Steam vs BIS Store & Exclusivity - Explained

[sproyd 2]

TL;DR = To best support BIS buy digital copy from BIS Store, validate on Steam and don't buy a physical copy upon release.

I've created a separate thread so people can easily read this as I see a lot of discussion, confusion and contradiction going on about the controversial choice by BIS to go Steam exclusive and the whole BIS Store vs Steam thing. My day (and night :j: ) job is an Analyst for a large global bank in the City so I see this type of transaction all the time, and I am personally a shareholder in publicly-listed game publishers, so I thought I could clear a few things up from a business perspective for the benefit of everyone!

With a digital distribution platform like iTunes, the power really sits with Apple because there are many small indy music labels that don't really have a choice of what platform to use if they want to sell their music. Apple applies a blanket margin and takes a big cut. For the bigger labels like Sony, they have high level negotiations because all of a sudden Apple need Sony to validate their business model as "best-in-class" because they can't really have iTunes without say MJ or Alicia Keys. They come to an agreement with Apple for a set margin. However, Sony's power is still limited because even if Sony developed its own digital platform its unlikely to have much uptake, given the relatively small share of the market they have.

The same applies to Steam (the iTunes of games), except the market dynamics are different because games publishers are generally much bigger (EA, ActBliz, 2K, Ubisoft) and each hold quite a large share of the market. Furthermore, they have proven that they can successfully (questionable...) develop their own platforms - Origin, UPlay etc that do have a decent level of consumer uptake (see BF3, Far Cry 3). So these mega-publishers have high level negotiations with Valve for a retailing margin agreement - but when the discussions go awry you end up with a situation like EA pulling Crysis 2 from Steam. Indy devs on the other hand of course get the blanket high margin treatment (see iTunes above) by Valve because they don't have the power, nor Valve the inclination to strike up specific agreements. BIS probably were in the latter category until the DayZ effect, and now they have obviously struck up a special deal for Steam-exclusivity for Arma 3 (and I strongly suspect for DayZ SA) that is likely to be at a lower margin than what they have historically paid. It is very likely that Valve only agreed to this on the basis of proven booming Arma 2:CO sales and Steam becoming the exclusive platform for A3/DayZ SA therefore further proving and validating the "best-in-class" Steam business model to their customers and other suppliers. Now, while Steam has distribution exclusivity, it shares retailing with BIS Store and in the future High Street retailers via boxed copies.

When you transact with Steam you fall under the abovementioned Publisher > Valve agreements and Valve get their cut that has been pre-agreed. When you transact directly with the publisher (i.e. BIS), Valve/Steam do not get a cut. You then subsequently validate your key on Steam and BIS pay Valve for digital distribution (not retailing, as the transaction was not with Steam/Valve), which is lower than the cost of Steam retailing. Of course BIS can't explicitly tell you this because it would breach their NDA with Valve and it is also counter-intuitive to their good natured relationship that they have with Valve. Either way, BIS MAKE MORE MONEY NOW, which I think we can all agree is good.

Now I know some people want a boxed copy of A3, but BIS see the lowest amount of money for these because (a) the transaction is conducted with a 3rd party retailer who takes a cut (b) some money still finds its way into Valve's coffers © there are logistics costs (d) there are physical media costs for printing the disc, manual, box etc (e) there are holding costs, i.e. the cost of capital in holding the inventory on balance sheet while it sells. For the sake of this please only buy a physical copy to supplement your digital copy if you want to truly support BIS. Hopefully BIS will sell physical maps on their store (like they do for A2) if you need to get your hands on something tangible to tickle your Arma fetish!!

Edited March 2, 2013 by sproyd
moved TL;DR to the top of the post.

[Winfernal 2]

Thank you for making this thread! It's a nice read.

I'll go for Supporters Edition, so i'll buy it directly from BIS.

[nomofica 1]

I made a similar analogy in another thread, but I compared Steam to FedEx (as it is acting as a delivery service and not a retailer for units sold through the BIS store).

[zoog 18]

Thanks for your input. Can I suggest to move the tl;dr paragraph to the top of the post, so people who are not inclined to read everything immediately can read the conclusion. Cause usually, when you reach the bottom of a post, you probably read the whole thing already :)

I was already planning to buy from bis store so they get the most benefit :)

[chortles 263]

This also means that if you were one of those who got a BI store credit from the summer (for purchasing basically right before the discount sale) you can use it towards your Arma 3 purchase.

