I’ve been an advocate of digital distribution for a while now; I think packaged physical distribution of a product which is essentially entirely complete as a stream of data is hugely wasteful financially and environmentally. Ever since publishers stopped bothering to give you anything worthwhile in that game case – manuals these days are rubbish, carbon-copy affairs that rightly no-one bothers to read because the in-game tutorials are more interesting, and Ultima-style cloth maps and runes are consigned to history – physical game cases are doing precisely nothing but take up space in my house and making me get up to fiddle with disks when I want to play a particular game. My only possible use for a physical product these days is resale value – but then I don’t often sell on games these days anyway, and publishers are getting wise to ways to make this harder / less attractive (see Mass Effect 2′s free DLC for those with an original one-time only game code).
This was only reinforced by an article in the LA Times which included a chart about the average breakdown of a $60 game:
Basically what this indicates is that, on average, $26 of the $60 price tag, or almost 50%, goes to physical overheads – things that have absolutely nothing to do with making the game itself, and everything to do with shifting bits of plastic around. It’s also interesting to see that the platform royalty (paid to Microsoft, Nintendo or Sony) is only $7, or about 12% of the price (compare this to a typical 30% on current digital distribution). From this you can see why the platform holders are quite keen on cutting the retailer out of the loop, and game buyers would benefit significantly too.
So what would that latest AAA game cost to you and I if it were on digital distribution on launch day? This is hard to judge because currently this only happens on PC where games are already cheaper (via Steam and Direct2Drive, among others); consoles currently only offer smaller or older games so are harder to compare directly. Let’s assume for a second that the platform royalty would be higher (to pay for bandwidth, assuming they host it), but not as high as the typical indie 30% because that can no doubt be negotiated down for big publishers / releases. So let’s assume 20% for sake of argument, still quite a bit more than the return platform holders get now. Working back from that, and assuming that the publisher needs the same absolute amount of money to fund development, marketing etc, that means AAA digital games releases should cost (at launch): 27 / 0.8 = $33.75.
That’s pretty astonishing. I know some people are attached to the physical manifestation of a purely digital product – frankly, I don’t understand this attachment and all the indications are that the new generation of gamers, raised on digital music and grabbing films from the internet, don’t either – but surely if you’re offered this kind of deal for the same game, plus not having to walk down to the shop in the rain, it’s a no-brainer.
This chart actually came from OnLive of course, who propose doing things very differently. I’m not convinced that particular approach will work well enough (particularly since our local internet speeds put us at the arse end of the developed world), but I’m absolutely convinced that digital distribution in some form will be increasingly dominant in the coming years. The only people who will lose out are the retailers, everyone else stands to benefit in both price and convenience.
Of course, what’s likely to happen in the immediate term is that publishers and platform holders will have ridiculous prices for digital distribution that bear no relation to the cost structure above; the primary reasons being that:
- Big influential retailers will pressure them not to undercut (effectively forming a cartel, which should be illegal, but it happens already)
- They like to eat money
But, slowly and surely, provided there’s real competition, prices can’t help but come down. Personally I think radicals like OnLive are key to providing this genuine competition – there’s always talk that having competing proprietary consoles means competition is maintained, but I don’t buy it; console manufacturers know full well that they have a captive audience once a consumer has invested in the console (barring the minority that have all of them) so price elasticity for games is very much higher than normal for other products; no other company can publish a game for that platform and compete after all. It’ll take external competition to make downloadable content cost what it actually should, which means the next console cycle (most believe this will kick off in 2012/3) could be very interesting indeed.
I’ll make a prediction here: the company with the best, most practical, and most reasonably priced digital distribution model will have a massive advantage next time around. And, I wouldn’t rule out this being none of the current encumbents either. People scoffed when the iPhone came out, but effective digital distribution had an absolutely massive influence on its success; I’m sure that hasn’t gone unnoticed by the usual suspects.
