Digital Distribution

Digital distribution means sending media to the consumer by having them download it, as opposed to manufacturing disks or cartridges. The main advantages of this are that the consumer need not go somewhere to buy a physical copy, and the publisher doesn't have the cost of making and transporting the storage media eating into their profits. In addition, the seller can theoretically produce limitless copies of their product. The disadvantage is that since users make their own copies of the media, traditional methods of copy protection are useless. There are four business models which work well with digital distribution:

Client/Server Model
The consumer is given a piece of software (the "client") which interfaces with the vendor's server. The client allows the user to purchase and download the media, and verifies that the user's copy is legitimate. All three of the 7th generation consoles, the Play Station 3, Xbox 360, and Wii, have a built in client, and a server: The Playstation Network's Store, Xbox Live Marketplace, and Wii Shop Channel respectively. The most popular service for computer users is Steam (owned by Valve, the creators of Half-Life), and larger publishers also have their own services (such as EA). These specialize in games. There are also services such as the BBC iPlayer which use a similar system to distribute TV shows, although in this case for free. Also becoming popular are things like the Amazon Kindle (eBooks), where a piece of hardware is mostly a client and has little else on it at first. If the user wishes to uninstall or delete the media, they are typically allowed to download it again at a later date.

Advantages:
 * The client/software system makes piracy difficult, ensuring everyone pays for the products.
 * The constant connection means that updates can be sent out automatically as soon as they become available.
 * Extra money can be made with microtransactions, as with the razor blade model explained below.

Disadvantages:
 * The user cannot have their purchases verified, and is thus unable to use them, if they lose their internet connection (Although some services, such as Steam, have found ways around this).
 * The client and server software, and the physical servers supporting them, are expensive and prone to faults, making them unavailable to independent producers (although some companies are happy to publish third party and independantly produced content with their services which inverts this somewhat).
 * After selling the game, the service still needs to be maintained to keep the game available, at cost to the vendor.
 * If the company running the service goes out of business or simply decides to shut it down, all the media is useless.
 * Some people just don't like the idea of the client running, even for a moment, while they're playing games or watching a movie.

The Honesty Model
This is the simplest of the models. Just set up a website and some sort of payment system, have the consumers download the product (possibly with some copy protection, if you can afford it), and then send you the money (or simply request donations, rather than a fixed fee). The game World of Goo was successfully released using this method, and Minecraft is probably the most well known donation based example. The Humble Bundle, with a user-specified amount going to charity organizations as well as indie developers, is another successful take on the model.

Advantages:
 * It's cheap, anyone can do it, and anyone with an internet connection has access to the media.

Disadvantages:
 * There is no copy protection (or at least no strong copy protection) of any sort, so you'd better hope that the consumers are honest.
 * Some companies consider this a good thing, of course.
 * Because payments are entirely optional, developers and distributors must work doubly hard to ensure that the finished product is worth supporting. A consumer's dream come true, obviously, but very demanding for companies especially if they are small or juggling multiple franchises.

The Razor Blade Model
A model which rarely works for non-Video Game media. The name for this comes from the popular analogy of a shaving company giving away handles for their razors and making money selling disposable blades and shaving cream. The principle is the same: Rather than selling the software itself, the publisher makes money by having the user pay to use the software. Examples include subscription based models (as used with many MMORPGs such as World of Warcraft), which have the user pay a flat rate to keep playing, and "microtransaction" based Free-To-Play models (as used with Battlefield Heroes) where the user may purchase additional content (such as extra maps or weapons).

Advantages:
 * Not only does it solve the problem of piracy; it inverts it. The more people who own the software the better (and if they download it from somewhere else and save you bandwidth, better yet). This makes it the preferred business model in China (where piracy is rampant).
 * Provides a constant source of income.
 * Can be combined with the client/server model to provide an effective system to distribute the game and provide updates.

Disadvantages:
 * Consumers may be reluctant to pay for extra content or pay a subscription.
 * Has the same issues with infrastructure as the client/server model (although the constant income solves the issue of maintenance).
 * The user still needs the internet to play, even if the game itself is offline.
 * With multiplayer games using microtransactions, this can lead to a void between users who can and can't afford extra content.

The Advertiser-Supported Model
This is how traditional broadcasting works, and is generally used with broadcast-style one-way content like online streaming of TV shows, movies and music. The Video Game industry has not gotten into it as much, beyond Product Placement as an additional income stream.

Advantages:
 * The content provider can offer their programming to all comers and still make a profit.
 * Maintenance of existing content can generally be done this way due to a steady income.

Disadvantages:
 * Content providers have to solicit advertisers as well as consumers.
 * In this model the end user is the product - the advertisers are the customer.
 * Nobody likes commercials, most people skip them at the first opportunity and if they can't they walk away until it's over.

Take care to note the difference between this and Digital Piracy.