April 26, 2007 - A short time ago in a basement far, far away, two gamers battled it out in their favorite videogame for the last time. One was moving away, and soon, those late-night gaming sessions would be bittersweet memories. "If only there was a way to game over long distances," they lamented. "Can't Al Gore develop a system of tubes to carry electronic information?!"

Those nerdy dreams -- a piece of futuristic fiction less than a decade ago -- are the reality of today. There are more than 6 million Xbox Live sers -- up 3 million in less than a year -- and the PlayStation Network has grown to 1.3 million users worldwide in five months.

But gamers aren't just satisfied with playing each other anymore. Now they want to download demos from the PlayStation Network, high-definition movies from the Xbox Marketplace and classic NES games from the Virtual Console. Single-handedly, they've ushered in the era of digital distribution and videogame publishers and developers are trying their best to satisfy the wants of the masses. The Xbox Live Marketplace offers more than 7,000 pieces of content for its users to download -- users have more than 135 million times -- and in North America alone, more than 3.7 million pieces of content have been downloaded on the PlayStation Network.

According to eMarketer, digital downloads accounted for 8 percent of gaming revenue in 2005 and are projected to reach 22 percent in 2010. Seriously.

With the download era upon us, IGN gathered big Whigs from the PlayStation and Xbox 360 camps (a Wii representative wasn't available) and put them through separate interviews to see why the market is in this downloading frenzy, how the companies are responding and what the future might hold.

The Players
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Aaron Greenberg has been working on the Xbox brand since he joined the original Xbox planning and launch team in early 2000. He spent his first few years on the job as business manager, which included managing the worldwide Xbox business intelligence team, and now drives global Xbox objectives and strategies as the group product manager for Xbox 360 and Xbox Live. He digs sports titles and scuba diving.

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Eric Lempel joined Sony in 2000 after getting started in the industry in the early '90s with a third-party publisher. Now the director of operations for the PlayStation Network, Lempel is responsible for content production, content delivery, and the user experience at PS3 kiosks and PSP Spots. Lempel's years of work have involved online marketing, online development, product marketing, e-commerce product management, industry research and reporting.

An Overnight Niche

For years, the process was simple: go to the store, buy your game, head home and play. Now, it's all topsy-turvy -- I can instantaneously buy a game and have it one my console?! Did you guys see this coming?

Lempel: You know what, I didn't. Back [when I started], believe it or not, there really wasn't much of an internet out there or any kind of downloading going on. So I didn't see this coming. There was always the idea of what could be possible in the future, but I wouldn't have thought this at that point.

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Don't call it a comeback. The Virtual Console is making old games new again.

Greenberg: You know, everyone always said it was going to be the future, right? We always thought digital distribution is the future, and we looked at things like what's happening in the music space and how music has gone digital. I would say what surprised me more is this generation than the last generation in regards to digital distribution and downloadable content because we're really seeing it take off in a big way. And that's why even with our spring update, we're actually bringing Xbox Live Marketplace to have its own blade on the Xbox 360 so it's no longer buried in the Xbox Live blade.

There's so much content there; we're now challenged with how do we make it easier for people to find content and find what they want and be able to navigate the data, so we've added a lot of new functionality to be able to support and manage this when we've got 6 million people browsing our digital store, if you will, on a regular basis -- browsing through potentially 7,000 items. That presents a whole new challenge that we never expected. So I would say the rate in which digital distribution has taken off has well exceeded our expectations, and some signs of that mattering to the big guys is look at, you know, the EAs of the world and Vivendi and all these guys and all the major publishers that are getting into Xbox Live arcade and digitally distributing games.

It used to sort of be the Midways and the Namcos that had the classic games would sort of bring out their classic museums of content, and then you'd have some small PopCap games of the world doing their stuff, but now you've got all of our major publishers investing in Xbox Live Arcade and digitally distributing games through that channel. I think that definitely speaks to this accelerating at a faster pace than we ever expected, and I think that's the future, right? I even think about the whole movie thing. It's like, well, yeah there's a whole format war with HD DVD versus Blu-Ray, and it's really exciting to talk about, but you know, it's like, is that the future? The future is probably digital distribution, right? How soon can consumers move over and go with digital is anyone's guess, but we're seeing, in game and entertainment content, we're seeing the uptake on digital content growing at a pretty rapid pace.

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