[nop123 1]

I suggest buying via BIS store also because steam will probably do the usual unfair thingy ($ = €) and to support BI even more as already said.

[vegeta897 13]

This is a very well written and informative thread, nice job.

[RiGLEY 10]

Great post, thanks. I'll buy through the BIS Store. :)

[bumgie 49]

People should see this.

[elpresidente 1]

[...]steam will probably do the usual unfair thingy ($ = €)[...]

The Publisher (BI) decides the price for games at the Steam Store.....

[Hartmann 10]

The same applies to Steam (the iTunes of games), except the market dynamics are different because games publishers are generally much bigger (EA, ActBliz, 2K, Ubisoft) and each hold quite a large share of the market. Furthermore, they have proven that they can successfully (questionable...) develop their own platforms - Origin, UPlay etc that do have a decent level of consumer uptake (see BF3, Far Cry 3). So these mega-publishers have high level negotiations with Valve for a retailing margin agreement - but when the discussions go awry you end up with a situation like EA pulling Crysis 2 from Steam. Indy devs on the other hand of course get the blanket high margin treatment (see iTunes above) by Valve because they don't have the power, nor Valve the inclination to strike up specific agreements. BIS probably were in the latter category until the DayZ effect, and now they have obviously struck up a special deal for Steam-exclusivity for Arma 3 (and I strongly suspect for DayZ SA) that is likely to be at a lower margin than what they have historically paid. It is very likely that Valve only agreed to this on the basis of proven booming Arma 2:CO sales and Steam becoming the exclusive platform for A3/DayZ SA therefore further proving and validating the "best-in-class" Steam business model to their customers and other suppliers. Now, while Steam has distribution exclusivity, it shares retailing with BIS Store and in the future High Street retailers via boxed copies.

Do you have any proof of this part in particular? Because I can't quite tell if you're making a guess here of how it 'most likely' goes or if you actually have a source for this.

[Iroquois Pliskin 0]

Do you have any proof of this part in particular? Because I can't quite tell if you're making a guess here of how it 'most likely' goes or if you actually have a source for this.

Common sense would suggest that to be the case.

[DShKM 18]

Thanks for clearing up the confusion, I'll admit that even I was confused about the financial standpoint of the sales.

[johncage 30]

agreed. i will never buy anything from valve when it's available elsewhere, even if the key needs to be activated on steam. also, gabe newell needs to be taken down a notch. his ego's grown too big. imho

[vegeta897 13]

also, gabe newell needs to be taken down a notch. his ego's grown too big. imho

I'm curious, what are you basing this on? Or is it just an assumption from the fact that Steam has become much bigger than anyone had anticipated?

[Hartmann 10]

Common sense would suggest that to be the case.

It's still only conjecture in that case.

[Iroquois Pliskin 0]

It's still only conjecture in that case.

Reference specific points that you think are conjecture, and we can talk. Not interested in demagogy.

[sproyd 2]

I made a similar analogy in another thread, but I compared Steam to FedEx (as it is acting as a delivery service and not a retailer for units sold through the BIS store).

This analogy is not strictly correct as you can't buy goods from FedEx/DHL if you so choose. Furthermore, you don't continue to receive free automatic updates to your products when they go out of date, and you certainly don't receive another free product when you lose your last one (although this would be awesome !)

---------- Post added at 22:55 ---------- Previous post was at 22:54 ----------

Can I suggest to move the tl;dr paragraph to the top of the post

done.

---------- Post added at 23:08 ---------- Previous post was at 22:55 ----------

Do you have any proof of this part in particular? Because I can't quite tell if you're making a guess here of how it 'most likely' goes or if you actually have a source for this.

I'm very glad you asked, and the answer is no I don't given these types of negotiations and resulting contracts are most certainly private (even when between two publicly listed companies) as they are 'commercially sensitive' and usually bound by NDAs. However, there are a number of factors that have allowed me to draw this conclusion - most specifically BIS's recent comments about having to go Steam exclusive in order to deliver the game in 2013 (makes no sense as many have pointed out as they have an established distribution network), the booming size of Arma through DayZ and therefore BIS's increasing revenues and market power, and comments made by BIS employees on this forum that explicitly state it is better for the company if purchases are made from the BIS store and then validated on Steam.

