Digital Distribution, Price Fixing, And Finally Pulling The Plug

Refusing to talk about problems doesn’t make them go away. Cleverly deflecting questions isn’t a satisfactory replacement for an answer. Video Game Publishers take note – the consumer is King, and you’ve been treating them like paupers.

The Witcher 2 finally returned to Steam today, after a significant absence, and like Fallout: New Vegas, Call of Duty 4 and numerous other efforts, it came gift wrapped with an arbitrary price increase – just for the Australian consumer. Just for us. From $45 to $70 - just like that.

But who’s to blame? The answer is a lot more convoluted than you might think...

The economics of the situation are utterly mind-boggling. In order to satiate retailers, and encourage a larger buy-in of product, certain publishers will up the price of a digitally distributed title. To an extent it makes sense – cost price of a full priced PC title at retail is about $70. If publishers retain the US Steam price for Australian consumers it’s quite simply impossible for retailers to compete.

And if they can’t compete, why would they invest in the product?

So, in short, for publishers to have any chance of making money at retail they have to price themselves out of their own digital market. Incredible.

They do this for a multitude of reasons, but mainly because relationships with retailers are important. Sure, it doesn’t really make sense for EA to price Mass Effect 2 for $89.99 on Steam for the PC - but specialist retailers might be less keen to buy in stock of the console versions if they don’t.

And round and round we go.

Surprisingly, if you speak to Australian distributors - the local offices of EA, Activision, etc – they’ll say that the decision is made overseas. They have absolutely nothing to do with the situation, even at a local level. Steam pricing is a strategic decision made by publishers overseas in order to maximise revenue – it’s as simple as that.

We can complain, and we have every right to, but it’s a tricky situation. We, as consumers, should not have to pay more for content that is digitally distributed. All of the issues with shipping, distributing to a smaller market, etc is null and void.

And we, as consumers, should not be asked to bear the brunt of retailers that can’t keep pace with an evolving market. If it makes more sense to sell your product online digitally, we shouldn’t have to pay more to extend the death throes of retail as it struggles to evolve with the times.

I don't necessarily blame retailers for this situation - or publishers for that matter. At the moment retail is an important part of video game distribution - but what happens when they lose relevance? What happens when full priced console games are delivered digitally? Will Australians be asked to subside retail when that occurs? When do we cross the line? When will the power of retailers erode to the point where the games industry no longer has need of them?

There is clearly an endgame here and, for those that work in the local Australian games industry, it’s a scary one. In the next ten years there may be no need for specialist video game retailers and, hence, there will be no need for local distributors. Following on from that, there might not be any need for local coverage of video games, so I may be out of a job too!

We’re slowly heading towards that outcome and the games industry needs to make a decision – will it continue to subsidise itself by charging Australian consumers more than the market demands, or will they accede to the natural process of things and switch off the life support. It’s a tough decision, and there are no easy answers – especially when my own job will probably be on the line - but there will come a time when we, as a collective, will eventually have to pull the plug.

That’s the free market, that’s the nature of the beast. And it’s just a matter of when.


Comments

    Good article.

    I might've missed the explanation in the article, but what's the link between the death of local distributors/retailers and games journalism?

    Surely people would welcome an Australian (well, quasi-Scottish with a hint of Terminator) perspective on gaming news and reviews, even if their products come from overseas?

    Or is it more that no distributors means no review copies, launch events in Australia and access to local arms of publishers?

    My main issue with this type of stuff, is that i went to buy darkspore for my brother's B'day.

    And it just so turns out that not one of the multiple locations i went to had stocked it i even had my nearest EB say there's no plan to get it in the forseeable future because it's on PC and Spore got pirated.(apparently Spore's piracy means this must be to who knew)

    so there was a steam based price hike, and i still couldn't buy a Hardcopy of it for him.

    So i ended up buying it through play-asia, since he likes having physical evidence of his games

      Physical evidence is overrated. Just ask OJ..

        Yeah but its one thing to argue the price increase is for retail store benefits. when the 4EB's 3 JB's 3 GAME's and Bigw/kmart/dicksmiths in proximity to those. Not one of them is stocking it

      This is exactly what's so frustrating, we're told that USA equivalent DD pricing is anti-competitive towards retailers, but local retailers hardly ever even stock PC games!

