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Overpricing the Digital Future

Once designed to protect retail from an inevitable future, overcharging for digital games now threatens the industry

Two versions of a game go on sale. Both of them have precisely the same content, precisely the same experience for the player. One of them comes on a Blu-Ray disc, in a nicely designed case; it'll work on any game console, so you can lend it to friends, sell it second-hand and, as long as you don't damage the disc, you have absolute confidence that you'll be able to play it for as long as you like, whenever you like. The other is a download version; there's no box, no physical product and no margin paid to retailers, so you save a trip to the shop, but in return you lose the ability to lend or resell the game, ever, and while there's no disc to damage, there's also no long-term guarantee that one day servers won't be switched off and your ability to download and play the game on a new console won't evaporate.

Which one is worth more to you? Next question; which one costs more?

The first question is a matter of personal taste, for the most part. Most of us make regular judgments about the media we want in physical form and the media we're happy to have in digital form. All of my music is digital (I literally don't own a single CD any more), but the bulk of my books are physical, a habit I'm trying to break to some extent. Where possible my games are physical, although those I can't easily buy where I live are digital. For movies and TV shows, those I really love are physical; those I watched once and enjoyed, but didn't fall in love with, are on Netflix and so on. Others will make different value judgements based on personal tastes. In general, though, the things we value most are the things we want in physical form (because you're not just buying the product, you're buying the self-image of being a consumer of that product and the ability to express that self-image through having it on your shelves for all to see).

"The notion that a digital game, sold without box or disc, brought to market without enormous retail mark-up and completely lacking the risks inherent in production and distribution on a large scale, should cost more than a digital product is ridiculous"

The second question is completely divorced from the first, and if you're in Europe, at least, the answer is straightforward - digital costs more. According to a study compiled by VG247, it costs a lot more; from an £8.62 gap between retail and digital prices on PS4 games in the UK up to a whopping £12.27 on Xbox One in France. The figures are different in the USA, where digital pricing is pretty much the same as physical pricing, but European consumers are being seriously gouged on digital products.

It doesn't make a lot of sense, for the reason I outlined above; digital isn't where you go to buy the things you truly love, it's where you go to buy things you want to enjoy but don't feel a deep, strong connection with. It's bizarre, then, that Sony and Microsoft are expecting customers who don't feel a strong attachment and therefore don't particularly want a physical product to pay significantly more than the customers who really care about the game and want it on their shelves. That's not the only consideration (digital is arguably easier in some ways, especially since pre-loading has become commonplace) but it's a major one - and even as digital revenues climb, I find it hard to believe that their growth isn't being stunted in Europe by these pricing models.

Why is this happening? The answer, I suspect, lies with the ongoing troubled relationship between game publishers and the retailers that sell their goods. This is a pretty abusive marriage in some ways - think of the enormous amounts of money retailers make from second-hand games, a trade which manages to simultaneously rip off consumers and cut publishers out of a large chunk of the profits from their own titles - but you'd think that its influence would be waning. Sales of physical games drop every year by a solid few percentage points. PC gaming has broken the connection with retail entirely, flourishing on digital platforms instead; it turns out that being left for dead in a ditch by major games retailers was the best thing that ever happened to PC gaming, in fact, as it freed the sector from the shackles imposed by retailers and traditional publishers and has turned it into a breeding ground of creativity and innovation.

Consoles, though, are on trickier ground. You see, consoles need retailers in order to sell the hardware, not just the software. As a consequence, there's a stronger connection between console games and retail than there was for PC; think of all those console bundles with AAA games that'll be hitting the shelves between now and Christmas. Add to that the enormous inertia created by a whole generation of publisher staff whose core competence is managing the retail relationship, a competence which would be rendered irrelevant (along with their jobs) if retail were to be phased out in favour of digital, and you have a situation where retail continues to hold a strong sway on how publishers do business.

