I'm probably the only person in the world who doesn't download music. I don't own an mp3 player, as I still have a bulky CD player in the side pocket of my winter jacket. But every single person I know downloads music and none of them does it through legal channels. I try to convince them otherwise, but to no avail. "Look at those stars," they tell me. "They're rich despite all the piracy that's going on."
Sure, the rock stars are rich because they still make a lot of money selling concert tickets. But the production houses, the ones who spend the money doing the promotions and making the artists look good, lose millions of dollars each year due to piracy. As with any big production house, they would stop taking risks and start cutting the not-yet-famous, upcoming bands -- the bands that a lot of my friends listen to. Despite my efforts to convince them to the light side, piracy is here to stay. Evidently, it's incredibly hard to compete against free. But the music industry isn't going to die. The music industry is going to change. Perhaps it would react the same way the Korean music industry reacted to piracy and saturate music videos with advertisements. Perhaps we'll see a lot more licensed soundtracks in other media. Or maybe they'll use video games like Guitar Hero and Rock Band as platforms to sell music.
The video game industry is dealing with a similar situation. Developers are wary of the rampant amount of piracy on the PC platform, as evidenced by recent reports of piracy on Call of Duty 4 and Crysis. As such, many companies are moving development towards consoles as they generally have much less piracy; that is until all the modders and pirates move onto the console platforms. But like my predictions of the music industry, I think that video games have to take a similar approach to respond to this problem in any successful manner. They will need an increase use of advertisements.
I see that a few companies are already taking this path. EA's Battlefield Heroes will employ their new "Play 4 Free" model, in which the game will be available free for download with revenue generated from advertising and micropayments. Since in-game advertisements would look out of place in Battlefield's World War II setting, the advertisements will be used in the menu screens before matches. Likewise, Id Software is releasing their web-based Quake Live under their "freemium" category, which will use in-game advertisements for revenue. Finally, Blizzard's Starcraft II, while not free, will also be using advertisements to maximize revenues.
Advertisements have always been detested by players, but if they're playing a high production game for no cost, I don't think they would mind adverts at all. Nevertheless, I'm not convinced that a couple of ads in-game or in the menus are enough to cover the cost of making these big games. The fact of the matter is this approach is too similar to the film model, in which advertisements are shown before the movie starts and in-film adverts are subtle enough to be completely ignored. Films do not make much revenue from their ads, so why would we expect games to do so while using the same model? Advertisements need to be more blatant for them to work.
The web is a good example of this. Every standard website you go to has banner ads, usually an image or some interactive flash that is displayed at the top of the page and on the side. We've become so familiar and accustomed with this that we've learned to completely ignore it. This was the subtle approach. Nowadays, most websites employ more blatant techniques such as pop-up ads, hover ads, or interstitial ads where you sometimes randomly load a web page displaying nothing but a large advertisement.
Interstitial ads are very much like television commercials, as they obtrusively interrupt your experience. But people can still enjoy a website with interstitial ads and people can still become immersed in a television show with commercials. Can video games adopt a television model and still provide an immersive experience? What if we put one-minute commercials during loading screens or better yet, at cliffhanger moments during the storyline much like what television does? The advertisement would certainly be more effective, but would it remove the player from the virtual world so far as to ruin the entire game? I don't have answers to these questions, but I'd like to think that in-game commercials could work.
Drawing more from the television parallel, I think it would be interesting if consoles adopted a cable channel model. Even though the PC gaming industry is in disarray, so much that a PC Gaming Alliance was formed to remedy the situation, there is one massive exception to the rule known as Blizzard's World of Warcraft. Blizzard is making a fortune from this game not because of the number of copies it's selling, but the number of subscribers it has, which at last count was 10 million. This is a crazy idea, but what if players can subscribe to a game channel of their favorite company? For example, I can subscribe to a Capcom channel, where I pay a monthly fee to receive all their new games at no additional cost at an episodic magnitude and frequency. I'm not proposing this as a replacement to our current model, but as an alternative. Analogously, the television industry both airs their series and releases their shows on DVD.