      I doubt I could find a copy of the Witcher 2 in stores anywhere nearby, maybe at a JB HIFI but even then only select stores are likely to get a game of this type.

      Where does it end? How long until retailers are complaining about parallel imports and overseas retailers stop shipping to Australia? Or the government makes it illegal? How long must we continue to cater for dinosaurs?

    But... games will always be in the works for online dist., and sites like this will still need to exist to follow them and help promote them. I can't imagine anyone having to be worried... except the retailers. And with the way places like EB have managed themselves I couldn't care less about them to be honest.

    "Following on from that, there might not be any need for local coverage of video games, so I may be out of a job too!"

    So you're saying that your job is simply to promote games for local distributors and retailers?

    Don't sell yourself and your colleagues so short. Surely your role is to serve your readers. Where they buy their games from is irrelevant.

      That's not what I mean - what will I cover? There will be no local events, no local publisher to advertise. Local coverage will still exist, but in a drastically reduced way.

        Ohhh I see what you mean now. Nah, there'd just have to be more interviews and behind the scenes dev stuff, no? Mebe? I like the stuff specifically about devs most anyhoo...

        What, you mean you'd actually have to do real journalism and work for your stories rather than having the local distributors spoon feed everything to you according to their PR strategies? Again, don't sell yourself short - didn't you just win games journo of the year?

          There was no spoon feeding mark on his day long hike to Bombay the other week.

          Go mark!

          Eeaaaasy tiger... the article still stands.

          I think you're missing the point. It'll be harder to cover local issues if there isn't a local industry is all I'm saying. Chill out.

            Mark,

            I would like to think you'd be safe with companies like "Bondi" and "Firemint" getting good press maybe there will be an increase in intrest in Australian Games ergo increase in Australian developers ergo increase in Australian Game News!!!

            The thought makes me warm and fuzzy inside!

    Well the problem with digital distribution is that if said online digital distributor (Steam, D2D) went bust then there is your copy of the game unless an option to download the files and save them to DVD is given.

    And now I will ask can I do this with Steam or games from GOG.com?
    I preordered The Witcher 2 today from GOG.com.

      steam has a built in back up system. if yo uhave the disk space its easy a f**k

      None of GOG.com's games have DRM. As such, you can back them up any way you like.

    Somehow Mark I can't see Journalist of the Year being out of a job, regardless of whether the games industry here in Aus goes down the toilet.

    You can draw a lot of comparisons with the DVD rental industry since they're further along in the curve with other non-retail avenues to rent (Netflix, Foxtel, etc) and you can see companies like Blockbuster especially are really falling apart. It's only a matter of time until EB, Game, etc go down the same route. They'll probably want to take a good long hard look at the lessons which they can take out of the demise of the rental industry and start making preparations to get out before it pulls them under completely.

    this just gives consumers another reason to pirate games on PC. who wants to pay $25 extra for such a stupid reason?

    As a specialist retailer in AUS, I can see the role of stores diminishing a fair amount, but there will always be a place for the bricks and mortar stores. Parents have no clue and need direction (is COD bad for a 6yr old?), people like a tangible product to hold and collect and at certain places, they can take it back if it does not suit them. Also witht he currrent PSN issue, I think confidence in these online distributors will wane. I would say that there must be a fair amount of money generated from the retail outlets for these titles, otherwise they would not carry out this practice of increasing digitally distributed content. Although it is only going to get harder for retailers, I dont think they will vanish anytime soon. I think we can breath easy for a little while yet Mark.

      Parents have no clue now, but some of US are parents now. The days when Dad doesn't know who made the Xbox are dwindling. As for collectors and people who like to have physical copies of their games, there's always eBay. My copy of New Vegas arrived today actually, cost me ~$40 including shipping from the UK.

      It's Darwinism now. Evolve or die.

      But your forget these need for parent's aren't aided by a specialist retailer that only deals in games.

      BigW and JB can sell games just the same, and all the warning labels are on the box.

      Specialist retailers dealing solely in games will go the way off the DoDo especially if they can prevent returns of console games in the same way as they do PC.

        I agree, these stores can still sell them, but from my experience, they cannot offer the service that a specialist retailer can. People like to talk about games features and misgivings, especially parents and ill informed gamers (there are A LOT more than you think), and get informed opinions on their games. I know all of us come to sites like this for that, but there a lot of people out there that are that just want to talk to someone. I agree that retail must adapt or die, but to say that they are going to disappear, I feel, is wrong.

