[Games/Tech] What Price The Future?

Steam - PC market leader, but not the cheapest way to get games

Steam - PC market leader, but not the cheapest way to get games

For years now everyone in the games industry without a vested interest in the status quo (i.e. everyone except bricks and mortar retailers) have been telling anyone who’d listen that the future of distribution is digital. The era of physical media, they say, is over. And indeed they may be right, though the delay in introducing a new hardware cycle is eking the last few drops out of the world of DVDs for now, more nimble platforms like the iPhone and even the PSP are pointing to a download-only future.

It’s a move that will certainly make some distributors and publishers happy. Their costs will instantly be slashed, and they’ll gain more control over their channels to market. EA have already moved to stymie the second-hand market by forcing online players to register a one-time only code with each game, that cannot be transferred to a new console. It’s a controversial tactic, but will doubtless help cut sales of the relevant titles in the burgeoning second-hand market – a market which publishers despise because it generates absolutely no revenue for them. It is also a market that will be wiped out when the era of physical media truly does end and there are no discs to sell on eBay or trade in at bricks and mortar stores.

The furore over EA’s tactics go some way to highlighting the strength of feeling over game pricing. Many gamers rely on the availability of heavily discounted second-hand titles to bolster their collections. Take that opportunity away and players will buy fewer games, doubtless taking fewer risks with the purchases they do make. That all plays into the hands of EA and the other big publishers, who know their triple-A titles will always find buyers, even in a reduced market.

All hail then the true arrival of universal download services. They keep the big boys happy by killing off the second-hand market, and allow indie developers to get their product in front of a global audience to compete on a level playing field. It’s a model that’s doubtless coming with the next round of major console hardware releases in five or so years, but it’s also one that exists right now, albeit in microcosmic form on the iPhone. By denying access to physical media and user control over the install procedure, Apple has created one of the first truly closed download-only economic models for gaming – and crucially it’s shown the importance of pricing models.

The App Store isn’t by any means the first digital distribution service. Valve’s Steam has been pushing games and patches over the internet since 2002, and in recent years both Sony and Microsoft have integrated on-console full game download services into their flagship consoles. But where Steam, PSN and XBox Live have preserved traditional pricing models at the expense of casual purchases, the App Store has embraced the lower overheads and larger market penetration of its medium.

At the moment on Steam in the UK Call of Duty Black Ops sells for £39.99. It’s £37.99 in store at Game and £35.86 at ShopTo.net. Does the speed of arrival offered by Steam really warrant a premium over physical media? It seems strange to pay more for a product knowing that the cost of manufacturing, distributing and retailing it has been removed from the equation. Shouldn’t it be cheaper to download, not more expensive?

The problem is exacerbated with older software. Take, for example another Call of Duty title; 2009’s Modern Warfare 2. It still retails for £39.99 on Steam, despite being well over a year old. Yet ShopTo.net is selling the physical version of the game, complete with manual and box, for a shade over £25. That’s 15 pounds less for a product of manifestly greater physical worth. Switch to the second-hand market and the disparity is even greater. The average price of the three most recently completed listings for the PC version of Modern Warfare 2 on eBay is around £10, plus £2 shipping – in total a saving of a full £28 on the Steam price. Does not having to wait for a couple of days to receive the disk really warrant a mark up of nearly 350%?

The problem is just as bad on XBox Live. Aside from the rather paltry selection of full titles available to download, there are more big problems with the pricing model. On XBox Live, RDR sells for £39.99, on ShopTo.net it’s yours for £24.85 shipped. On eBay the average delivered price is £18. It seems either that major publishers are refusing to let download services discount their games, or that those behind download services like Steam and XBox Live are too eager to pull cash from a handful of unwitting customers prepared to pay full price for what is essentially a lesser product.

Perhaps part of the problem is that both Steam and XBox Live don’t exist as closed systems. They compete alongside traditional physical distribution models, and take their pricing models from them. Activision says Call of Duty costs £39.99 wherever it’s sold to avoid damaging relationships with bricks and mortar stores, so the digital distributors suffer. It’s not great for Microsoft or Valve, but they pick up some business, and as they don’t have to worry about stock levels they’re not too bothered. A small slice of the pie is better than being barred from the table for aggressive discounting.