If that sway were to extend to making sure game prices on digital didn't undercut retail prices, well, that would be a bit uncompetitive but entirely understandable and probably fair. Like most people, I don't want retail to disappear; I like having boxed copies of the games I love and the opportunity to browse shelves of those I don't know. However, the influence of retail (easily absorbed by publishers who are keen for any way to increase their margins, of course) has instead resulted in a huge mark-up on digital prices, which is frankly absurd. The notion that a digital game, sold without box or disc, brought to market without enormous retail mark-up and completely lacking the risks inherent in production and distribution on a large scale, should cost more than a digital product is ridiculous, not just to those who understand the business but to ordinary consumers as well.

"Retail sales are in rapid decline on both sides of the Atlantic; now the real risk is that digital sales won't be able to step up to replace them, because digital pricing has been hobbled in the name of rescuing doomed physical sales"

Worst of all, we have reached the point where this has the potential to be genuinely damaging. Some of the underhanded approaches to keeping digital prices high date back five or even ten years, to an era when their objective was to slow the march of digital and give retailers breathing space to adapt; but that time is now over. Digital has marched; the parade is over. Retailers who haven't figured out how to breathe this new air are choking to death and there's not a damn thing anyone can do to rescue them. Retail sales are in rapid decline on both sides of the Atlantic; now the real risk is that digital sales won't be able to step up to replace them, because digital pricing has been hobbled in the name of rescuing doomed physical sales.

This isn't a simple game in which each sale lost at retail is a sale that automatically converts to digital. As consumers increasingly turn to digital, some of those who balk at higher prices will go to physical retailers instead - but some of them will simply shrug and say "okay, I'll buy something else". Games are not a privileged medium. They exist in a thick soup of other entertainment options; no group of people in history has ever had as many varied opportunities and demands on their limited disposable income as today's consumers. For a great many consumers, spending on games is constantly in the balance with spending on other entertainment and luxuries; as retail fails, if digital isn't there to provide a convenient, reasonably priced way to access games, games will end up losing out overall.

It's not asking much to say that digital prices for console games should match those charged by a reasonable sampling of physical retailers. Costs and risks are significantly lower for digital products; value to the consumer is also reduced. It's definitely not impossible to achieve parity in pricing, since it already happens to a large extent in the United States. Europe's publishers and platform holders need to take note; plenty of consumers, confronted with high digital prices, will simply make the decision not to buy after all. We vote with our wallets, and in this election, there are plenty of excellent candidates outside of videogames. Take the loyalty of your customers for granted, as Europe's publishers are doing now, at your peril.

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8th July 2021

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Latest comments (25)

Paul Johnson Managing Director / Lead code monkey, Rubicon Development6 years ago
For the record I think any sniff of price rigging to suit one party or another isn't right and I don't approve.

However, there is one fair aspect to this. With retail, the big players have effectively outsourced the selling. Microsoft don't need high street stores so they let those store owners worry about the costs of simply existing by selling a wide array of products. Nor do ubisoft.

When you do the sales yourself though, you suddenly needs wodges of storage, silly amounts of bandwidth, a slick front end that takes a lot of time and skill to develop, etc. etc. These online stores didn't just magic into existence, nor do they run for free or anything like it. That's still cheaper than a high street store, but you have less channels from which to claw back the overheads.

But it's a nice problem to have. I'm on mobile and we get regular complaints that we're greedy if we charge more than a dollar for anything...
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Alfonso Sexto Lead Tester, Ubisoft Germany6 years ago
In other business sectors, the shops have to adapt to the trends that both market and industry dictate. It is, to say somehow, "interesting" how it seems to be the opposite for us.
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Morville O'Driscoll Blogger & Critic 6 years ago
PC gaming has broken the connection with retail entirely [...] it freed the sector from the shackles imposed by retailers and traditional publishers and has turned it into a breeding ground of creativity and innovation.
This is soooooo not true. Certainly not in the UK. Game has a tremendous hold on publishers even where PC games are involved, if the rumours are to be believed. Bethesda titles often released late on Steam in the UK, for no discernible reason. Ubi's recent tanty about pricing The Crew/AssUnity/FC4 so high (50 for a PC game) is widely believed to be because they want to offset the loss of promotion from Game.

