Analysis: Pitchford vs. Steam

No doubt many have been made aware of Randy Pitchford’s comments regarding the Steam service.  Yesterday, Maximum PC published an interview where Pitchford commented on his newest game, Borderlands, as well as Games for Windows Live and the Steam digital distribution service.^[1] However, his comments were less than favorable towards the Steam service, bringing about a series of passionate debates across various gaming websites and forums.

Recap
For those who have not yet read the interview in full, when asked if he believed Steam made it easier to buy games, Pitchford stated that the service does help, but as a member of the game industry, he doesn’t trust the service.  Instead, Pitchford believes Valve should create a separate business for the Steam service and break it off from the parent company.  He believes there is a severe conflict of interest between the two.  Additionally, he believes Steam is a “money grab,” exploiting smaller developers and publishers by taking a larger cut than it should be.

When asked if he believed brick and mortar is the future, Pitchford stated that he loved the digital option as he is buying a “credential” that can be used at any location.  However, he prefers to purchase games from companies who only act as retailers and their only interest is the consumer.  A company cannot be trusted unless that is their primary goal.  Pitchford states that brick and mortar stores work because their only business is retail, and if they lose customers then they go out of business.    He then added a variety of his own rhetorical questions including:

“How much service are they offering? Are they creating opportunity for us to manage some of those resources themselves? We’ll bear the burden of the cost of the service, but we want more of the reward. Are they creating that opportunity for us or is the only way their way?”

The response to this article has been both fascinating and disturbing.  I have read a variety of well informed comments from both sides, as well as comments claiming Pitchford is simply jealous and to “QQ (cry) more.”  Sadly, it appears there is more of the latter, and comments are being blown out of proportion and not entirely discussed.

Conflict of Interest
The primary source of confusion lies around Pitchford’s statements regarding there being a conflict of interest within the company, and that the Steam service should break apart from Valve and become its own entity.  If one takes a moment to step back and look at the situation as a whole, the conflict of interest becomes more readily apparent.  Valve is both a game developer as well as a company that controls one of the largest digital distribution portals currently available.  One conflict is Valve is promoting the games of competitors, and has the ability to abuse this power if they feel the need to do so.  There are no accusations currently being made that this is happening, but as time goes on and Valve continues to dominate the digital scene, the ability itself grows stronger.

Abuse of power could come about in a variety of ways.  Hypothetically, this could occur through the delay of contracts or the appearance of “technical difficulties” if a popular game coincides with the release of a Valve game.  Information also has the ability to be slightly altered and presented to consumers and publishers.  For example, gamers have noticed discrepancies with the Steam “Top Sellers” list, finding that when Valve games finally fall off the list, they quickly reappear shortly after.^[2] Steam is also developing a habit of not disclosing third party DRM till after the initial sales period is over.^[3] These are merely simple examples, but show that as Steam gains momentum and hooks consumers to their service, they have the ability to abuse the service and control how third party games are distributed if they conflict with Valve’s own games.

I do not believe the comments are directly pointed at Valve and calling them would-be criminals, but echoing the concern that a competitive developer controls one of the most popular digital distribution services for games, and consistently has access to an immense amount of sales data regarding these competitors.  Any company that has a serious stake in its future is correct to worry about one distribution service becoming a possible monopoly, and how it could possibly affect the future distribution of games.  Regardless of who the company is, it is safe to say a monopoly is not good for any consumer.

Pitchford also added that Steam should separate from Valve, creating two independent companies.  The goal is not to remove Steam and break Valve apart, but simply create a company whose sole focus is retail.  This would be the best possible way to improve upon the service and focus on consumer and publisher relations.  If the service fails to serve consumers and begins to lose business, it would be in serious trouble.  Making this the primary focus of a secondary Steam company would guarantee employees do everything possible to make the service work.

Pitchford, as implied by his statements on brick and mortar stores, is worried about a company that must manage both game development and distribution.  This could lead to additional conflicts of interest.  If the company begins to lose money due to unforeseen problems, Valve will be forced to decide if it wants to focus on game development or continue the service.  It is not uncommon for Valve developers to abandon one project over another, leaving consumers waiting for patches and updates to existing problems until the second project is over.^[5] So I find the concern to be valid, as it could easily scale to more serious decisions regarding Valve and the Steam service, should trouble arise in the future.

However, there is the question of why Pitchford is picking solely on Steam. After all, Impulse, GamersGate, and Good Old Games are also services created by game publishers.  I would assume this is due to Steam boasting over 20 million consumers, making it one of the largest digital distribution companies on the market, and thus a greater target.  The company is often at the forefront of digital distribution news due to its popularity, causing more consumers to flock to it, and allegedly creates a ‘locked in’ feeling by forcing a third party client upon consumers.  Consumers, assuming other services do the same, refuse to buy games elsewhere as they do not want to deal with the hassle of more clients.  It is difficult for publishers to take games elsewhere when many gamers now demand the games on Steam, or they will not purchase it at all.

Additionally, GamersGate and Good Old Games already operate as separate entities.^[4] Although they are part of a parent company, they operate independently as their own service.  Impulse is the only service that is truly comparable, and I imagine they were not mentioned simply due to the lack of popularity and not requiring constant use of the Impulse Client.  Direct2Drive operates independently of a game publishing company, and operates through the IGN network.

