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Apple showed, with iTunes, that making products available on an online store not only curbed illegal downloads but actually made them the top music retailer in the nation, every retailer and intermediary's red-flags went sky high. And, if they did not, they should have.
The benefits are obvious: Lower prices for the consumer, infinite stock, convenience, the ability to backup purchases, and access to exclusive content are just too good to pass up. There is very little reason to purchase a hard CD. Along with that, Apple has just released that 50,000 movies are rented or purchased a day from iTunes!
With the ability to disseminate digital copies at will companies are reducing costs associated with the storage of products, the purchasing of materials, transportation, and all the associated overhead costs that go into the very expensive world of intermediaries and retailers.
Now the trend is becoming pretty obvious, with the Amazon’s Kindle and other similar products poised to change the book industry the way the iPod changed the music industry, it is becoming increasingly clear that anything that can be made digital and then subsequently downloaded is doing so.
The logic is even simpler for video games. This is a product that is already an electronic media; its only inhibitor has been its monstrous size. But, with flash drive sizes being several gigabytes and hard drives reaching into terabytes even the impressive capacity of Blue-Ray is well, not that impressive.
Microsoft has long offered full legacy titles from the original Xbox for download on Xbox live, with the announcement that they will now begin offering full Xbox 360 titles for download they are clearly testing the waters for larger download integration. It will not be long until major releases will be available for download on Xbox Live simultaneously with the retail launch.
Sony’s announcement that the PSP Go will exclusively be stocked by digital downloads is interesting, but comes as no surprise. It is the obvious next step in video game distribution. The recent PSP title, Patapon 2, was a digital download only in the States, and it led the sales of PSP games on its game launch. Clearly the target audience has no problem with downloading.
Further examples of this are plentiful. Valve has long offered full game downloads on Steam. The iPhone currently leads the market in mobile video games all of which are exclusively downloaded from iTunes. Nintendo, like Microsoft, offers past games for download on the Wii. The DSi is offering downloadable games. As you can see, dear reader, the trend is prevalent and now an integral part of the way video game companies are getting their products to the market.
But, what does this mean for retailers? It is my opinion that, not only is the move towards downloading the natural evolution of the industry, but that it is a pointed action towards retailers, particularly GameStop, the leading retailer of video games in the USA. The long argument between game manufacturers and GameStop's pawn shop practices is well documented.
A quick re-hash: GameStop allows their customers to “sell” back used games for cash or credit and then re-sells the game at a higher price. As a result developers feel that they are unfairly getting cut out of revenue being generated by their work. GameStop retains all of the income from used game sales, and they sell the used games at a reduced price from the MSRP to entice the customers to purchase the used games.
As a result, although two transactions have occurred, the developers only see revenue for one purchase. And, to be fair, this is not a small amount; over 40% of GameStop's gross profit is from their used product sales. The conflict is obvious and it seems that developers and manufacturers are moving in a direction to marginalize retailers as much as possible and keep the game revenues to themselves.
The PSP Go is just the first gaming system to make the move completely, the retailers will only be involved in the initial hardware sales and their piece of that pie is very small. I believe that the next generation of consoles will, most likely, be download exclusive, meaning retailers are indeed in for very dire straits.
In all likelihood the days of industry specific retailers like GameStop, are numbered. Other electronic outlets like Best Buy and Wal-Mart, that can mitigate the small revenue generated by console sales with the sale of other, unrelated products, will lead the way in video game console hardware sales and developers will handle the sale of the games themselves.
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The argument about GameStop is misguided, at best. eBay, Amazon and other online secondary market sellers are not being complained about by developers, nor should any company or individual who happens to want to sell off their property. Any attempt to prevent such actions is a wasted effort because consumers will always feel (and rightly so) that they have discretion to dispose of purchases in a way that they see fit, including selling them or giving them away to someone who wishes to have them.
Since most of the world's population does not have online access, let alone high speed broadband, it seems rather misleading to think that a download-only approach will ever be viable, or at least in the foreseeable future. Downloads appeal to certain people for various reasons, but not the majority (also for various reasons). Perhaps we will eventually be at a point where that is not true, but I do not see us reaching such a point within my lifetime, at least.
On the other hand, if companies DO decide to go download-only, they will severely curtail the industry and restrict their product appeal to a relatively small percent of the total world population. It's true they could do this, of course, but it would seem to run counter to the generally stated business goal of expanding the industry.
Then how do you handle customer disatisfaction? Customers have come to expect (and in some states have a legal right) to have the ability to return or exchange a product within a given time period. Yes, one can claim 'not liking' a title can be resolved with a demo, but that really is not an option with an 8 year old kid whose underinformed parent/relative buys something just because the kid screams that they like the pretty picture on the cover.
Downloads also are likely to cut down on impulse buys and titles recommended by store associates. While the industry can claim they see nothing from a used sale, I can counter with multiple examples of the customer who tries something, likes something and starts buying new releases they would not have because of it. Such is not quite so likely if the only way to get a game is to order it from a website.
