Telltale Signs That Videogames Will Be Downloaded, Not Sold at Retail

The business of selling plastic-wrapped videogames for $60 apiece is becoming an ancient practice, as digital downloads take over–often at lower prices.

But a small San Rafael, Calif.-based videogame company thinks it has the winning formula as the business moves to digital.

Today, Telltale Games is announcing an exclusive worldwide publishing agreement with Warner Bros. Interactive Entertainment to develop videogames for the comic-book series Fables, and an exclusive worldwide agreement to develop and publish a series of videogames based on the AMC cable network’s zombie hit “The Walking Dead.” It’s also working with Universal Pictures on “Back to the Future” and “Jurassic Park” games.

The past eight years for the company haven’t always been so rich.

Starting a new videogame company focused on digital downloads in 2003 was a little early (to say the least), so much of the last few years were spent experimenting, developing its own original games and staying afloat by doing work-for-hire projects.

Now, it’s ready for those days to be a thing of the past.

Steve Allison, SVP of marketing for Telltale Games, said that finally the market has caught up with its ambitions.

In 2010, the company’s revenues totaled $10 million, increasing nearly 90 percent over the previous year. This year, revenues are expected to grow at the same pace, and the studio is expected to jump to 140 employees from 90. So far, it’s raised $6 million, and more is expected to close any day.

Allison said the magic is all in Telltale’s formula for building games in bits and pieces–a mission that fits squarely with today’s trends.

Last year, unit sales of PC games via download outstripped sales of boxed games in stores for the first time, according to research firm NPD Group. Based on Telltale’s own back-of-the napkin estimates, it believes that’s a market that could hit $3 billion by 2012.

Telltale’s games are written as a narrative or a cinematic adventure and are divided into five separate episodes. Players download a new one every four weeks for a six-month period. A season pass for a game, including all episodes, costs roughly $35.

Telltale then repeats the process and sells the games across a combination of consoles, mobile devices, tablets, PCs and Macs.

As an example, the company recently released the first episode of “Back to the Future.” The plot picks up six months after the end of the third film, and Marty McFly must help save Doc Brown.

Allison said they can hit profitability on games like these after 100,000 units are sold. Today, the company averages 200,000 units sold across all its titles.

With these new blockbuster titles coming soon, Allison said the goal is to produce a title that hits one million digital downloads, and thinks “The Walking Dead” could become a $20 million to 30 million franchise if all goes well.

However, licensing content from movie studios or other publishers has not always been a recipe for success. Steep fees and up-front guarantees have buried companies in the game industry in the not-too-distant past. “‘See the movie, play the game’ doesn’t work anymore,” Allison acknowledges, “but the way we make content, it does.”

He says his team works closely with the original filmmakers and screenwriters. “We do want mass-market brands that have a lot of fans, but we want to pay homage to them. We aren’t re-creating ‘Back to the Future,’ we are continuing the adventures of Marty and Doc.”

Additionally, he said, the publishers are more realistic now. “They don’t break the business model, but they do put a little weight on it.”

The new games will trickle out over the next year and will be available on the company’s Web site, and also through downloading services, like Valve-owned Steam.