 alone, over 255 million new PCs were purchased. "That's a huge install base."
"Everyone's got a PC, they're connected," he says. "If you think about gaming just in terms of what analysts show you...you tend to think about the consoles." Each console company, says Hotlman, has a minimum of 50 people devoted to talking to magazines, appearing in USA today, etc.
Holtman goes on to say that there's a current meme making the rounds: 'Online sales are replacing retail sales.' "It's not a cannibalization," defends Holtman, "It's not a replacement. It's all boats rising with the tide." Retail sales are rising, just not as quickly. And he says, people are just now starting to get data from online sales.
Steam currently has 15 million connected gamers, with 1.6 million peak concurrent users. It's available worldwide in 21 languages. "From the outset, we knew we had customers worldwide," says Holtman.
"And we're a distribution channel, so we've got lots of other people's titles as well." Some three hundred plus games, in fact. "We have a great long tail, by the way...if you want to explore long tail economics."
"We're not just a way of selling game," reiterates Holtman. "What we are, actually, is a platform." As such, users have to be able to do more than just buy games, the reason Steam has achievements, and lets users talk to friends.
Holtman returns to this false idea that "Digital sales cannibalize retail," and this time he has proof. "Since Steam is actually a connected platform," he says, Valve can track activation for both retail and digital sales.
One weekend, Valve, offered Day of Defeat for free trial. At the end of that weekend, a good offer was made to customers. As expected, this increased digital downloads of the game. But surprisingly, Holtman reveals, there were "28% more units bought at retail than sold through Steam."
"What we learned from having a connected platform, is it's not about channel vs. channel," says Holtman. "You can't predict where people will shop."
Holtman also talks about giving away a character class for Team Fortress 2. Traditional thinking says: "You monetize investments by charging for them." But, he reveals, when Valve gives away it's content, sales spike for several products, both at retail and through Steam.
The final sacred cow that Holtman took a stab at was the issue of piracy. "There's a big business feeling that there's piracy," he says. But the truth is: "Pirates are underserved customers."
"When you think about it that way, you think, 'Oh my gosh, I can do some interesting things and make some interesting money off of it.'"
"We take all of our games day-and-date to Russia," Holtman says of Valve. "The reason people pirated things in Russia," he explains, "is because Russians are reading magazines and watching television -- they say 'Man, I want to play that game so bad,' but the publishers respond 'you can play that game in six months...maybe.' "
"We found that our piracy rates dropped off significantly," Holtman says, explaining that Valve makes sure their games are on the shelves in Moscow and St. Petersberg, in Russian, when they release it to North America and Western Europe.
There are, concludes Holtman, "tons of undiscovered customers," because publishers look very narrowly at the Western market.
