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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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Rob Fahey

Contributing Editor

Rob Fahey is a former editor of GamesIndustry.biz who spent several years living in Japan and probably still has a mint condition Dreamcast Samba de Amigo set.

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