Notice how I said "rumours", "no discernible reason" and "believed"? That's because no publisher is willing to actually speak on-the-record about the stranglehold that Game has on UK retail. And that stranglehold is what's pressing digital prices up across the board. Certainly it's fair to allow leeway in profit margins for decreased promotion (and thus decreased sales) against bricks-and-mortar, but not to the point where games can be 20% more on digital than retail. Especially when intrinsic costs (manufacturing and seller's cut) are lower on digital. The Crew/AssUnity/FC4 are still not on Steam UK. Perhaps... It's retail exerting more pressure, no?

Edited 3 times. Last edit by Morville O'Driscoll on 14th November 2014 9:34am

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Show all comments (25)
Klaus Preisinger Freelance Writing 6 years ago
The PC Version of Call of Duty: Advanced Warfare reveals the true question:

Media Markt 55 Physical
Steam 60 Digital
Gamestop: 60 Physical
Amazon: 55 Physical
Internet Keyshop 28 Digital

If small keyshops can consistently beat prices by such a margin, then the way in which Activision sells most of its 16 digit unlock keys (by that I mean dressing them up as boxes in stores) is fundamentally flawed. Why should I, the customer, help retailers pay the rent? It is not like they add value to the product these days.

Edited 2 times. Last edit by Klaus Preisinger on 14th November 2014 1:53pm

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Jakub Mikyska CEO, Grip Digital6 years ago
The situation in our industry is a little different from music or movies. Consoles are being sold with a very low profit margin (if any) even for the retailers. The typical razor and razor blade business. So, in order for the consoles to be interesting to the retailers, they also have to sell the razor blades - games. Take that away from them and they are no longer interested.

And just as Paul has said, the idea of Sony, Microsoft, or even game publishers to distribute the physical products themselves is simply ridiculous. You need retail in order to sell consoles, there is no other way.

Phones, on the other hand, are luxury items. Everybody, including the retailers, get their fair share and they do not feel the need to get a share from the content sold on the phones they sell. Home video is more or less the same. Selling an iPhone, or a high-end TV is interesting for a retailer. Selling a PS4 is not.

This does not mean that I approve higher prices for games. But the problem is more complex than "digital games must be cheaper". The article is also right that this is choking the industry. The general perception that console games are too expensive already exists, in comparison to mobile games and this is not helping. More people are moving to digital and gaming on consoles is becoming too expensive for most (I am a hardcore console fan, with solid disposable income and I only bought digital AAA game once - The Last of Us and that was only because it was completely sold out everywhere and I wanted to play it NOW)

Adapting, or not, digital games are taking away from retailers. There is no way they can adapt to the digital future and preserve their current profits - losing game sales and losing used game sales. So they wont loose the grip on consoles... no games sold = no consoles sold as well. But I am not sure what the solution is. Does anybody have an answer?
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Dan Tubb Investment manager, Edge6 years ago
Adapting, or not, digital games are taking away from retailers. There is no way they can adapt to the digital future and preserve their current profits - losing game sales and losing used game sales. So they wont loose the grip on consoles... no games sold = no consoles sold as well. But I am not sure what the solution is. Does anybody have an answer?
I think what you are asking there is necessarily also a question on consoles themselves. And of course the solution does not necessarily involve consoles surviving beyond the current generation, nor the retailers who rely on them.

As Paul mentions on Mobile the price is sub $1. But actually that is OK, because the install base of smart phones is around 1.75 billion. So being an impulse buy for millions is preferable to being big ticket spend for a few tens of thousands. Likewise the PC install base is vast at 2.4bn and the openness of the platform allows wonderful variation and innovation. These platforms have access to pricing strategies that consoles just do not. Consoles, like you say, need a loss leader platform and high price games to be viable for their install base of a few tens of millions.

But consoles are attractive because they are a one box solution. Take out box, plug into Power TV Controller and your off. But Steambox are coming fort that market, and Im sure others will too. And mobiles are even easier.

