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Digital Distribution To Transform Video Game Business

Video game makers have endured a rough 15 months or so, but projectors nevertheless are projecting big things for video games. For one thing, new revenue sources are coming: experts say the retail-driven industry can expect incremental revenue in the form of online game subscriptions and advertising. Another key, video game business journal GameDaily BIZ says, is the efficiencies created by digital distribution. The physical costs associated with distributing games are expected to go away gradually as everything moves online. Bill Gates has often said that debates like the one about Blu-ray technology versus HD-DVD will soon be moot as the entire industry moves to the Web. This begs the question: is iTunes-like distribution the next billion-dollar opportunity in gaming? Executive analysts at investment firm Alsop Louie Partners say yes. According to Stewart Alsop, the company founder: "The video game industry is stuck in what I call analog distribution. You have to encode it on a CD/DVD, put it in a jewel case, and ship it physically to the store distribution system," he said. Once that goes away and everything becomes digital, "that's what presents the opportunity to build a new billion-dollar company." What's unclear, he says, is whether that happens in the next two or ten years. Sony CEO Ken Kutaragi believes this could happen more quickly than people believe. "I expect even the hard disk to disappear eventually," he says. "If you have all the data on servers, you probably no longer need disk drives..."

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