February 26th, 2010 at 6:03 pm
I think this is where Microsoft is really going to come out in the console wars as well. Their online service is already way above that of Sony’s. I also used to be a stickler about owning a copy of the original console game (probably because I grew up in the cartridge era), but I also never resold them. I’m out of that now, and almost always buy everything in digital form. Although, digital distribution isn’t without its problems, such as not being able to play a game because you don’t have internet access, although there are some publishers (Ubisoft so I hear), that wants to make that happen regardless if you own the physical medium or not.
February 26th, 2010 at 8:00 pm
Actually, what will happen with a switch to digital distribution is that the platform/audience provider will demand 70-80-90% and developers will dream of the days of boxed retail.
Look what’s happened in the casual download market with publishers like big fish bullying bigger and bigger slices of the pie from their “partners”.
These are marketing costs and believe it or not boxed retail is actually cheap marketing.
February 27th, 2010 at 4:37 am
You forgot the savings of effectively destroying the second hand market, which I’ve heard is a huge problem (if my local game shops are any indication they push 2nd hand massively).
I’d like to see the pie chart of our (Aus) game makeup. Up to $120 for a new console game… so add, what, $1 to post it here? And?? The Aus dollar is 90cents US
Modern Warfare 2 clearly had something sus going on as the steam price was exactly the same as the boxed pc price..
February 27th, 2010 at 5:46 am
An open console would be an interesting concept, advantages of a PC namely no vendor lock-in and advantages of a console, namely fixed hardware and software.
Yeah the MW2 price on steam in Australia is insane, it’s $90AUD still, while the US price is somewhere around $50USD. All this price matching between digital and physical distribution channels should be stopped.
February 27th, 2010 at 11:36 am
@Casey: Yes, the online component to digital downloads is rapidly becoming moot, since the majority of games have an online component already. Plus, I can’t remember the last time I played a game at home without an active internet connection. Barring technical faults, it just doesn’t happen. Provided download services allow local disconnected play too, even temporarily (and AFAIK, all of them do), I don’t see this as a problem.
@Vectrex: yep, this is crazy and why the claim that competition works in the console space is total nonsense. Since no-one but MS, Sony & Nintendo can publish their games, they can in practice charge whatever they like, regardless of whether it’s daylight robbery or not. Proper competition & a worldwide same-cost delivery system would (or rather should) resolve that.
@blankthemuffin: with concentration on clever proprietary hardware now officially a thing of the past, the next major game platform war will be fought on content and online services. Who makes the specific piece of kit sitting in the lounge is going to become fairly irrelevant, so long as it hits a validated set of capabilities, and the differentiation will come from the service; it’ll end up like the cable / satellite TV model IMO. I’m fairly confident that we won’t see the likes of a manufacturer designing a completely custom console with a massive R&D bill again. Sony proved that just isn’t viable anymore, spending billions that they’ll almost certainly never make a return on. We might see some minor revisionary stuff in 2012/3, a stepping-stone / hybrid move, but beyond that I think the traditional focus on console hardware that we’ve had for 30 years is now the walking dead.
@Kriss: I think that’s just a sign of the casual market, where portals are everything because the customer is pretty uninformed. Take a mainstream gaming example like Steam, XBLA, PSN and rates are about 30%. The PC mainstream download market is already well established and hasn’t gravitated to the casual market model, so I don’t buy the argument that everything would.
February 27th, 2010 at 8:00 pm
There is one way you can pay $34 for a new PC software, get a 4-pack from Steam and get three other people in on the deal. I did that for Bioshock 2, and it was awesome.
February 27th, 2010 at 8:30 pm
I like the idea of digital distribution, but I don’t like the idea of the used game market dying out. I like being able to sell or give a game to a friend when I’m done with it.
February 27th, 2010 at 9:10 pm
Would love to see MS lower the cost of larger storage on the xbox so I could copy all my big games to the hard drive. I have a few copied right now because the disks got scratched and it costs $20 to replace them. Thank goodness I was able to copy them to hard drive from a friends disk and then use my scratched disk just to run the game.
Would love to be able to download all future xbox games to hard drive. Just need MS to lower the price of storage significantly.
February 28th, 2010 at 8:57 am
That’s interesting too, the incredible price of extra parts to go with things. Like more ram bought through Dell for my laptop. They just milk money from users under the pretense of genuine parts.
