With the recession kicking in and an ominous cloud of caution hanging over the games industry, it could be that downloadable titles will be the true stars of 2009 - at least in terms of sparkling, original content. Last year's E3 was considerably lightened by the presence of Fat Princess and flOwer, while Ubisoft's CellFactor: Psychokinetic Wars and Sony's own EyePet look intriguing.

But one publisher that really understands the downloadable market is Capcom. The recent Mega Man 9 title reveled in the brand's history, self-consciously brandishing 8bit visuals and old skool plot dynamics in a joyous platform adventure. Next month, the company will release Flock onto XBLA, PC and PSN. Flock is no retro arcade re-make – it's a brand new title from Dundee studio Proper Games, set-up in 2006 by staff from defunct developer Visual Science. Like Mega Man 9, it has an idiosyncratic sense of style, combining eighties quirkiness with modern design sensibilities. Like Mega Man 9, Flock could only really exist in this burgeoning age of digital distribution.

And like most current XBLA and PSN titles, this was no two-man job, chucked out over a couple of months. Working with the online platforms is a serious business now – and the Proper Games team are the first to admit, they weren't quite prepared for just how serious…

"We spent the first year developing technology and investigating ways to get to market," explains CEO Paddy Sinclair. "The first thing we realised was, it wouldn't be as easy as we thought. Luckily we're funded privately so we had the luxury of getting it wrong. It was very… educational. We learned very quickly that, no, you can't write a game in three months. We also realized we'd need a bigger team than just two or three…"

"The XBLA market has really evolved," continues business development head, Chris Wright. "If you look at the very early games they were simple ports - single-player, retro emulation titles, and you can kick those out very quickly. That market is disappearing. If you're going to do retro remakes you have to extend it, you have to add multiplayer. If you're going to do something new, it has to be bigger. We've got a team of 10-12 people working on this title. If you look back, it's what we would have had on PS1, and the game is probably of the same sort of size. It's not the huge budgets of a retail title, but it's not a trivial undertaking either"

The concept behind the game is a simple one – you control a flying saucer herding a range of different animals toward your mothership for abduction. The team jettisoned the idea of providing a plot fairly early on in the development process - "we don't know what your motivations is" deadpans designer Andrew Smith while showing me the game, "and we don't care".

To herd animals you hover above, allowing your force field to nudge them in the direction you want them to go. There are 57 single-player missions, all taking place on different island environments, each crammed with obstacles, traps and power-up possibilities. In every location there are a set number of animals you must abduct – get any more and your score improves. There's also a timer ticking down – the quicker you complete the level, the better your rating.

The key element is the inclusion of contrasting behaviours for each species. Sheep will pretty-much stumble around stupidly, but chickens race and flap, and are capable of flying short distances, allowing you to herd them over ledges if necessary. Cows are the stars – they get angry if prodded too much and will stampede, smashing through fences (which allows you to free other animals if properly directed). Later on it's possible to unlock a depressor beam that can be used to stretch and squeeze certain objects – squeeze a cow for example, and it'll produce a cow pat that will, in turn, attract pigs, which love to roll in it. There's loads of interspecies interaction; you've just got to figure out the benefits as you go along.

Flock, you may have guessed, comes from a long British tradition of humorous strategy games, its sense of the ridiculous and boyish knockabout violence recalling the likes of Lemmings and Worms. The visuals too, have a similar handmade aesthetic. The landscapes are designed to look like overstuffed quilts, while the animals are daft, fluffy little critters.

Not all of this was intentional – some design decisions were the result of needing to get something running on screen as quickly as possible. As Paddy Sinclair explains, "initially we had the sheep moving around just by bouncing – they had no legs because a couple of bits of the animation module weren't ready at that point. It was just the funniest thing we'd seen, so it stayed as a fundamental theme of the game – all the animals are stuffed toys, none of them have legs. The whole look evolved from simple little compromises like that, which were just to get the game going."

But Flock, like Lemmings, isn't as daft as it looks. It's partly a smart sandbox puzzler, using realistic physics to create cool set-piece manoeuvres. On some levels for example, you need to roll boulders onto see-saw devices that'll shoot animals over otherwise impassable canyons. But, although a lot of these features have been set up with one solution in mind, play testers have been finding their own routes through each mission, exploiting bugs and oversights, which – as long as they don't break the game completely - the team has decided to just leave in.

Importantly, there's a real understanding here of the casual marketplace. While the core game is relatively easy to get through for mainstream players, hardcore users are able to seek out extra points, perhaps by destroying trees with the repressor beam or creating combos of certain actions. Power-ups unlocked later in the game, can also be used to squeeze more points from earlier missions. For example, there's a tractor beam that lets you pick up and manipulate objects, using gates to make impromptu bridges. Players with good memories may subsequently recall stages where animals were simply unreachable first time round – well, they're not now.

Completing the package are two must-have features: a co-op mode (albeit local two-player) with 17 dedicated missions and user-generated content. Flock ships with a full level editor, allowing players to create their own stages then post them online where they can be shared with, and rated by, the game's community. This feature, together with the quirky hand-crafted visuals, will no doubt draw comparisons with LittleBigPlanet, although Proper Games' Geoff Gunning who had the original idea for Flock, started working on the concept a year before Media Molecule unveiled LBP.

So will Flock be at the vanguard of a new rush toward original XBLA and PSN development? Can we expect all the major developers to get involved? Chris Wright isn't sure. "I think the reason big studios don't do it is focus. If you have a big studio set up to do big retail titles, it's actually quite difficult to turn it into one doing smaller titles. But with Proper, our engine's focused on it, our pipeline's aimed at it. The structure, the design, the kinds of games we're planning to do – it's a mindset. You have to make a game of a certain size and certain type. It's got to be simple but also rewarding within the first 60 seconds."

Wright compares the downloadable games scene to the arcade business of the eighties. In both, you've got the need to simultaneously entice hardcore gamers and casual browsers, using cool visuals, immediately intuitive gameplay and a tight attract mode – or in the case of XBLA and PSN, a decent demo. "It's actually really hard to produce a good demo," says Wright "A lot of them are terrible. What developers tend to do is finish the game then take the first ten minutes and turn it into the demo, which actually isn't the way you need to do it. The Flock demo is purpose-built and the levels have been very specifically picked to demonstrate the full game. You've got to capture the audience, you've got to let them have fun, but they've also got to understand the opportunities, the size of the full-game; they've got to be left on a cliffhanger. It's a real challenge. That's what the casual space is all about – how do you get people to convert? And conversion rates are fairly low".

Flock should do the trick - Capcom certainly thinks so. The publisher offered Proper Games a deal after seeing an early version at the Leipzig Games Convention in 2007 and has apparently been hugely supportive. "They're still making arcade games which is quite rare" enthuses Wright, "they get that idea of instant playability. They also have the right mentality for XBLA. I mean Mega Man 9, that's not a normal thing to do..." If Flock is a success, Proper has other downloadable titles planned. There was a prototype developed before Flock that could come into play again. The studio is also a registered Wii developer so WiiWare is an option.

It's clear this team enjoys the challenges of working in the downloadable gaming field. As Wright says, "You don't have FMV or cut-scenes or story and all that stuff which can sort of hide the fact that the game mechanic isn't that good. If the mechanic of an XBLA game doesn't work, well there's really nothing else there". Flock has no FMV, no cut-scenes, no story, but, sure enough, the mechanic is strong. It's offbeat, it's silly, but it's also solidly playable. Like I said, classic British game design.