And what could happen in the next future is the online products could eat the stand alone product market and the business on physical store will be so reduced that disappear.. As PC products are all disappear from the stores right now, something that several year ago was like impossible… So probably the game product as we know now will be different in several years and distributed only by online, because retail will be no longer a valid business…
The customer is indeed going to expect prices to drop for DL only but that is likely just not going to happen by that much. And if the companies expect big jumps in profits they might just be in for a little surprise, for the same reason.... The costs of getting a title to market -- printing a few page manual, burning a disk and shipping said product -- are pennies compared to years of dev work and whatever license fees are involved.
Prepaid Visa cards and debit cards that go through Mastercard/Visa are ubiquitous. If someone has enough money to buy a video game, they have a way to do so through the credit card system, and parents can provide their children with prepaid cards if need be. Besides, don't most of the surveys say that teens are no longer the largest part of the game-buying demographic, and that a sizable portion of parents report that they are involved in their children's game-buying? To be blunt, except for certain genres, the teenager buying unsupervised is probably not enough of a demographic to make or break a company. The philosophy of whether that's "okay" would come under the conundrums of philosophy, to borrow a quote.
Also, with all the hollering and screaming about minors buying M-rated games, having to have an adult intermediary at some point in the transaction chain pretty much indemnifies the digital store. SOME adult SOMEWHERE had to say "yes" for a minor to have access to the credit card system, and a strong case can be made that the responsibility lies at that point.
There are indeed advantages to publishers to going all-digital, some of which have to do with "lawyer removal".
As for the prices on Steam being comparable to retail, I would suggest that the publisher charges what they do because people are willing to pay the amount requested. Publishers' bean-counters run the numbers all day long, X units at Y price over Z months, minus fixed costs (middleware license fees, residuals to hired talent, etc.), and min-maxing X Y and Z until they have a price they believe returns the best total profit. If a publisher believes they can make more money by lowering the price on a digital download service, they do. Their beliefs may or may not always be right, but it's hard to say so in any sort of objective manner ("they'd make more money selling it at 10 dollars to more people!" is in many cases FAR from the truth).
In any event, it's up to the publisher and nobody else. Our votes begin and end with our wallets.
I would also suggest that the retailer hasn't been eliminated. Steam IS the retailer. The App Store IS the retailer. OnLive IS (well, will be) the retailer. Unless a publisher is selling directly from a site they control, assuming the hosting costs and credit card fees themselves, a retailer is involved, with the margins that implies. The digital download model, from that regard, isn't changing things all that much.
As for reselling games, what you buy is a license. If it is a transferable license you can transfer it; if it is a non-transferable license you cannot transfer it. Take that into account when you are considering a purchase.
The vast majority of people who have enough money to try to sell stuff to have internet access. Its considered a human right in France. Download only is viable today. A small but significant portion of all money spent on video games is spent on download only games (iPhone, XboxLive, PSN, many games on Steam ...) I don't expect AAA games to be DL only for a couple decades, but mostly DL I expect to see in the next 10 years.
@Hayden Dawson: Jay Johnson missed a point that Lance Rund has pointed out: "the retailer hasn't been eliminated. Steam IS the retailer." Retailers will still deal with angry customers, they will just do it at a tiny fraction of the cost that brick and mortar shops do.
I would argue that, especially if there us a download available, if you buy a crappy game its your own dam fault. How many theaters will give you a refund if you didn't like the movie?
As for impulse buys, DL drastically increases them. Just look at iPhone game sales or steam when they drop the prices for a weekend. Think about it this way: How many times do you go to a store that sells video games? How many times do you sit down at a computer with internet access?
Not quite sure how having to set up a dedicated 24/7 phone bank to answer service questions is a fraction of the cost of one or two sales reps at a retail outlet. And telling someone a bad purchase is 'their own damn fault' will not cut it for a second. Actually most theatres will indeed comp your next ticket if you are not happy with the show, and trailers for movies and word of mouth are far easier to come by for them than knowing how your daughter will take to a 4 year old spongebob game.
And I would argue that you are grossly undercounting the size of the market that gets excluded from a DL only world. The age of the user who has 'grown up' in this music/movies anytime world is young, young, young. You are not going to make old dogs change their spots overnight, nor are you going to make families happy when they are forced to buy multiple memory devices (which are still not as 'cheap' as some want to advertize) for each child and pray they don't lose, damage or eat them.
It is not that I am against the dl market. I think it the perfect place for wonderful older titles like with GOG, extreme niche stuff like traditional PC wargaming (Matrix Games), and other select market stuff like the Fate/Stay Night fighter for the PSP. It also is great for things that might cause too great a public stir if given broader release. Peach Princess does many of their eroges that way and something like a Tears to Tiara would be a good fit for such as well.
Guess at the end by biggest point mirror that of Dave's. The dl only for everything market is coming, but I just don't see it being today, tomorrow or even next week.
It is true that the physical cost of producing games is an extremely small part of the overall price of a game. However, there are other aspects of physical distribution that are quite expensive. First is the cost of operating and maintaining factories, which is quite expensive. There's labour, electricity, the cost of purchasing and maintaining machinery, etc. Then there's the cost of shipping, which is also costs a fair amount of money. There's the cost of hiring staff, renting or building store space, and operating multiple stores in virtually every city across a continent. There's the cost of returned and unsold merchandise, which can be pretty expensive depending on how well a product sells through and how stable it is. There's also the cost of setting up and running distribution networks. There's a reason most development studios have publishers - that kind of infrastructure is extremely expensive.
