Monday Musings: On The Download

In last Monday’s Musing, I tackled the issue of game pricing in Australia and explained some of the reasons why we pay what we do for our games. Today, let’s look at what we pay for our games online.

So last week I focused on traditional retail stores. The two key points from that column were:

1. Comparing retail prices between countries based on fluctuating currency exchange rates is problematic;

2. Australia is its own market with its own local conditions and, as such, Australian publishers set their prices accordingly, without regard to how things are in an overseas market.

Digital distribution services complicate matters even further. I’m going to talk about Steam here, mainly because it’s the most popular and familiar service, but these points apply generally across the board.

Many readers ask me why games are priced differently on Steam than at retail or why we pay more for particular titles than Steam users in the US. Once again, just as with traditional retail, you need to look beyond isolated cases of exchange rates proving unfavourable.

Even though Steam prices are given in US dollars, these prices are set by the Australian publisher for Australian consumers. This is where it gets confusing: Steam doesn’t sell to some homogenous global market; it sells into specific markets around the world and each one is considered differently.

Follow that? International Game Publisher X doesn’t just go to Valve and say, “We want our new FPS on Steam” and that’s that, everyone around the world gets their new FPS. Instead, Publisher X’s Australian office will negotiate the availability and pricing of their new FPS for Australian Steam users. Likewise Publisher X's US, UK, Canada, etc offices will do the same.

Some of the publishers I spoke to in researching this article expressed a desire for Steam prices to be shown in Australian dollars, just as they appear in local currencies in the UK and some parts of Europe. It will be interesting to see what price points we find on Steam when that eventually happens.

I suspect they won’t be terribly different to what you currently find at a traditional retail store. The Australian publisher can’t be seen to be favouring a particular retailer by offering its games at a cheaper price on Steam – just as they wouldn’t offer their games to EB at a cheaper rate than they offer them to GAME, for example. There needs to be a level playing field.

When, for example, Sega launched Empire: Total War, the US sales team at Sega opted for a US$50 price point on Steam and at traditional retail. The Australian sales team went for a local RRP of $100 at retail and US$60 on Steam. The exchange rate at the time of launch made for a saving of around $20 for Steam purchasers.

Variations in the exchange rate play havoc with price comparisons. As the dollar gets stronger, expect to see Steam prices rise for new releases. If it gets weaker, then expect them to drop back.

Consumers tend to expect digitally delivered games to be cheaper. The publisher isn’t printing a box or pressing a disc; they’re not paying for shipping or other transportation demanded by a physical product; they’re not seeing the retailer taking a massive slice of the pie.

These are all commonly voiced “facts”. But they’re only part of the story.

Manufacturing costs are minimal. It costs cents to press a disc in the volume required for a retail game.

Yes, it costs money to move a boxed product from warehouse to warehouse. But it also costs money to transfer data. Is the cost equivalent? I don’t know, but it certainly costs something.

Sure, retailers take a slice of the pie. But, hey, so does the digital distribution service. I wouldn’t presume to know what sort of percentages we’re looking at here, but I wouldn’t expect them to be too far apart.

Also, bear in mind when you buy digital you’re paying for convenience. You might not have that physical thing to hold or display on the shelf, but you’ve got the convenience of never having to worry about losing your disc.

For the next few years, as digital distribution services increase their market share and begin to close ground on the major retail chains it will be interesting to see how that shift in power affects pricing.

We’re already seeing a huge increase in the number of “limited” or “collectors” editions of games being offered at retail. I see a future where, for every new release, you’ll have a choice of a) the standard disc version for RRP, b) the convenience of the digital version, for the same RRP, and c) the limited disc edition with bonus trinkets for $10-20 over RRP.

What are you going to choose?


Comments

    The problem is that in a 1st world country in a global economy with the internet and plane/boat/truck freight you would expect that something like a video game, which can be transmitted electronically would have few extra costs associated with different regions.

    I think the best system for the customer at least to get a fair price is if the Publisher:

    1. Offers the game as a direct download, basing the price in the country of origin and then converting to whatever currency the game is being sold in,

    2. The publisher has several outlets in different countries, who have the game downloaded via the internet then box and package (adding any bonus items, made available to EVERY COUNTRY). Once again the price is standardized in the publisher country of origin and converted to local currency.

    3. If the publisher cannot have outlets in each country the simply ship the item to the buyers via an online store with reasonable postage (we all know it doesn't cost that much to ship a DVD box) added to the price of a download.

    4. Region coding is abolished

    5. The price of Downloadable content is indexed exactly the same as the game, MICROSOFT POINTS ARE DESTROYED FOR ALL ETERNITY, at least on PC and the DLC is platform wide.

    6. Free demos are distributed

    7. Publisher decide how much they can sell their game for based on age and popularity.

    7.????

    8.Profit

    This system makes sure everyone gets the same game at the same price (unless your currency fails) and cuts out any third parties, means that no one can complain about the transparent pricing policy, many of the arguments for piracy are invalidated and people have fewer reasons to pirate.

