Sigh. A complete failing of the workings of how prices are determined. A common, amateur mistake.
Jeff, stop thinking that production costs have anything to do with pricing. If that was true, then everything ever sold would be profitable and everybody would have a license to print money by simply manufacturing something, adding a markup that makes you rich, and then sitting back and have people buy the product.
No, prices are determined by what the market will bear. Put aside your foolish, silly notions about “well, physical media is expensive and electrons cost nothing!”. That has nothing to do with anything. It’s all about what people will pay. And people are paying $50 for downloads. What’s the problem?
Let me put this into perspective for you. That coffee maker you have on your counter? That’s maybe, at most, 5 cents worth of plastic (that’s a REALLY high number, BTW). It cost, maybe, $5 to manufacture (again, a REALLY high number). So why is it $50? It’s because you were willing to pay $50.
I’m actually surprised no one else mentioned this (at least, a page search didn’t bring anything up).
Piracy.
Considering the industry’s level of fear of piracy, it seems like a good reason for why digital distribution actually cost more. It’d have to be less productive to pirate software when you have to wait for the box to reach store shelves or be delivered (at least, more costly with sales taxes and/or SH).
To be fair to Microsoft, their Vista digital distribution (from what I’ve experienced) provides an ISO image. With no further DRM than the boxed copy.
I completely agree that digital software distribution should be cheaper. As it should with music and other media.
What the vendors should realise is that by cutting the price they can draw in more buyers.
Unfortunately, none of the established digital vendors really have much motivation yet to cut prices, as there is little to no competition apart from the BM stores (which are already cutting their own throats).
It would be great if a company was able to get rights to sell significantly cheaper than retail. That could trigger that price-war that is needed.
For me the main reason I buy games off Steam and EA Link is the convenience. I agree the prices should be a little lower, but the convenience justifies them making a larger profit. Steam makes things simple in that I never have to handle physical media. When I reformat my hard drive you simply download the 1.5MB Steam installer, enter your password, and then tell it to install any games you want.
Considering the industry’s level of fear of piracy
Piracy is the world’s most efficient distribution network. Instead of hiding from it, vendors should be figuring out ways to embrace it, and harness its power. Ad-subsidized software is one way…
Even if they outsource the whole process, [bandwidth] still costs a ton of money.
Well, going by Amazon S3 as a metric ( http://www.amazon.com/gp/browse.html?node=16427261 ), that’s around 15 cents a gigabyte. Is that a ton of money? I don’t think so, not relative to sales. It’s a few percentage points at most.
Jeff, you’re paying for the convenience. And it is convenient.
What really bugs me about all this is the massive disincentives designed into the current digital distribution systems. You can always find a downloadable bit of software cheaper (often much cheaper!) through a brick and mortar discounter. And having physical media means you can resell the software when you’re done with it, to offset your costs even further…
As I said above, digital distribution, as it stands today, is only useful for the rich and the impatient.
Though I am glad to hear it’s helpful for non-US residents, who evidently get shafted on software pricing…
I work for a developer that sells their games via Steam, and has a partnership with another big name publisher.
I can tell you that the reason for the prices being that way are largely business.
People will buy it for that price, so thats the price it gets sold for
The publisher gets a lot more money when people buy it from then, than it gets via online distribution, so it will put a large amount of contractual pressure into bringing the online price to be at least as much as the retail price, or else they will lose a significant portion of their income.
despite some problems, Steam is actually a better system than physical distribution… not only do you get your game instantly, and for the most part without stupid Securom copy protection, but you can also get it again at any time, at any place, whenever you’re connected to a computer that has an internet connection and steam. Its saved me from hunting for disks so many times. to me its actually better value than disk-based software, since it follows me wherever, and their servers are generally very fast for me.
I don’t know if it’s the same for other kinds of software, but for games there are really only three retailers that matter: Best Buy, EBX/EB Games/Gamestop, and Wal-Mart. The publishers that sell through these retailers have a whole catalog of games they’re trying to sell and they have to keep in the good graces of these three companies to do it. If they release a major game with a cheaper price online these retailers simply won’t stock it and will probably penalize that publisher’s other games.
The place where this is really offensive is MMOs. Our publisher had to give extra benefits to retail pre-orders over digital pre-orders just to get the retailers to even accept pre-orders. And this is for a game that comes with a downloaded, patches itself immediately after you install it, and will re-download itself many times over the months or years you play it. Many MMOs probably wouldn’t even bother with retail, but games without a retail presence don’t count as “real games” in the eyes of magazine editors. One day some big MMO publisher is going to tell the retailers to fuck off and that will be the end of the scam, but until then we still have to cope with all this nonsense.
If you really want to see Digital Distribution work, look at Xbox Live Arcade. Microsoft has total control over the list of games that appear there, so they keep the rate at which new games come on low (and the quality level high). They also enforce completely consistent pricing and manage all the credit card transactions for you. The result is an incredibly smooth user experience and some very good games. I wouldn’t be surprised if XBLA accounted for a significant portion of the money that Microsoft makes on Xbox software.
“…As I said above, digital distribution, as it stands today, is only useful for the rich and the impatient.”