Downloadable games have their own costs, including the physical infrastructure necessary to run and support the service, but there is no way that the cost for that even comes close to approaching the cost necessary to support physical retail. I'm also not entirely sure what makes you assume that download-only retailers would require a 24/7 call centre staff. Neither Steam, Direct2Drive, or Good Old Games has one. But even if they did, the cost to run one or two (or even a few) call centres across a continent would not come anywhere close to the cost of running multiple chains of stores (since games are sold in many places other than Gamestop) in virtually every city across a continent.
Companies that charge consumers the same price for digital downloads as they do for physical copies are ripping of customers, plain and simple, and I'm reasonably certain they're doing it under pressure from retailers like GameStop and Wal-Mart.
To be clear, I don't AAA games to be DL only for a couple of decades.
A dedicated 24/7 phone bank is orders of magnitude cheaper than the cost of one or two sales reps at each of thousands of stores + rent for thousands of stores. DL retailers can have whatever return policy they want.
Yes, today a download only excludes a lot of people, but that number is shrinking. In 20 years the people have "'grown up' in this music/movies anytime world" will be 20 years older. In 10 years you and I will think its quaint how some people still buy hard copies when they costs more and add no value. Just like any decent download service today, If you lose your media you will be able to re-download the games at no cost. Memory follows Moore's law and today flash memory is less than $1 per Gig. Each console or handheld will have its own memory.
No one thinks this will happen over night.
I fully recognize the minor costs associated with dl compared to physical, just noting that there are costs that may not be under consideration (although with the posts here I'd say for some they are).
And what makes your second point of such frustration to me is that the companies seem blind to the 'free money' that exists not in making their newest games downloadable but in their long paid off back catalogs. We are lucky to see 1-2 such titles a month made available through the console companies. PS1, N64 or whatever gamefiles are just sitting on a hard drive somewhere when for just a little extra port work (or in so many cases no work) people would be buying long wished for titles up.
Indeed, I would say that my excitement for past titles being available (downloadable or hard copy) generally rivals my excitement for new titles. It seems it would be simple to get those titles up and out, esp for dl for a minimal cost. It is certainly ponderous, any ideas what keeps them from doing it?
I find 1 annoying, but I'm not sure if it more or less sales in the long term. I don't buy them anyway: It bothers me to pay for a license to play a game when I already own a license to play that game. Most of the old games I want but never owned are on ps2 which as far as I know aren't downloadable yet.
As to why not more back catalog titles, I think companies have gotten so enamored with titles selling hundreds of thousands and even millions of copies that they have forgotten the time that a 25-50k selling title made money and made the target audience happy. And the download market is still so new, it might be hard for corporate counters to figure out what products will sell and what won't, so they release nothing.
Then again, with so many mergers and takeovers, you may have some companies who just don't know what they indeed own, or licenses are so convoluted that peeps just don't want to work things out. GOG certainly shows the market is there, just releasing stuff like the Tex Murphy games which were long thought lost to the abandonware void.
Making comparisons with iTunes isn't quite accurate, because iTunes actually improves the customer experience by allowing you to buy only the songs you want. You can also burn your iTunes to a CD, play them on your PC, play them on your iPod...and they just got rid of DRM. This is because Apple approached digital download from the standpoint of making the customer experience better than what he was getting from the record store. What the video game industry is doing is more like what Sony tried to do with Connect. And we all know how well that turned out.
Being a third world gamer (I live in Mexico) it is, and always has been, very hard to get the games that I would like. It is going to little stores and looking under every rock to see if the game I want is available. Just recently I found only a copy of The World Ends With You, used. But even in the more dire circumstances I know of a place where I can place an order and they will get the game I asked for, even if it is at very high prices (Yggdra Union, new, was at 80 bucks, but I could find it). That is not possible with digital-only distribution. While I only own a Wii and can't complain about the VC and WiiWare titles, as they are the same as in the USA and available at the same date, a good friend fo mine has the PSP and isn't willing to connect to the PSStore because of the reduced selection of titles that it is avaible. Indeed, in my region the PSStore is totally underwhelming. Even a hit title like FFVII took about a month to get under the frontier for the Mexican players. This for example makes that when I finally get the aforementioned PSP, I will go with the 3K even if Go is in the market that time. The idea of losing the hard copies worries me, as being a relatively smalll market it makes me doubtful that the online purchasing services will be as the WiiStore and not the PSStore, meaning that players from countries where finding games was difficult will only get worse, as at least with hard copies importation is still the option of import, that could be lost in DL only services. On the other hand, if WiiWare becames the norm, then my title hunting would become much easier, less frustraiting, and a lot cheper (for example Punch-out! is at 77 dollars at mayor retailers, which is about 50% higher than in USA, while by my hunting I've found ti at 53$ a much more reasonable price), making that I may buy more titles that I can do nowdays. My fear is of publishers, online retailers or whoever manages this will think outside United States, which they often don't.