http://www.next-gen.biz/index.php?option=com_content&task=view&id=9687&Itemid=59
By Matt Matthews
Guitar Hero and Rock Band have clearly changed the videogame industry. They are generating monster revenues, even measured against the big names of this hit-driven business. Former and new gamers alike are paying big to own a plastic guitar, creating a larger audience for other games and products down the line. Perhaps just as importantly, these games have become darlings of the music industry – witness Aerosmith's new Guitar Hero collection, due this summer.All of that's quite interesting, but one angle that interests me is the downloadable content (DLC) that both Guitar Hero III and Rock Band are offering through Microsoft's Xbox Live Marketplace and Sony's PlayStation Store. Just like Valve built the strength of Steam on the success of Half-Life 2, so are console consumers being lured to accept the regular purchase of add-on content through these musical fantasy programs.
And for the publishers and developers, it's a brilliant plan. As new licenses are signed on, content can be adapted to the existing products and distributed directly to consumers with no brick-and-mortar middle-men to take a cut. The addition of Rock Band's in-game storefront last week is simply another step toward a long term add-on revenue stream. And there is the little fact that DLC gets the industry a little closer to curbing the rental and used game markets.
But is the DLC itself making money? For example, how often are consumers downloading new tracks? The answers I obtained are shown here:
Along the way, I'll also look at how much additional revenue Guitar Hero III and Rock Band DLC might be worth to publishers. For our first stop, we'll go back to the first real test of the musical DLC business model: Guitar Hero II for the Xbox 360.
Xbox 360 Tests the DLC Waters
The Xbox 360 version of Guitar Hero II, launched in early April 2007, expanded on the successful PlayStation 2 version by adding new songs on the disc and then offering other tracks on Xbox Live Marketplace. The game itself, packaged with a guitar, was quite successful at retail in the United States and, according to figures from the NPD Group, placed on the top 10 software charts for March, April, May, June and July.
As May was coming to a close, Activision officials commented that the Xbox 360 version of Guitar Hero II had seen over 200,000 downloads of the three track packs (each containing three songs) released up to that point.
From this data we can get a few interesting facts:
- Xbox 360 Guitar Hero II owners had purchased one song (actually 0.89 songs), on average.
- Those same people were buying a new track every six or seven weeks, on average.
Those numbers look pretty odd, don't they? Since users could only buy songs in packs of three and the average songs per user was just a little less than one, we can deduce that relatively few people actually bothered to buy the Guitar Hero II tracks available on Xbox Live Marketplace.
Since song packs cost $6.25 each, downloaded content had provided $1.25 million in Guitar Hero II revenue. During the same period the Xbox 360 version of Guitar Hero II had generated $60.5 million in revenue.
To you and me, $1.25 million might seem like a lot, but it was merely a drop in the bucket for Activision.
Three's a Charm
Let's skip ahead now to January 2008. Guitar Hero III has been out since late October 2007, and is still selling very well at retail. The Xbox 360 and PlayStation 3 versions have been receiving downloadable content essentially since launch.
As January comes to a close the NPD Group publishes the final sales figures for 2007. Around the same time, Activision releases some information about the success of Guitar Hero III DLC: more than 5 million songs downloaded. (It isn't clear to me, from Activision's press release, whether this statement applies to worldwide Guitar Hero III downloads or just in the United States, but for the purposes of this article I'll assume it's for the U.S. only.) By that point, Activision has sold approximately 1.9 million copies of the Xbox 360 and PlayStation 3 versions of Guitar Hero III, according to figures from the NPD Group.
From these figures we can compute a few estimates:
- PS3 and Xbox 360 Guitar Hero III owners had downloaded 2.61 songs each, on average.
- Those same people were downloading a new track approximately every two weeks (actually 15 days). If we're talking 3-song track packs, then that's a pack every month and a half.
Given the rates for Guitar Hero II back in Spring 2006, these figures are a tremendous improvement. Regrettably, the comparison isn't apples-to-apples, and the key word here is “downloads”.