You said it yourself. If you’re “rich”, you wouldn’t mind paying a little more for the convenience? They know this fact and they are keeping the cost savings to themselves as an extra profit.
As a side note, I am surprised they offer games as a download. Usually games are copy protected on the cd/dvd. Are they using online verification as an antipiracy protection?
I think you are wrong to assume that digital downloads necessarily provide the vendor with an increased profit margin. Sure, they get more of the revenue, but they get more of the costs. They have to have a website, process transactions, manage security concerns, process returns, and generally have to take on the role of front line customer support.
Additionally, if only 10% of game revenue is going back to you, that means someone else is publishing your game, which in turn means they are incurring a lot of costs beyond the straight distribution costs of your product. There are tons of marketing and promotional costs that are involved as well. Furthermore, they should have some kind of revenue sharing arrangement for online game sales (if they don’t, they are stupid, and you should take advantage of it, but it is far from the norm).
Finally, don’t underestimate the marketing value of having a shrink wrap box in a high traffic retail environment. That shelf space is highly valuable and far exceeds virtual shelf space on your website (which probably nobody would visit if they weren’t already interested in your games).
I, for one, totally love free software. But I don’t know how ANYONE can claim that any piece of software that was imagined, designed, built, and distributed by a company, as a PRODUCT, can be called ‘information’ instead of a ‘product’.
Do you ask Ford for their blueprints, conceptual designs, parts list, and contact information for their partners when you want a car? Or do you go out and pay for one? Total idiocy.
If software is built for the pure intention of distributing for free and sharing how it was built… fine. But if it’s a useful piece of software that took alot of time, effort, and money to create - it cannot be held as free information! It is a product like any other, except much easier to copy and exploit.
Now that’s over - steam is awesome for games distribution. But 6gig (cod4) is half of my monthly bandwidth which I really can’t afford (we get stiffed on broadband prices in Australia). What I’ll be doing is burning a friends’ copy, installing that, and using steam to receive my own cd-key. Like others have said, compared to OUR retail prices, we save a very high percentage - but I see your point.
When vendors no longer have to bend over for distributors, and can instead forward the product themselves… doesn’t it make good business sense to sell for at least a little discount? Pass on SOME of the savings to your wonderful consumers. ESPECIALLY when you’re not paying for dvds to be copied, packaged, shipped etc. Leverage the torrent protocol to save bandwidth costs, and start bringing the price of software and games down to a more reasonable price.
The problem is - if you start charging less than the recommended retail price the retailers are going to stiff you and stop stocking your product. They have to make a living too. So the only thing you can do is charge the RRP. Then the discounters are going to come in under that price. Very difficult to get around.
Can you imagine the howls of protest from the retailers with shelves and shelves of DVD’s and CD’s if Microsoft started charging, say, 50% less for the download? And quite rightly - very unfair and MS get to keep it all.
So, maybe drop the RRP and take less of a cut to get the price down for everyone? Hmm … pigs might fly.
I don’t like digital downloads of software packages. I’d rather have
the physical media. What if your hard drive dies or somehow the
download gets damaged? They don’t cover this and I’d rather not have
to pay for it again.
Exactly. I really, really dislike online-only distribution of apps that I have to pay for for this exact reason. There’s one app that constitutes a ~1GB download that I’ve had to download no less than four times due to reinstalls or upgrades. Eventually I resorted to getting an (ahem) informally-circulated physical copy purely to bypass this problem - I don’t mind paying for it, but the pain of an online install is so high that I eventually gave up in order to get a physical copy that I can reinstall just by dropping in a DVD.
Jules: You do realize that with steam, all you need is the username and password of your account, and you can load games on any PC an infinite number of times? It tracks what games you have so you always have them. I would cosider that SAFER then the hard copy, as it can get lost or broken, or you could lose the key, and then your SOL.
Bandwidth? What’s that?.
I live in Costa Rica and a good internet connection is not something you can have just by having enough money to pay for it, we have only one ISP and is expensive and bad. Costa Rica is very small but they don’t even cover the whole country. So even if you have the money to pay for your internet connection, that doesn’t mean that the local Internet service provider has the infrastructure to cover the area you live in.
I love Costa Rica, but the software engineer in me hates it, we are a little behind here with IT.
Physical vs Download:
The physical product has appreciable value that the digital bits will never have. Take the Wing Commander: Kilrathi Saga CD set for example. Since the CD box set went out of print it has appreciated in value and has sold on ebay for hundreds of dollars.
Steam:
Dan makes a good point. If Steam has done one thing right, it’s the fact that they honor your purchased licenses and give you the ability to download your game anywhere you want. If I install Steam at my mother’s house, I can play every game I own on her computer. I can keep my purchased Orange Box in a display case and never have to pop it into any computer ever again.
And I’m pretty sure many years from now an Orange Box DVD/Box will be worth a helluvalot more money than the digital download.
Steam has really worked well for me. I have never had any problems with and the prices (for Valve games) are better than retail if you include sales tax.
Steam games are the easiest ones to play at LAN parties. If someone does not have the game installed, all you have to do is install Steam and copy the correct GCF files over the network. All other game require passing CDs from person to person.
