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Downloading Titles Without Leaving the Sofa—Wall Street Journal

02.17.09
Yukari Iwatani Kane

Just as sales of music, movies and television shows have gone online, videogame sales are now headed onto the Internet, too.

While games for consoles like Microsoft Corp.'s Xbox 360 and Nintendo Co.'s Wii are sold mostly as packaged software in retail stores, game publishers are now increasingly making games available through online downloads. On Tuesday, Take-Two Interactive Software Inc. is releasing a new "episode" of its blockbuster urban-action game "Grand Theft Auto IV" online -- the most extensive download-only content yet for a major game title.

A new episode for the videogame "Grand Theft Auto IV," from Take-Two Interactive Software, will be available only via download from the Internet.

In "GTA IV," users play the character of Niko, a European thug who becomes entangled in gangs and crime while exploring the fictional American city Liberty City, modeled after New York City. In the new download-only game, "The Lost and Damned," players get to know more about the same city from the vantage point of Johnny, a motorcycle gang member who was a side character in the main game.

PC games have been widely available for download, but downloadable games for consoles like the Xbox 360 and Sony Corp.'s PlayStation 3 have only become possible in the past few years. That's because unlike older consoles, the current machines have hard drives and access to robust Internet networks. With these connections, consumers can easily download games by accessing online stores and hitting the download button.

For consumers, downloading a game may be more convenient than having to go to stores to pick up a product. Many downloadable games are also set to be cheaper than regular console games, since publishers can save on packaging and marketing costs.

The GTA episode, which will be available exclusively on Microsoft's Xbox Live network, will cost $20 -- versus $50 or $60 for a typical console game. Though gamers will need to have "GTA IV" to play the episode, it offers 20 hours or more of additional game play. Nintendo and Sony also offer downloadable games for the Wii and PS3 respectively for $5 to $15, on average.

The growth of download-only games also gives consumers greater choice. Because making a downloadable game is significantly cheaper than creating a console game that is sold in stores, publishers have more flexibility in launching new kinds of games or new chapters to popular games. Microsoft, for example, started a community games feature in November that allows hobbyists and aspiring game developers to offer games that can be downloaded to the Xbox 360 for $2.50 to $10.

In the past, download-only game offerings for consoles were limited to older titles, simpler or experimental games, and add-on features such as new songs for music games. For gamers, playing "The Lost and Damned" is similar to the experience of playing the regular "GTA IV" game. That's because technology has advanced to the point that the quality of graphics delivered online is now the same as for packaged software.

Bigger games take longer to download, however. And users can't download too many games onto their consoles; the devices tend to have hard drives that are smaller than those on PCs.

How well the new GTA episode does will be closely watched. Many videogame makers want to move away from selling through traditional retailers, which have become more selective about the titles they carry as they themselves are squeezed by the overall decline in consumer spending. New downloadable episodes that expand the story of popular games are also a cost-effective way for publishers to keep players interested in a game longer and generate additional revenue.

Many game publishers also want to explore new ways of increasing their business. While videogame sales grew 13% to $1.3 billion in January, according to market research firm NPD Group, analysts say sales growth in the core gaming market has been stagnating. A vibrant used-game market, driven by specialty retailer GameStop Corp., has also taken revenue away from publishers.

"A lot of people are looking at this [download-only] model very closely," says David Cole, an analyst with industry research firm DFC Intelligence. "If it works, it can be a big boon for the overall industry." DFC estimates that revenue from downloaded console games will rise to $2.6 billion in 2013 from about $200 million in 2008.

Overall, analysts estimate "The Lost and Damned" could sell millions of copies, making it a bestseller. "GTA IV," available on both the Xbox 360 and PS3, has sold more than 12 million copies world-wide since its launch last April. If the download-only episode is successful, it could encourage other developers of marquee games to consider downloadable add-ons more seriously.

"This is a disruptive trend that is changing gaming," says Marc Whitten, general manager of Microsoft's Xbox LIVE.

According to analysts' estimates, Microsoft paid Take Two's Rockstar Games unit $50 million to create "The Lost and Damned," as well as a second episode that will likely be available later this year or in 2010. Microsoft and Rockstar won't comment on the figure, but if the new episode can lure more consumers into buying Xbox 360s, negotiating additional exclusive content could be one way console makers can differentiate their products.

Dan Houser, Rockstar's vice president of creative, says that the company had toyed with the idea of doing episodes before, but that the technology hadn't caught up.

This time, Rockstar came up with the framework for the episodes before "GTA IV" was finished. That allowed the developers to plant plot points into the main game that would allow them to tie in the additional content from a narrative standpoint.

One thing Mr. Houser says Rockstar has been careful about is making sure that all of the additional content it is offering weren't things that it should have included in the original game or offered players free. While additional content isn't for every game, Rockstar is coming out in March with a package of extensive additional downloadable content, such as extra races, cars and maps for its racing game "Midnight Club: Los Angeles."

"It's still very new territory for everybody at the moment," says Mr. Houser.

Write to Yukari Iwatani Kane at yukari.iwatani@wsj.com