GameFly Unloads Direct2Drive

 In Acquisition/Investment, Business Model, Distribution, News
AtGames is best known for marketing retro consoles based on classics game systems.

AtGames is best known for marketing licensed retro consoles based on classic game systems.

AUG. 25, 2014 • Three years after digital distributor Direct2Drive was acquired from News Corp by GameFly, Inc., the service has been sold to Taipei-based AtGames Digital Media Inc. Terms of the acquisition were not publicly disclosed. GameFly announced the agreement on its website via a note to its customers stating the game retailer will continue to operate the digital download business for AtGames until later this year, or until AtGames is ready to manage the acquisition. AtGames markets and sells a range of classic video game-based console systems that come packaged with multiple legacy titles installed. The company has exclusive licensing agreements with Atari SA, Coleco Holdings LLC, Intellivision Productions Inc. and Sega Corp. In the case of its Sega Genesis product, original Genesis cartridges are supported.

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Impact: As we said back in 2011, competing against Steam isn’t easy. Valve’s digital distribution service sets the bar for price, glitch-free technology and unobtrusive DRM. Digital distribution should have been a good fit for GameFly in the same way content streaming has worked for Netflix. Direct2Drive had been the second leading digital download service after Steam but it took a year to integrate the operation fully into GameFly’s online portal. Despite its huge list of gamers who rent titles it appears GameFly could not encourage enough of them to buy digital content. In 2012 we believed GameFly’s competitive target was GameStop/Impulse more than Steam or Origin. Tellingly, GameStop began winding down its own digital distribution investment last May. All of this tells us that while digital distribution has become the primary conduit for mainstream PC game sales, there is room for only a few players to succeed in this business. How AtGames incorporates digital content sales into its business model will be intriguing to watch. Most in the West know AtGames for creating new low-cost hardware to run licensed classic video games. But the company also has exclusive licensing agreements to sell titles at retail in the greater Chinese market. Going retail with boxed product in China has been difficult due to rampant piracy but a number of dissatisfied gamers in Taiwan and Hong Kong went so far as to start a petition on Change.org in 2013 to ask Sega to revoke its exclusive retail deal with AtGames because they could not find the Sega PC titles they wanted to play. Digital Distribution of back catalog video game content in Asia could be the reason AtGames made the deal with GameFly. What that means for existing consumers of the service is hard to say. The main issue is making sure that they have access to content that was purchased by digital download. Going forward the demand for Direct2Drive in its original model is probably not that great considering services like Steam and Origin offer more compelling solutions for most consumers.

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