February 28th, 2010 at 9:00 am
Very interesting article.. i totally agree that the next generation of consoles should study what apple did with iphone and try to match a digital distribution system of that caliber to make a clean win..
and to stop publishers from keeping such ridiculous profits from digital distribution what they need is proper competition and a common platform enforcing laws on them.. and only after consoles start encouraging towards digital distribution are we going to see such a platform..
as for OnLive, i dont think its going to succeed.. A) because most areas lack the bandwith and B) hardware manufacturers are going to put in all their might to stop such a thing from becoming successful.. because if people start using a service like OnLive who will buy their high end processors and graphics cards.. and when several multi billion dollar companies want to crush you, they can crush you..
February 28th, 2010 at 10:30 am
@dan: yes, HD prices are just ridiculous on 360, they need another way to do this. I can see why they use custom HD assemblies to a degree, for controlling copying and such – in comparison although the PS3 can use any 2.5″ HD, it suffers from another downside that it’s impossible to move a HD between machines like you can on 360, because they tackle the issue by tying the contents of the (physically uncontrolled) drive to the PS3, which is a disaster if you have one fail without having regular save backups. Whatever the case, they need to solve it, PCs are just infinitely better at handling storage and the consoles need to catch up.
March 1st, 2010 at 1:23 am
@Jonathan: Used games are an interesting side-market. I’ve been able to get quite a few bargains on games I didn’t have time for in the past and were still cheaper than buying new. If digital download takes over on both PC and console, I hope they discount games pretty quickly and I can still get my bargains. I suppose, to some degree, steam already does this. Unfortunately, selling your copy will become a thing of the past.
March 1st, 2010 at 10:01 am
I’m actually wondering whether someone will start offering the ability to ‘lend’ digital games to others, like the Nook does with ebooks (although stupid DRM only allows this on some titles apparently). Like I say, real competition will start to force people to think of innovative ways to make digital consumption better.
But provided digital games are cheaper than retail and get discounted a while after release (which seems to be happening more often even on XBLA) I think it’ll be fine. And games companies will be tackling the used game market other ways anyway to incentivise original purchases – one-time in-box game cards are becoming popular, where you get some extra which used game purchasers would have to pay extra for. Mass Effect 2 does this, there’s a few missions and one character you can only upgrade fully with this free in-box code unless you buy it as DLC afterwards. So the game is partially digitally distributed already! I think we’ll see more of this.
March 1st, 2010 at 11:00 pm
Funnily enough, I found the DLC in Dragon Age to be a major issue for me. Not because I wanted to give the game to a friend afterward (any friends I had interested in playing Dragon Age got it before I did!), but because it forced me to be online to play a game I installed on my laptop. I had to sign in to an online server to play an offline game because of the DLC which, by all online discussion of the game, is pretty much a necessary component for playing it (the stone golem).
The way I see it, publishers are not
March 1st, 2010 at 11:04 pm
Bugger – it cut my post! To finish the above…
The way I see it, publishers are not using DLC so much to prevent legit second-hand games, but as a method of forcing people to login to their servers whilst playing the game. That is, an anti-piracy measure. The fact it hits the legit second-hand business as well is a beneficial secondary effect.
March 2nd, 2010 at 12:16 am
Huh? I definitely do not need to be logged in to use the Dragon Age DLC. I need to login once to download and activate the DLC, but after that it works fine offline. I even copied my personal Dragon Age files (My Documents/BioWare/Dragon Age) to a different PC, and it instantly had all my DLCs available without a single login to the EA/BioWare server.
March 2nd, 2010 at 9:30 am
Well, everytime I play Dragon Age and load up a saved game, if I am not online it complains because I am not logged in and hence cannot use my stone golem character.
I’d ask when you bought it and all, but this is not the forum for said discussion
March 7th, 2010 at 1:39 pm
@Steve
Sadly you will disappointed if you think the “hardcore” are smarter than the “casual”
http://img5.imageshack.us/img5/6062/1258035395841.jpg
Smaller groups are smarter than larger groups, that is the only reason you perceive the any difference between hardcore and casual.