With digital distribution, developers and publishers can avoid retailers entirely and distribute games to consumers themselves or through online aggregators such as Direct2Drive and Gametap. Additionally, console makers have also launched digital distribution networks on their game systems to allow consumers to directly download content to internal hard drives. However, despite the cost savings that self-distribution would offer, the majority of games sold digitally are through aggregators and although they are essentially middlemen just like retailers, they provide advantages that physical retailers cannot.

For the relatively new mobile games market, several possible digital distribution channels exist, many of which are either over-the-air (OTA) or involve downloading the game on a computer and transferring it to a mobile phone (Figure B).

One of the first successful video game digital distribution platforms was Valve’s Steam client, which was at first used to distribute patches and updates to existing games, but has since become a full service distributor of mainstream gaming content. This platform now distributes almost 600 games available for download and boasts 16 million users[4]. Steam’s success can be attributed to a variety of factors that are unique to digital distribution and provide digital distributors with a distinct advantage over traditional retailers (Figure C).

Despite the economic advantages that digital distribution offers, there remain many challenges towards fully adopting such a model as the main form of software distribution. One obvious roadblock in many markets is retailers, such as Best Buy, Gamestop and Media Markt, who have established themselves in the video games market. These traditional retailers have not established themselves in the digital distribution value chain and therefore will vigorously defend their market share. Collectively, they pose a considerable threat since they currently sell the vast majority of video game software, giving them the influence over developers and publishers that they could use to discourage digital distribution. For example, Wal-mart, which accounts for 62%[1] of video game sales in the United States, could pressure Activision to not release their games for digital distribution by threatening to pull their products from store shelves.