Also, as Iroquois Pliskin pointed out there is a degree of common sense. The vast majority of Steam revenues come from non-Valve games and if you think they got to that size and having mega-blockbuster games like MW3 and Skyrim on there by just saying to the big guys "yeah you get the same blanket fixed margin as Braid or Fez" then you aren't really understanding the commercial aspect of this booming digital market. Look at EA's relationship with Valve - loads of their games are available on Steam, many aren't. Crysis 2 was withdrawn at one stage and later put back on. This is classic behaviour of a large market player going through high level negotiations and effectively Valve trying to "call their bluff".

So I wouldn't say this is "conjecture" as you put it.

---------- Post added at 23:12 ---------- Previous post was at 23:08 ----------

also, gabe newell needs to be taken down a notch. his ego's grown too big. imho

I'm also interested in your opinion on this. I think Valve is an incredibly amazing and very rare company. I have met hundreds of businesses large and small through my job and have never seen one quite like Valve - which owes a huge amount to Newell.

Edited March 2, 2013 by sproyd

[Von_Emmy 1]

@sproyd

I would like to thank you for your explanation.

It's very well written, easy understandable and it absolutely make sens to me.

Now i'll definitely buy the "Supporter Editon" and will recommend to everyone else, to do the same.

Just like before but now with the possibility to argue, thanks to you buddy. :ok:

have a nice time

much love and light

[johncage 30]

sproyd, opportunists are often mistaken for innovators because they gain fame and fortune at the latter's expense.

[REIZOD 10]

Thank you for making this thread! It's a nice read.

I'll go for Supporters Edition, so i'll buy it directly from BIS.

Same here.

[sproyd 2]

sproyd, opportunists are often mistaken for innovators because they gain fame and fortune at the latter's expense.

Are you referring to Valve? I would suggest reading their New Employee Manual that got leaked last year and then tell me they are not innovators (not just in the gaming world but in the corporate world). They have a successful extremely flat and flexible corporate structure that I don't think any other company of their size could pull off. That is innovation. And on the technical side that most people see, it would be belittling to call Steam anything but innovative. Of course the core idea is fairly basic but the technical wizardry that sees it all operate seamlessly with constantly high bandwidth, very little downtime, robust community features, mod-ability, ease of use et al is incredible.

Edited March 3, 2013 by sproyd

[vegeta897 13]

I can imagine how Valve might look to people who didn't know them back when HL1 was their only game. They heard about Valve from how popular Steam became and only see them as a giant company, and so they might instantly assume they don't give a shit about the little guy and are greedy corporate machines.

But I've been following Valve since HL1 and I've read a lot about their approach to game design, and they are (and Gabe especially) a really amazing company.

Gabe and a coworker left Microsoft to start Valve together, in a time where PC gaming wasn't as lucrative as it is today. Valve is about the passion of game design, not making money.

[sproyd 2]

I can imagine how Valve might look to people who didn't know them back when HL1 was their only game. They heard about Valve from how popular Steam became and only see them as a giant company, and so they might instantly assume they don't give a shit about the little guy and are greedy corporate machines.

But I've been following Valve since HL1 and I've read a lot about their approach to game design, and they are (and Gabe especially) a really amazing company.

Gabe and a coworker left Microsoft to start Valve together, in a time where PC gaming wasn't as lucrative as it is today. Valve is about the passion of game design, not making money.

Exactly. Gabe Newell is now very very rich. However much money he has made to date is small compared to his net worth through owning Valve - companies are valued at a multiple of EBITDA (Earning Before Interest Tax and Depreciation) - the multiple is higher when there is good annuity streams of income, and growing revenues - two ticks. So Gabe's worth a lot.

BUT, contrary to a typical Wall Street type he said in a recent interview that he would much rather be working on games that he loves with a team of passionate good quality people than cruising the ocean in a superyacht - he said he'd get bored in 2 weeks!

[Iroquois Pliskin 0]

Are you referring to Valve? I would suggest reading their New Employee Manual that got leaked last year and then tell me they are not innovators (not just in the gaming world but in the corporate world). They have a successful extremely flat and flexible corporate structure that I don't think any other company of their size could pull off. That is innovation. And on the technical side that most people see, it would be belittling to call Steam anything but innovative. Of course the core idea is fairly basic but the technical wizardry that sees it all operate seamlessly with constantly high bandwidth, very little downtime, robust community features, mod-ability, ease of use et al is incredible.

QFT.

Valve with their Steam may become the Google of the PC gaming world, if they aren't already. Speaking of Google, GabeN is generating more profit per employee than them, or EA.