More on the legal fight over Steam between Valve and Sierra Online.

Next Tuesday will finally see the release of the long-anticipated Half-Life 2 and thousands of people will be able to play it mere moments after it goes on sale thanks to Steam, the broadband content distribution system that Valve developed originally as a means of automating software updates and allowing players to find servers to play on. Steam has since grown into a means for Valve to sell their products directly to their customers cutting out the need for publishers, such as Sierra, or retail stores altogether and allowing Valve to realize a greater profit on each copy sold. This fact hasn’t been lost on the folks at Sierra and they’ve slapped Valve with a lawsuit over the issue.

Sierra says that Valve hid the development of Steam from it when they were renegotiating a contract in 2001. Under that contract, the publisher doesn’t get the same cut of revenue for Internet distribution. Even worse, Sierra contends, by including Steam components in each of its retail games, Valve is forcing the publisher to distribute the very technology that will ultimately undermine its own business.

“Valve was aware of its business plan for Steam long before” the contract was signed, said Annette Hurst, a lawyer representing Sierra in the case. “They considered that Steam would be revolutionary technology that would take sales away from the traditional retail channel. None of that was disclosed.”

A representative for Sierra Entertainment itself declined to comment.

Valve says it’s not doing anything wrong, and is operating under the terms of the contract. There are revenue protections for Sierra in place, where the publisher gets extra funds if Internet distribution winds up undermining retail sales.

“I think the retail channel will continue to be very important,” Doug Lombardi, director of marketing at Valve, said in an e-mail interview. “I think there will always be customers who like to buy products at a store and customers who would prefer to purchase products directly—and some who will do a little of both.”

I would tend to agree with Valve that neither game publishers or retail stores are in any danger of collapsing overnight because of broadband software distribution, but it is definitely understandable why publishers may be a bit antsy about Valve’s experiment. The conventional wisdom is that most broadband connections are still too slow for distributing games that come on upwards of 8 CD-ROMs within a time frame that most customers would consider reasonable and that’s largely true for the most part.

Blizzard used their own custom Bittorrent client to distribute the World of Warcraft beta client and it still took us over 15 hours to download the 2.5 Gigs of data in spite of a healthy 4Mbps connection. Valve’s system was very clever in that they released parts of Half-Life 2 into the Steam network as they finished them ensuring that on release day the game is already in place with perhaps only minor updates needed at the time it is unlocked. That won’t help anyone who buys the game through Steam after the release date, but there is definitely something very compelling about the idea of the finished game sitting on your hard drive just waiting for a date and time to arrive. A number of people who had originally pre-ordered HL2 via retail ended up canceling those pre-orders so they could buy the game through Steam.

On top of that broadband is getting faster all the time—in Japan you can get 45Mbps DSL service—so while this form of distribution will probably be limited to early-adopters and hard-core tech junkies for awhile it may be only a matter of time before it becomes not only practical for the average person, but desirable. One thing’s for sure: A lot of companies are going to be watching both the outcome of this lawsuit and how well Steam performs come next Tuesday very closely.

2 thoughts on “More on the legal fight over Steam between Valve and Sierra Online.

  1. Great commentary. I like the fact that you noticed that both sides have some legitimate points on this, though I’m most definitely on Valve’s side on this. Halflife2 is preloaded and waiting waiting on my computer for next Tuesday and I plan on playing it within the first minutes of it being available. There are many more out there just like me, so I seems obvious that retail sales will be somewhat affected. I also agree there will be many people who still want the boxes and other merchandise. I’m a 34-year-old life-long gamer and I’ve got the money to spend on all the BS. I’m quite looking forward to owning the various posters, hat, etc….included in the Half-Life2 Gold distribution on Steam. I personally don’t care if Vivendi gets a cut, but I can see why they’d be pissed if they don’t even get a cut of the physical merchandise that’s being sold through Steam. After all, that’s where publishers are supposed to make their money…on printing things and distributing as many as you can foist upon the consumer. Physical merchandise is really the only area Vivendi can complain that Steam is cutting into their in-store sales. If it turns out that consumers don’t give a rat’s ass about the pretty pictures on the pretty boxes, and all they care about is the intellectual property created entirely by Valve, then I guess I’d have to say Vivendi is SOL. I’d have more sympathy for Vivendi if they weren’t such blatant cocksuckers in general. Let us not forget that they didn’t create Half-Life2 or, to my knowledge, contribute a single line of code to any part of the game. In strictly legal terms they might have a case, but really, this is capitalism. Capitalism is THEIR game and they are just whining about being on the losing end for once. If Vivendi had been smart, they would have seen this coming and developed their own electronic distribution platform and contractually forced Valve to let them hook it into Steam with a common API. Then Vivendi could have their own damned version of Steam that could include all their other games that aren’t related to Valve. But the people at Vivendi are not smart,  and now they are trying to make up for it in court. Who said the French are nothing like us?

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