Digital Distribution and the Changing Economics of Media

In the past few years a veritable revolution has taken place in the entertainment and media publishing industry, and that is the growing prevalence of digital distribution. The rise in use of the internet has made buying and selling products online much easier. By far the entertainment industry has been the most affected, with e-readers becoming commonplace and services that allow downloading of television shows, movies, and video games supplanting traditional brick and mortar stores. Underlying the revolution is the changing economic factors that digital distribution brings to entertainment media. These changes have benefits to both producers and consumers.

The biggest factor that a switch from producing and distributing books and DVDs of movies and games to doing so online is that the phsyical cost of the product is almost entirely eliminated. Before the internet, the quantity of sales of a book or video game was purely limited by the amount of product produced. This required the printing of the material on paper for books, or the mass production of CDs, tapes, or cartridges for movies and games. While at a large scale the costs were small, they were still significant when deciding how much to produce on a first run. Now with a movie or book’s content being stored and downloaded entirely digitally, that physical cost is almost completely eliminated. The phsyical cost now solely consists of buying server space, while the supply of the book or movie is now essentially unlimited. The model of digital distribution is now the closest thing we have to a post-scarcity market.

The decreased cost of production is a major boon to publishers, but there are also benefits to content creators and consumers. For content creators, it is now very easy to put a book or game up for sale online. The risk of unsold inventory is now a non-issue so traditional publishers are more likely to take on new authors or developers, but there is also the ability to circumvent the publisher and self-publish on the internet. This is becoming especially common in the book and music industries. With services like Amazon’s Kindle store for authors and Bandcamp for musicians, content creators can now directly distribute their works and set their own prices. This practically eliminates the barriers of entry for new content. For consumers, this means there is much more content to browse through (and inevitably much more bad content), and there is content that would otherwise not get published through the traditional path for various reasons.

Two of the most well known digital distribution services have become the dominant force in distribution in their different media. The first, Netflix, has become one of the biggest and most widespread purveyors of movies and television shows. Because they were the first service to offer direct streaming services, Netflix had gotten almost a monopoly on paid streaming services a few years ago. However, as the popularity of Netflix grew, competitors like Hulu appeared and networks starting wanting to take full advantage of the profits of paid streaming. Additionally, the brief backlash against Netflix after they removed the discount from bundling their DVD and streaming packages, the market started seeing other services encroach on Netflix’s market share. Now, premium channels such as HBO have removed their shows from Netflix in favor of hosting them on their own web streaming services. While Netflix still remains the largest provider for streaming movies and television shows, the market has matured and other services like Hulu Plus have made the market more competitive.

Like Netflix, Valve’s game download service Steam has come to dominate the digital distribution of PC video games over the last few years. Steam, like Netflix, has built up such a market presence by being one of the first and best executed download services. While there have been several other download services, Steam has developed into more than just a digital distribution service. The features of the Steam client such as achievements have expanded the software from just a download service into a full game inventory and digital rights management system, making it more useful to both developers and consumers. Steam’s chat and multiplayer organization features have also allowed the service to take advantage of the network effect and encourage demand through having so many users. While Steam could be said to have a monopoly now, this is not necessarily true. Other developers are beginning to offer similar distribution clients of their own. Steam’s main competition as of now is Electronic Arts’ Origin. However, Origin has been plagued by controversies related to its intrusive nature, including allegations that portions of the license agreement for the Origin client violate German privacy laws. Until Steam’s competitors can offer a distribution service that can truly compete with Steam in its ease of use, Steam will remain the dominant player for digital distribution of video games.

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