What I actually expect is that competition will vibrant on PCs and their ease of use will improve, power of mobiles will increase, and the gap for consoles will just shrink and shrink until the next (next) gen consoles start to look unviable. Of course much could change in the next ten years of current gen, but I do feel that is their current direction.
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Brian Smith Artist 6 years ago
Platform holders could use the little nest egg digital pricing is rewarding them with to subsidize a price restructure that provides retailers motivation to sell the consoles with a worthwhile retail profit. Full digital distribution brings benefits to the manufacturers, publishers, developers and customers. Eventually it will all be digital. Anything else is manipulation to keep something that should be gone around longer than it's needed and at a cost mainly to the customer. I myself am not a hater of retail but the high street needs to survive on its own model and not off customer fleecing.
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Pete Thompson Editor 6 years ago
I've recently been buying more and more XB1 games through the digital route, I can still play on that game on another console as I have a 4TB ext HDD so I don't really need a disc, and the games work perfectly with game sharing. All that your average gamer wants from an LE or CE is the in-game content, so unless you're looking at buying an LE with a "must have" physical item such as the night-vision goggles or RC's from some previous CoD titles I don't see much need for a disc and box, but that's just my own opinion.

My main concerns at the moment with digital are the huge variations in prices region by region where the $ sign is often just replaced with a meaning that UK gamers pay sometimes almost twice as much for the exact same game / hardware than those who reside in the U.S. U.K gamers are not alone, as Australia and Europe have it just as bad.. If you choose to buy your games digitally through both XBL or PSN you'll find the game will set you back at least 10+ more than ordering online or going to a supermarket.. Why??

Edited 1 times. Last edit by Pete Thompson on 14th November 2014 3:32pm

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Peter Law Freelance Game Designer and Unity Developer, Enigma 236 years ago

I think Ubisoft games not being on Steam is more down to them wanting people to use Uplay, and not to do with pressure from retail.
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Howard Newmark Managing Director, HPN Associates Ltd6 years ago
The Digital Price is the correct price. The fact that certain mass merchants and online retailers have chosen to treat games like fruit and veg by discounting them does not make it right. If publishers get into bed with mass merchants, this is what happens - it is treated like any other commodity. Try asking someone in Sainsbury's for their expert advice on Farcry 4.
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Fredrik Liljegren VP - Graphics and Portability Group, TransGaming Inc.6 years ago
Why either MS or Sony has not developed an kickback sales system for digital sales is insane. With todays technology it should be very straigth forward to track who sold the hardware unit (PS4, Xone) and then for any digital sale kickback to them a % of the digital sale.
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Gary Lucero QA Analyst, Senior 6 years ago
First of all, I care deeply about my Xbox One games but I buy them all digitally. I don't want to stick discs in and remove them when I play games. I also don't have any place to store a large collection of discs. Lastly, if I buy a game on disc I am much more likely to sell or trade it in, whereas I can't do that with digitial.

While I agree digital versions SHOULD be less expensive, there has to be a cost to storing them and providing bandwidth to download them. Some of that cost is on us (we pay our ISP's for Internet access), but MS and Sony are paying for all of their servers and the pipeline from/to publishers and to us.

I seriously doubt the cost of the cloud is more expensive than what it costs to distribute discs, but it's not free. Regardless, the premium we pay for games is similar to what we pay when we buy music. Sometimes MP3 albums are less, but oftentimes they are the same or more. Music companies want us to buy discs, and I think that Sony and MS are pressured to force us to do the same.
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Nick Parker Consultant 6 years ago
Not seen Rob so grumpy for some time, but I agree.

As I have said on another thread.....

This may sound a bit Darwinian but if specialist high street retailers can't compete with digital outlets, as the consumer starts to prefer to download rather than own physical product for whatever personal reason, then so be it; the consumer must be allowed to buy anytime anywhere anyhow at the prevailing market price or better. The burden of responsibility shouldn't be foisted upon the consumer to protect the survival of the retailer.
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Adam Acuo Investment Banking 6 years ago
Some interesting points though I'm not sure that I agree entirely with the analysis. While the PC is the benchmark for digital games distribution, the primary reason for this is that it is an open platform. While Valve is the king of the PC in terms of games distribution, there are other smaller competitors out there to keep them in check, including big publishers like Origin and Blizzard plus smaller players like GoG. What we see here is a variable pricing model that begins pre-release and in some cases in the alpha stage. Consumers are able to support a game throughout development - from Kickstarter to alpha to beta to pre-order to release. Following this we see a gradual decline in the price with the amount of the decline tied to the time since the release and with enough time most games can be had for 10% (or less) of the original price. I consider this the base "open markets' pricing model for digital games.