        Your last sentence there made me think, it would not surprise me one iota if the next gen Xbox/Playstation included some sort of registration of games tying them to your account not unlike PC games to thwart the pre-owned market

    "What happens when full priced console games are delivered digitally? Will Australians be asked to subside retail when that occurs?"

    Full priced console games are already delivered digitally. And yes, we are asked to pay full RRP for them.

    That endgame is scary for consumers as well. When the retailers are gone, and we don't need to pay inflated prices... will we be given the opportunity to purchase at US-level pricing? I doubt it. Publishers will keep prices high. It's how capitalism works. And we have no means to stop it.

    It's unethical, it's amoral, it's illegal, and it's inevitable.

    Screw the local retailers. They haven't had decent stock of PC games for years anyway - nothing but The Sims and $10 titles. Import. Import. Import.

    I think it boils down to this:

    Games Retailers days are numbered. We all know this. But games will still be available for purchase at retail outlets. Why?

    Well, Kmart, BigW, Target - these places which have a games section which is targetted at parents and kids will keep their section up and running, simply because it doesn't matter what it's sold online for - their customers are generally not paying attention to those prices.

    As useless as I think surveys are for some things, I think someone needs to run a survey on how many people create US accounts to purchase games at decent prices. I and many of my friends do it, as do a lot of my twitter followers. I'd be curious what the percentages would work out to be.

    Maybe if presented with evidence that the price fixing is hurting them, not helping, they would stop - but who knows?

    Nice article. I laughed at the part about not needing local games coverage though - while in the future we may get the games at the same time, there will always be cultural differences and parts of the Australian experience or identity that will cement the need for a news/blog service with which we can "connect".

    So, PC owners are paying more so that Stores will play nice with publishers and buy lots of console versions, while any sane console owner imports.

    Overseas decision my left foot.

    But to the meat. The reason I refuse to pay $70-90 for a digital distribution as opposed to a retailer release is ... no box. No disc. No art. No banana(?). You know what I mean.

    Which is why when they pull stunts like this I either purchase from a retailer overseas, be thankful my digital pre-order was paid for before the price gouge or simply wait for a sale.

    It's rude and I hope whoever makes the final decision is continually stung in the same manner by any tradesmen they may happen to hire in future. "Oh, did I say $200 to fix your plumbing? I meant $800."

    Local retail is dead to me anyway. It's either import or the bargain bin for me.

    It's weird how a new industry can emerge that the old cannot compete with. So what we see is the old industry trying to strangle the new for as long as possible in order to try and stay relevant.

    Really, it boils down to the retailers trying to hold on when they know that in the long run they will either have to adapt drastically or die. Just see the fiasco with Harvey Norman.

    Now, I'm not blaming the retailers, I'm blaming the entire system that feeds the retailers. From publishers to distributors to retailers. You've got a whole swathe of jobs that are essentially going to be made redundant once the direct download method picks up enough steam (pun intended).

    This happens a lot and you see politicians saying that the new method will create job loss. Which is true, but that's because they are redundant jobs. The people affected will be temporarily displaced from work but just like the industrial revolution showed, they'll eventually learn new and better skills or be forced into retirement.

    Sure some people get screwed by the transition, but withholding the transition screws over everyone in the long run.

    You know what? I think I forgot what the hell this was on about and it turned into a rant.

    I wonder how the ACCC feel about the situation? It's price fixing and it's anti-competitive.

    It also feeds into the issue that we're severely overcharged at retail. a $50 US PC game shouldn't be $90-100, and a $60 US console game shouldn't be $110.

    Personally I don't mind paying $65-70 for a game. That's not a bad price. We'll always pay a bit more than the US for our retail copies, simply because we have 10% GST and there are shipping costs and the ludicrious classification board protection money that has to be paid. But when you see stuff going on Steam for $90 USD suddenly, it really stings. Especially when you can usually go out and buy a boxed copy for less, or import it for significantly less.

    Currently it's a bit of a quiet period, but generally speaking on average I buy 3-4 games per month. Of that, I'd say that less than 1 per month is purchased locally - probably more like a single game every 3-4 months. The only time I'll really bother is when it's something that I absolutely want to have on day 1.