Money Grab?
Valve claims to be an ideal portal for for game releases from both small and large developers.^[6] The company provides greater exposure and access to games, which benefits any publisher.  So is Pitchford correct in claiming it is a ‘money grab’ system?

Although contracts vary per publisher or developer, the only publicly known percentage Valve takes from sales on Steam is 40%, providing the publisher with 60%^[7].  However, this figure is from 2005, and it has recently come to my attention that on average this number is far less, although my source is unable to reveal specifics for the company.  According to Northwestern Journal of Technology and Intellectual Property, retailers capture 40% of the retail price of a video game.^[8] This number may vary slightly for PC games as the initial research focused primarily on console releases, but personal research has shown 20-40% to be the norm.

Without personal experience, it is difficult to comment on exactly how independent developers are treated.  People should be wary of jumping to conclusions for either side, as when it comes down to it, a majority of us do not know the finer details.  At most, we can draw some insight from developer blogs, which both state good and negative comments regarding the service, and appear to be very situational.

Industry Response
Garry Newman, creator of the popular Garry’s Mod, has posted that he is perfectly content with his experiences with the Steam service.  Newman states that while more money would be great, it is not low enough to turn him away from the service either.^[9] However, one must remember Garry’s Mod is a Source based mod that helps promote the sale of Valve games, and may likely receive special concessions.   Secondly, his views are slightly biased, believing ‘Steam IS the PC gaming platform’ and is under the false impression other digital distribution services require additional software.  Only Impulse requires this, as GamersGate and Direct2Drive are client free.

Daniel Hjelmtorp, Product Manager of  GamersGate and a primary contender with the Steam service, responded that his company has already taken these steps and split their service from their game development teams.  Hjelmtorp believes this allows the company to focus on the consumer experience, the catalog, and special offers and deals for consumers.   Not surprisingly, he agrees Steam should split from the Valve company and become its own entity.^[4]

Many forums have pointed to comments by Derek Smart, lead developer and president of 3000AD, Inc, who has taken a bold and vocal approach to the debate.  He originally makes some interesting points, noting that Valve is no more evil than other digital distribution services, and the 20 million subscribers does not translate into instant sales for third party games.  Additionally, Smart claims Valve cuts are in line with industry standards and the company does not act in an exploitative manner.^[10] However, in usual fashion,^[11] Smart’s comments are also worrying as he continues to discuss the article and flame Pitchford and gamers who disagree with him.^[12][13]

In a recent interview with GamaSutra, John Gibson of Tripwire Interactive stated that accusations of independent developers being exploited is inaccurate.  Gibson believes Tripwire Interactive would not have succeeded if it were not for the Steam service.  When shopping for traditional brick-and-mortar publishers, they were often receiving deals that provided them with 15% royalties, loss of IP, and a $1.5 million administrative fee.  For an independent, this was simply not possible.  Gibson continued stating Valve provided a straightforward contract that was in line with other digital distribution services, and recouped development costs in a matter of weeks.  He also finds there to be little conflict of interest, and the company handles third party titles well.^[14]

Conclusion
While I do not agree with all of Pitchford’s points, he does raise some interesting topics regarding the Steam service and create an awareness of the current digital distribution situation.  In the future, Steam could pose a serious monopolistic threat to PC game digital distribution and thus create some severe conflict of interests within the company.  This is not to say it will happen, but that it is definitely something that should be discussed to ensure the healthy development of game distribution.

More worrisome than the comments themselves are the responses to Pitchford.  Primarily, the amount of people who flame the article and vehemently defend Valve as the only service out there, and how jealous Pitchford is.  Comments like these are what reinforce the original concern, that Valve is becoming the most dominant and will evolve into a Monopoly as gamers refuse to try other services.  As seen by various comments, people refuse to even look at another service, and are consistently demanding publishers release games on Steam or else.  It is surprising how many refuse to look at the individual comments, and immediately become defensive.  The same can be said for those who immediately become hateful towards Steam and are unable to make coherent arguments.

There is nothing wrong with using a service and supporting it wholeheartedly, but as a consumer, we must be wary of what we sow.  We must always question and promote discussion regarding the services and products we use.  Through this discussion, we can promote the advancement of healthy knowledge that will better inform gamers as well as help companies follow a path that benefits consumers and their rights.

Source
[1] Randy Pitchford Talks Borderlands, Piracy, and Why He Doesn’t Trust Valve
[2] WeGame Discussion: I’m calling BS on Steam’s Top Seller List
[3] DRM Being Hidden From Consumers
[4] Randy Pitchford Talks Borderlands, Piracy, and Why He Doesn’t Trust Valve (Comment #4)
[5] TF2 Official Blog: Did That hurt? Sorry!!!
[6] Valve Steps Up, Defends PC Gaming
[7] Steam: Who Sets the Prices?
[8] Use of a Game Over: Emulation and the Video Game Industry, A White Paper
[9] Is Valve Exploiting Us?
[10] Gearbox’s Pitchford Says Valve is ‘Exploiting’ Smaller Devs with Steam (Comment 21103240)
[11] Computer Gaming World: Resurrection
[12] Gearbox’s Pitchford Says Valve is ‘Exploiting’ Smaller Devs with Steam (Comment 21100712)
[13] Gearbox’s Pitchford Says Valve is ‘Exploiting’ Smaller Devs with Steam (Comment 21101617)
[14] Opinion: Tripwire, Steam, and How We’re Not Getting Exploited