In the console market we have three closed systems (Microsoft, Sony and Nintendo). While they compete with each other - the fact that they are closed within their own system provides each of them with a measure of control over the pricing. With respect to the digital stores - Sony and Microsoft appear to have found equilibrium in a model in which they charge a fixed annual fee to those interested in the connected / digital products (PSN + and Xbox Live Gold) while offering various discounts to those owners on the purchase of digital content (in the 10% range) plus other incentives including flash sales and so on. In addition, they provide monthly access to 'free' games and other benefits. These non-pecuniary benefits allow them to maintain a 'full priced' model for new game releases which protects their retail distributors and reduces the price pressure on newly released titles.

All in - I don't think it's quite fair to say that there's no incentive for gamers to go with the digital versions - and those that prefer digital downloads are likely also PSN+ / XBL Gold members and receive the benefits that accrue to those groups.
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Morville O'Driscoll Blogger & Critic 6 years ago
@ Peter Law

The whole UPlay/Steam UK thing would make sense... If they weren't available elsewhere. Fact is, they're on every Steam country site except UK, so either the UK is some weird experiment (unlikely but not impossible :p ), or it's a retail/pricing issue. :)

Also, they should've updated the article you linked to: Ubi removed the 3 games from Steam entirely, and then, literally the next day, they were back everywhere except the UK. So we're just special. :p

Edited 1 times. Last edit by Morville O'Driscoll on 14th November 2014 5:47pm

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Richard Browne Head of External Projects, Digital Extremes6 years ago
MSRP is MSRP ; nothing a Publisher can do about a retailer cutting their margin to move traffic. And as you say, if 1st party allows discount digital day one then retail is going to be not so nice in shifting their hardware.
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Jason Alexander Level Designer 6 years ago
This is why I was really interested in seeing Microsoft's hybrid model with physical/digital games. The entire userbase would get access to the conveniences of digital (a digital license where you can redownload the game at will, having a "jukebox" of games, discless play for instant switching), while still trying to preserve some of the traditional physical benefits (having an item to see on a shelf or give easily as a gift, collector's edition stuff, disc resale, being able to buy from multiple retailers instead of just one).

Of course, the easiest way to get all that to work without everyone just copying games to their console, going offline, and immediately trading them in afterward was a periodic internet check, which obviously people didn't like, so...who knows if that kind of idea would ever come back.
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Paul Jace Merchandiser 6 years ago
While I prefer physical over digital media, Microsoft has gotten me to adapt to digital more during the last gen thru today due to their many excellent weekly, spring and holiday sales were games can regularly go for $5-$10 each and as low as 99 cents. The recently released updated version of Grand Theft Auto: San Andreas(complete with achievements and other extras) was sold for less than $4 for the first week it went on sale. And let us not forget that Xbox Live Gold members get two free games every single month, adding even more digital games to your collection. As long as those kind of sales endure I will continue to embrace digital even more. But if all digital games stayed priced at $30-$60 I would have no interest in them, even if there were no physical options.

The downside to all of this is of course not having enough hard drive space for all your games and this is especially true on the Xbox One. I'm waiting for Black Friday to find a cheap 3 to 5 TB portable hard drive because my 1 TB will only last so long. As for the UK pricing for digital games on XBL and PSN being so high, does it have anything to do with Microsoft or Sony dictating those prices over there? Or does it have something to do with UK taxes and such?
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Jeff Kleist Writer, Marketing, Licensing 6 years ago
Real world costs on a major title between digital and physical is about $3 from gold master to store shelf.

Third parties are still paying 30% margin to the platform holder, be it Stram, Xbox, Apple,Google or Playstation

There is a significant number of people who will not spend more than $15-20 on something they can't touch or resell. And don't forget, Microsoft actually had an ecosystem in place where you COULD buy sell and trade digital. sony saw that, panicked and started their firebombing. (And removed their total lockout on used games)
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Morville O'Driscoll Blogger & Critic 6 years ago
Real world costs on a major title between digital and physical is about $3 from gold master to store shelf.