    Also dated games will always be cheap and if game has no longevity it will likely drop in price also and only players will benefit from used-game sales and no one will be ripped off buying a used game at higher than market value (unless they are dumb) since I have done away with retailers.

    This system is quite similar to what Turbine did with the release of lord of the Rings Online: Mines of Moria although even they couldn't contend with the incompetence of Atari (a distributor) completely destroying the Australian release (although two out of three territories isn't bad)

    A little to communist perhaps? Maybe I shouldn't relay on Zeus: Master of Olympus for my economic ideas.

    On console DL games, we need to make sure that these new distribution outlets don't get a monopoly before retail stores are completely useless.

    I'm scared of a future where the XBox Live is the only place to buy new 360 games, with no competition to make them maintain honest prices.

    But I'm happier with a future where full disc games can be bought on both PS3 and XBox to give each other competition.

    It'll be interesting to see where, how and how much for we're buying games in 5 years.

    i used to buy alot of new games at launch, play them, then sell them so I would have cash to fund the next new game purchase. With steam/drm methods etc it is hard to resell your game, so I have alot less money, and I get to buy alot less games at launch and end up waiting for ages till they are bargain prices. Also with the lack of demo's coming out, im alot less confident in buying games at launch. Is this the way publishers really want things to go??
    Steam and drm methods really devalue the product you have bought.

    Valve seems to do fine with a global price point. Your argument assumes that the old ways are best, I would disagree.

    No mention of UK prices. The UK pound is great for Aussies at the moment. You posted a story about the "bargains" at GAME yet if you go to www.sendit.com you'll find not only games starting at around $AU16 and even Blu-ray for around $AU20 - and that's including postage.

    I picked up Quantum of Solace on PS3 in one of their 24 hour sales for $AU16 including postage - I went to EB to compare and they were selling it second-hand for $AU60. I've even seen sometimes at JB Hi-Fi new priced games costing less then their second hand games. Sendit seem to have sales on all the time os you can find a bargain every week.

    There's no real excuse. You can list all the reasons in the world but the bottom line is that Aussie retail is missing out and it's because they refuse to be competitive with their price.

      Of course, this isnt possible if you are on a region locked console (but I guess thats your own fault).

      Also, in response to the question at the end of the article, I'll stick to indie games that dont squeeze the consumer for every penny they have.

        Australia and the UK are the same region for both games and Blu-Ray - so I'm not sure what you mean by that comment.

        @Austin
        Yeah I just looked it up and you are correct. My statement is withdrawn ;) It still stands for japanese/US imports though.

    Huh? Last week, you listed distribution costs and 'specific distribution costs and retail challenges' as a major factor in the price of retail games; having to buy stock from different distributors in different parts of the world, shipping, etc. Now you're dismissing it as being a tiny part of the price...

      @Mr Waffle

      No, I said manufacturing costs are a tiny part of the price. Transport and shipping of a physical good, as well as other "retail challenges" add to the cost.

    Digital distribution all the way. If there's no need to use those additional resources, then why have them? Without wanting to sound like a hippy of sorts, if I don't need a box or a plastic case or a CD -- and let's face it, no one actually *needs* any of that extra stuff -- then I might as well not buy it so that it doesn't end up in landfill, or so another tree doesn't need to be cut down to manufacture a box.

    All the boxes I have from games just sit on a shelf accumulating dust, anyway.

    With Digital Downloads the bandwidth used MUST be taken into consideration.

    I'll break my example down as follows.

    If game A costs $60USD but $100AUD in stores here, but i get it for around $80AUD on STEAM (factoring in the $20 saving mentioned in the article) that equation doesn't take bandwidth into consideration.

    In my example, i'm on the 25Gb $99 Bigpond Cable plan. If the game is a 5Gb download, that's %25 of my monthly allowance, or $25.

    In that example, the game has actually cost me $5 more for the convenience of downloading it. Of course it works out better if the game is smaller and of course, worse if the game is larger (I dont know how big the average game download is on STEAM).

    It's just something to take into consideration, and while there's plenty of cheaper ISP plans out there which would reduce that cost further, I can only quote myself as an example. I think even with garbage like DRM on DVD/CD's, getting a physical copy of the game on a disc is still the better alternative for most people.

    ~~~Spagman

      Easily fixed, go with a better ISP (like Internode for example) who don't meter Steam downloads (within Australia).

      I don't work for Internode btw, I just like them. I'm sure others do it as well. In fact I remember reading somewhere that Bigpond have their own steam mirrors.

      Just to chuck in my 2 cents here, being with WestNet (owned by iiNet), my XBL downloads are all un-metered (free), which is where I do most of my gaming these days.

      I am aware Bigpond already offers 'free' downloads for their online movie rental service also.

      I forsee a lot more of these value-adds down the track as Digital Distribution takes over (steams is turning into the iTunes of games, but here's looking at you updated battle.net).