      How much power does the ACCC have over pricing that is determined overseas, and could be regarded as an import?

      There would likely be a lot of legal precedences that would need to be set before the ACCC can act.

    Digital distribution, passing on the savings that come from getting rid of physical distribution and packaging costs just like in-game advertising did.

    NOT

    My answer = ozgameshop

    even portal 2 is cheaper for me - $39

    The worst I remember tho is Borderlands - i bought at $35 in a steam pre-order 4 pack. a few weeks later it was like $89. That is nuts!

    But yeah, I find it insulting tbh when steam games suddenly shoot up. That said, I find it curious that they are always initially posted at the lower price. I believe it is valves way of providing aussies with a window to buy at a fair price b4 all the politics comes in to play.

    Great article Mark. I think that Special/Collectors editions will keep the physical market alive for some time yet. However retailers will just have to diversify. There will still be a market for actual consoles, peripherels,etc. I think you will start to see a lot more game merch/tie ins start to occur. One of the reasons i go to Gametraders is because of the stuff they sell other than games but still gaming related.

    is there a good reason retailers couldn't just drop their prices to compete?

    when ozgameshop can get a single game to my door from Europe for half the price any argument over the cost of distribution becomes void. There is no economy of scale. If it costs retailers more to get a high volume of games from Asia their store per game than a single game from the other side of the world they so bad a business that they deserve to fold.

      They already are - Cost price of a $109.95 retail game is about $80. JB Hifi sells new releases at $89.95. How can they go much lower than that?

        TBH they could easily go lower i can order new release games from zavvi for $50 something shipped....

          No they can't you can buy from zavvi at that price, because the distributor they buy from isn't based in australia.

          the australian distributors will be getting charged like 70-80AUD dollars a release. where the US/UK will be getting charged like 40AUD a release. Which is why we can import over her.

          I guaruntee that if EB was making 50+dollars on every sale that the publishers would be stepping in to claim some of their money

        By having distributors buy the products directly instead if from European distributors. The games go through so many middle men that the cost price even to an Aussie distributor is more than US retail pricing.

        Too many middle men taking a cut means that we end up paying more than we should, but that won't change any time soon.

        Why is the cost price so high?

        Shipping? Tax? Licensing?

        If it is tax then surely the govt has to look at this and stop taxing the life out of everything here.

        I think the huge jump in price is partly so the distributor can cover their wages etc but also historically as a hedge against a weak dollar, now that the dollar is strong, nobody (in any industry) is passing those savings along.

        And they are all paying for it in a way, retail was down in the last quarter and the main reason cited - people buying goods online.

        So the retailers maybe aren't ripping us off but where does that $80 price come from? At some point there is a massive markup happening that is completely arbitrary. I could probably request a copy of a game to circumnavigate the world and still save money.

        The prices would be lower by canning the packaged goods and distribution. If games stores offerred downloaded Steam games at a slightly higher price, they'd make the same margins and everyone would be happy. I'd love to be able to walk into a store and buy a Steam copy. I'd pay $10-15 not to have to download a game and so would a bunch of people. Parents could go into a store and do the same for birthday and Christmas gifts. The store's stock would be game cache copies on servers in a back room. There is no reason this model wouldn't work other than stubborn, traditional retailers being blind to their demise.

      Ozgameshop all the way, or GOG, or whatever source that gets me the game from Europe at half the price in a retailer here.

      I vote with my money, and what my money says to retailers is: sort your problems, cut middle men and do what european stores can do for me: ship me a game for $50. Even if taxes apply to them they'll still win. No excuses it going to justify that fact to me. Period.

    The term price fixing is the key term here for me and while I am not an expert this does appear to be an open and shut case of it.

    Considering Price Fixing is illegal under the trade practices act and there there seems to be a lot of evidence here to make a case how do they not have the ACCC on their ass for it??

    This simply highlights why I have vowed not to purchase any games in Australia anymore. The more and more as people start to realise that they can import games, the larger our market becomes and local retailers become less and less relevant.

    God people its not tough just use online stores like zavvi or ebay or whatever. Seriously...

      tell this to casual gamers.

      irrelevant, the point is that we shouldn't have to use these 3rd party options specifically when you have something like GoG which is actually run by the people who own the company that makes the witcher.

      And when it comes to the wii,360,3DS and their region protection there is still a difference between digital, online store's and hardcopy

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