As far as I can tell, the Xbox 360 version of Guitar Hero II never got any free tracks – only the track packs for 500 Microsoft Points. By the end of 2007, however, several free tracks had been released for both the Xbox 360 and PlayStation 3 versions of Guitar Hero III. I think we have to assume that some significant fraction of those 5 million downloads were free tracks.
Let's assume the contrary just to get an upper bound on the amount of extra revenue that Activision could have generated from Guitar Hero III DLC. So we've got 5 million songs purchased (not just downloaded) and let's estimate that they average $2.25 each. (Songs in packs are about $2.08 each and singles are about $2.50 each, so we're splitting the difference here.)
That gives Activision a maximum of $11.25 million in additional revenue from DLC during those first few months of Guitar Hero III. The real figure is probably much lower, and certainly pales in comparison to the retail revenue of Guitar Hero III just on those two platforms, which is easily twelve times larger, probably around $150 million.
Of course, during this same period Activision was watching sales of its new rival. The original Guitar Hero developers, Harmonix, had a new product called Rock Band, published by MTV Games and distributed by Electronic Arts. Let's see what we know about its sales and downloadable content.
The New Kid
Rock Band launched on the Xbox 360 and PlayStation 3 right before Thanksgiving 2007, and has been offering weekly DLC almost every week since. Official Rock Band PR and data from the NPD Group tell us the following: 2.5 million downloads with an installed base of 1 million units as of January 2008, and 6 million downloads with an installed base of 1.5 million units as of March 2008.
Applying the same kind of computations used for Guitar Hero II and Guitar Hero III above, here are the figures for Rock Band:
- Rock Band owners had downloaded 2.5 songs each, on average in January, and 3.9 songs each in March.
- In January Rock Band owners were buying one new song about every 10.7 days. By March that figure had risen to one new song about every 16.6 days.
So the figures for Rock Band seem to show that initially those players might have been buying songs more quickly than their Guitar Hero III brethren. Since then, however, the Rock Band rate appears much closer to what Guitar Hero III players exhibited in January.
Unlike Guitar Hero III and more like Guitar Hero II, I don't believe any Rock Band downloads have been free. However, the pricing varies for songs in packs and songs as individual downloads. For the sake of estimating revenue, let's assume that songs go for $2.00 each, which is the usual price for a single song.
Then in January, Rock Band DLC had generated at most $5 million in additional revenue. At that time Rock Band for the PS3 and Xbox 360 had probably generated around $150 million in revenue at retail.
By March 2008, Rock Band DLC had generated at most $12 million in additional revenue while the game itself had probably generated in the neighborhood of $200 million at retail.
Inconsequential...for now
By the estimates above, both Rock Band and Guitar Hero III for the PlayStation 3 and Xbox 360 have generated about 95% of their revenue through retail sales and the other 5% from downloadable content. Put another way, DLC appears to give a little more than 5% additional revenue over what these games are generating at retail. Rather, DLC is a trickle of ongoing income, as the following graph shows:
This is in line with what Activision's CEO, Bobby Kotick, said in February of this year: “Downloadable content is really an inconsequential part of our business today”.
However, Kotick went on to say that “when you look out three or four years from now [...] you're likely to see downloadable content and music of a variety of kinds playing a more integral role”, and it's hard to argue with that statement. Activision is planning to bring DLC to the Wii version of Guitar Hero III this year, and those users will probably be just as ready to buy the same content that their PlayStation and Xbox colleagues have been buying already.
For its part, the Rock Band team appears dedicated to making content a weekly event for consumers. With 200 songs scheduled for release in 2008, I suspect that the regular updates will ultimately provide stiff competition for Activision's more established Guitar Hero franchise. In fact, I think Activision's Aerosmith collection is a step backward, not forward, for the music game industry.
When I see packages like Guitar Hero: Aerosmith and the 80s collection from last summer, I am reminded of the album model championed by the music industry itself. I suspect that modern iPod-toting consumers, especially those playing these games on consoles, are more likely to want a la carte music selections. Rock Band's in-game storefront, like Apple's iTunes, appears to be a step in that direction and away from the monolithic albums of yesteryear. Kotick's right that downloadable content will play a more integral role in the future – so why are they embracing the past?