      By the way, most of my steam downloads default to the gamearena (bigpond) proxy so they do not count against your quota (if you are with bigpond).

    I tend to pretty much always buy CE when I can. I'm a sucker for shiny things :(

    That being said, if the digital downloads were offered even fractionally cheaper to retail boxes (say even $10), I'd buy those with no hesitation. Very few CE things see continued use by me for me to pass up half-way decent savings.

    One thing you've failed to address in both of your analyses is Australia's parallel importation laws that should, in theory, make your second point (Australia is its own market with its own local conditions and, as such, Australian publishers set their prices accordingly, without regard to how things are in an overseas market) moot. The whole point to the relaxation of parallel importation laws on video games was to allow the consumer to enjoy the benefits of globalisation by allowing them – and retailers - to import games sold more cheaply overseas, and thereby encourage more competition and ultimately cheaper prices in the local market.

    This, rather obviously, hasn’t happened. No retailer I can name has taken advantage of parallel importation laws, presumably out of fear of negative repercussions (blacklisting?) from the big distributors and manufacturers. The net result is that competition is artificially constrained, and so we still suffer badly from the negative effects of market segmentation. This only gets worse as you start to move away from the software side of things and into the hardware.

    Market segmentation, particularly when the market segments in question share a common language (meaning there is no real need to regionalise) and modern manufacturing practices make molehills out of former mountains (the PAL vs NTSC argument, for example – most tvs and many other media devices sold in Australia in the last decade are capable of playing both) is increasingly nothing more than a ploy to artificially pad the bottom line. There is no longer a good reason why an Australian consumer – or retailer - should be bound purely to Australian market conditions, and there is certainly no good reason why it should be cheaper for me to buy a boxed game at retail in the US, pay private (non-bulk, and therefore higher) shipping rates to the arse-end of the world and still save money.

    For games that don’t need translation? One version, one price point. That should really be the end of it.

      bookbuster: "There is no longer a good reason why an Australian consumer – or retailer - should be bound purely to Australian market conditions, and there is certainly no good reason why it should be cheaper for me to buy a boxed game at retail in the US, pay private (non-bulk, and therefore higher) shipping rates to the arse-end of the world and still save money."

      Mate, I wholeheartedly agree with you. The internet allows for something totally and utterly unheard of since the dawn of capitalism: a 100% global market, with no distance restrictions. Bandwidth prices are trivial compared to shipping, especially when you have people like iiNet and Internode providing free mirrors to Steam which don't cost a cent to download from, if you're with them. Unless there are some anachronistic trade laws preventing one price point across the world, I can think of no other good, consumer-oriented reasoning to do it. It's just greed, as far as I can tell.

    These are 2 of the worst written articles I've ever read on here. Did the local games industry pay you to write such drivel? This is a world economy. There is no excuse for region encoding, and no excuse for continually ripping off the Australian consumer. I will not pay $120 for a video game, and I'll continue to import.. until I see a fair and reasonable price.

      @hero1
      I liked both articles; I don't think there's anything wrong with them. He explained why things are the way they are, and it's not like either article presented the local industry in a favourable light. Heck, I still feel ripped off over having to pay so much for games and I wish the local industry would adopt a different model of business so that they can pass some savings onto the consumer, but at least now I KNOW what kind of model they use and how they operate. I think the article did a good job in informing us about what's going on - you might not agree with the business practices of the industry, but at least you now know what their practices are.

    Well, with regards to the fact that Steam isn't a global service, and that all games on there are targetted to different regions at different prices... I wonder why. Is it licensing laws forcing this to happen? Or is it simple greed that they want to be able to extort higher prices from some people? I'd be much, much happier if it were Global.

    You talk about the cost of download vs the cost of physical being roughly the same, why then can distributers of other content in Australia (iTunes, etc) generally sell music and movies at a cheaper rate then the physical editions?

    I have to agree that this is worst analysis of market prices in Australia, also one that blatantly ignores Autralia's parallel importation laws which is meant to allow consumers in Australia regionalisation by private interests.

    Your article is best summed up as:

    "I dont know, but it's all good"

    Which to be honest is pure drivel, a game costs 100 dollars AUS, console games are now hitting the 110 dollar mark, somebody is walking out with a pile of cash.

    Considering less than five years ago the price was 80-90 AUS, and we did not have exactly the best AU/US ratio for the dollar.

    Digital downloads, as for their bandwith costs, they are minimal, thats why services like Impulse can drive down the prices of games, its certainly not the distributor here, and certainly not the bandwith costs for the distributor.

    I certainly dont consider a digital download a convinience service, the difference here is that in Steam/Impulse/Direct2Drive I have a large broad catalogue of games I can download which are not accessible from EB or JB.

    More to the point I pay for the larger colllection of games there, and sometimes the bundling packages they offer (the entire ID collection for 6 bucks YES PLEASE)

    However its not convienient for me to spend 3 hours waiting for the d/l to finish :\

    This article is a poorly researched piece of bad journalism, I also was not aware that this was a blog for open opinions.

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