The iPad App Store - the iOS pricing model has seen a phenomenal attach rate

The iPad App Store - the iOS pricing model has seen a phenomenal attach rate

The App Store though is different. It exists in splendid isolation. You can’t buy iPhone games from HMV. You can’t pick them up second-hand from eBay. Unless you’re one of the tiny percentage of users prepared to jailbreak your iOS device it’s iTunes or nothing. That could be an excuse for Apple to price gouge like crazy, but it hasn’t been. The healthy slice Cupertino takes from each App Store purchase certainly doesn’t encourage developers to keep their RRP low, but a market has emerged that favours bulk downloads of lower priced games over fewer sales of premium items. Rovio, PopCap and their ilk have become multi-million dollar businesses off the back of sub £2 classics like Angry Birds and Peggle, not through £40 a pop triple-A releases. There’s a key price point below which a download is almost disposable. A tenner might represent an impulse buy, but 59p is practically throw away. I know dozens of people who have paid for apps and games on their iPhones then literally never played them. The average iPhone owner has downloaded some 60 apps each from the iPhone store. Even if they average just a couple of pounds each, it’s easy to see why app sales are thought to account for some 2 per cent of Apple’s recent $24 billion annual earnings.

The App Store model isn’t just brilliant news for big players like Rovio, PopCap and the ubiquitous (and surprisingly nimble) EA. It also gives indie developers a chance to shine . Glorious offbeat title like Game Development Story would never find a market on traditional consoles, and few gamers would be prepared to shell out upwards of £30 on a quirky title from a software house as unknown as Kairosoft. Games sold for less than £2 allow even casual gamers to take a risk. Friends can recommend titles that will then be bought on spec, without trail. If it doesn’t meet expectations it can be uninstalled and forgotten. After all it cost less than a cup of coffee. That’s not the case with a £30 download.

Despite its recent apparent attempts to bury the service in the Live Dashboard, the XBox’s Indie Games Service is another example of the super-low price point letting users experiment. I’ve come across several people who wouldn’t dream of dropping 800 points on premium DLC or a major XBox Live Arcade title, who will happily spend the equivalent on eight or nine Indie Games titles.

The App Store model and its incredible attach rate is interesting to compare with Microsoft’s own app marketplace on Windows Phone 7, where it seems many games cost more than £5. It’s too early yet to be certain about the format’s future, but with Microsoft pushing WP7’s gaming credentials it will be interesting to see if it can maintain consistent games sales when developers are charging double what iOS users pay for the same product.

Perhaps the most shocking development of all, though, is the news that Ninentdo’s forthcoming 3Ds will use physical media, likely at a cost of around £40 for new titles. Will a generation of casual gamers now used to downloading their touch-based portable gaming thrills for well under a fiver really be prepared to shell out the six times that amount for titles that don’t seem to offer significantly greater value? Nintendo has got it wrong before with it’s format decisions, don’t forget. The N64’s cartridges were expensive and limiting in the face of the CD-based PlayStation’s. And we all know what happened when the Big N tried to get into bed with other firms over a CD add-on for the SNES. It seems odd that a company whose recent fortunes have been based entirely on forging new paths into the casual section of the gaming market would risk alienating those same casual gamers by introducing a restrictive and unattractive pricing model. Perhaps they realise that the future of handheld gaming lies with smartphones, while devices like  the 3Ds (which will cost $250) are niche devices for hardcore Nintendo fans.

Here’s what Eurogamer’s Kristan Reed thought of the 3DS titles he’s seen so far;

“As excellent as the glasses-free 3D technology undoubtedly is … I spent much of the time at the Amsterdam conference thinking, ‘Yeah, nice – but would I pay £40 for that piece of software?’ The answer was nearly always ‘probably not’.

“I can’t help but think that in this era of ultra-cheap, high-quality downloadable software that the goalposts have moved. It already seems absurd to pay £25 or more for a DS game, when I can readily download all sorts of great stuff elsewhere, so why should it be any different on the 3DS?”

With Apple’s recent launch of the Mac App Store, and talk of a similar system being baked into Windows 8, there can be doubt that the future direction of games distribution is digital. Just as the film rental industry is moving online, crippling giants like Blockbuster in the US, the future for stores like HMV and Game looks grim. When Microsoft and Sony finally do introduce the next major hardware generation they will surely move primarily, if not exclusively, to a digital distribution model. It can only be hoped that when they do, they compensate gamers robbed of both a second-hand market and the chance to choose a retailer, by adopting a pricing model that encourages experimentation, not alienation.

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Categories: Games, Tech

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