Third parties are still paying 30% margin to the platform holder, be it Steam, Xbox, Apple,Google or Playstation
A slight apples and oranges comparison this. Think of the 30% paid to platform holders as the cut that Game/Gamestop/HMV take. That is, it's a third-party retailer cost, not a manufacturing cost.

The natural leap from there is "Ah, so if Ubi/EA/Sega had their own store-fronts, digital would be cheaper there than Steam/MS/Sony, because of no third-party costs". Unfortunately, that's not true - in the main, the greediest prices are actually from the publisher-owned digital stores.

(Unless I've mistaken your argument. :) )

Edited 4 times. Last edit by Morville O'Driscoll on 15th November 2014 8:39am

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Jeff Kleist Writer, Marketing, Licensing 6 years ago
Morville, my only point was that who gets that that 30% is still there, only the recipient changes hands


Microsoft did develop that system, and it was ready to go at Best Buy and GameStop in Tim effort launch, with Walmart, Ebay, and Amazon doing deals. The developer would get a piece of every used sale, and it finally put the gun to GameStop's head everyone always wanted

Sony had no such system, and had locked out used games entirely. They knew they had no ability to compete, and that it would take years to build a competing system. So they launched a propaganda and paranoia campaign HD DVD style to derail it. Succeeded beyond their wildest dreams. That's why there was the 24 hour checkin, so you couldn't sell a game and unplug you console and play for free.

@Richard MSRP is not MSRP, and there certainly are things that can be done. First off there is Minimum Advertised Price, which contractually prevents retailers from going below a certain number (hence "click here to see price in cart". Any retailer that wants to continue to do business with a supplier does no slashing outside agreed upon parameters, and often times in fact Nintendo had an active prohibition on discounts of any kind in the NES days until a department store was stuck with thousands of unsold games and defied them. It was a big enough client that after butting of heads, try eventually worked something out. (I believe the story is in Console Wars)
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Klaus Preisinger Freelance Writing 6 years ago
The common goal of any PR and advertisement scheme in the video game industry is to make consumers more impatient. Because impatient people fork over money first chance they get, no matter how well informed they really are.

Your truly biggest weapon against publishers is to be patient. The worst thing you can do as a publication to a publisher is to create a readership of patient people.

That is Gamestop's success story. They found an entire new market of people out there who were willing to be patient enough to wait for a product to reach a more agreeable price. And Gamestop found a new provider of product to sell, impatient people.
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Lewis Brown Snr Sourcer/Recruiter, Electronic Arts6 years ago
The same reason I use Amazon a lot applies to why I have moved to buying my games Digitally and price actually has less to do with it (As longs as you aren't being ripped off). Its all about convenience. I wanted Diablo 3 on Xbone, I paid, it preloaded and as soon as the release date passed I played it. For anyone short on play time that is a real winner.
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Al Rhodes Web producer/designer 6 years ago
It is patently obvious that games on disc should be the premium product and therefore cost more. If you want a disc and a booklet and a plastic box, pay more. Isn't this what happens when special editions of physical games also have books,.maps, figurines or t-shirts?
There is an obvious environmental benefit to buying digital games both due to the lack of manufacture of physical assets but also through the absence of disposal when they are no longer wanted.
Of course there is a degree of trust required that (for example I choose the platform I myself am on) Sony never turn off PSN. But whilever they don't, my console could be stolen, explode, be sold and I move to another country, and yet I can retrieve my entire catalogue of games as long as I have a replacement console and broadband.That is a pretty good incentive to go entirely digital as long as pricing reflects fairness.
Having just pre-ordered my copy of Dragon Age Inquisation from Tesco (I know I feel quite sick that I could not support a specialist games retailer), I can only say I really wanted my copy to be digital but wouldn't I be stupid to pay (exactly) 20% more?
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Craig Page El Presidente, Awesome Enterprises6 years ago
I like having the physical versions of games just so I can fill up shelf space with them. They look nice sitting there. Plus the hard drives on consoles are TINY! There's no room left on my 360, PS3, or Vita to download anymore "free" games from Xbox Live or PS+. And I know my PS4 will be like that someday too.
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