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  1. #1
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    Digital Distribution pricing

    I'll admit first of all I know very little about how pricing works for various digital distribution platforms, although I have read in various places that prices on Steam are set by the publisher and that Valve take a cut of whatever that pricing is.

    Which doesn't sound too dissimilar to the agency model of e-book pricing that the European Union is investiagting - Telegraph's report here and BBC's story here but as I say I am no expert and the respective circumstances could be quite different.

    Still, new release pricing example - Assassin's Creed Revelations 29.99 on Steam, 29.95 on direct2drive and 26.38 on Amazon for a physical copy (and video games don't even have books excuse that the physical edition attracts no VAT, at least in the UK).

    Does the EU investigation have implications for game pricing?

  2. #2
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    I believe the issue is that the agency-model has allowed collusion between the big agency-6 publishers - rather than a fault of Apple's in itself by choosing to use the agency-mode - and hence they may be acting as a cartel.

    This might be an issue with games sales, but I think it's much less likely, not least due the significant relationship that Steam (and others) have with a large number of independent developers.

    There still might be an argument that EA, Activision and so forth are colluding to keep prices high - I find this unlikely, since I think that the video games market sustains the sort of prices involved pretty well by itself, and notably DD is often undercut on the AAA titles by Amazon and so on.

    Edit: To be clear, it's not at all to do with Apple acting in an anti-competitive manner in the ebook distribution marketplace. That's not implausible in itself, but Random House notably resisted the agency model for some time because of the lower margins for them involved, despite the fact this kept them off Apple's iBooks service. However, Random House did eventually cave of course... nevertheless, there's pretty significant competition between Apple's iBooks and Amazon's Kindle Store, as well as a plethora of other much more minor ebook distributors.
    Last edited by Zetetic; 06-12-2011 at 10:15 PM.

  3. #3
    Secondary Hivemind Nexus Nalano's Avatar
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    Quote Originally Posted by Zetetic View Post
    There still might be an argument that EA, Activision and so forth are acting together to keep prices high.
    Well, theirs are the games that have the least mutable pricing.
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  4. #4
    Secondary Hivemind Nexus Smashbox's Avatar
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    I would be quite surprised if the big game publishers didn't discuss the $10 increase in game prices at the beginning of this console generation beforehand. None would want to be left out in the cold. Is that illegal?

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    I don't think prices on Steam (or any other DD channel) are "set by the publisher" anyway, it's an agreement between them and the distributor. So Valve will quite happily turn-down games if the publisher insists on a disagreeable price point, but at the same time Valve can't just change the price as they like without consent from the publisher.

    But as mentioned above, it has nothing to do with that antitrust case.

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    Quote Originally Posted by Nalano View Post
    Well, theirs are the games that have the least mutable pricing.
    Right, but that doesn't tell us a great deal. Watching everyone else's prices is fine, asking them what price ManShoot3 or ClickFestII will be next week isn't. On the surface, I don't think that there's much evidence that the agency-model has been much abused on the online side yet - DD-sales and the fact that you can often still buy the exact same product offline (where the agency model isn't widespread) means that you'd have a much harder time pushing it I suspect.

    Quote Originally Posted by Smashbox View Post
    I would be quite surprised if the big game publishers didn't discuss the $10 increase in game prices at the beginning of this console generation beforehand. None would want to be left out in the cold. Is that illegal?
    I could imagine that was set by Microsoft and Sony, each nigh-entirely independently. I don't think that would constitute anti-competitive practice, given that there's still competition between different consoles (and their games), even if there isn't quite the same degree of competition (because of MS' requirements on RRPs and the like?) within the manshoot genre on the Xbox (for example).
    Last edited by Zetetic; 06-12-2011 at 10:26 PM.

  7. #7
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    Yeah the eBooks issue stems from the fact that every eBook retailer is forced to use the agency model (although for the Kindle, that's just one retailer too). The problem is that eBooks and physical books are seen as different products, so just because Harry Potter is being sold in Waterstones on the highstreet and they're doing 30% off by choice, doesn't mean that it's okay to set the prices of eBooks at whatever you want.

    For games, the box copy and electronic one are the same product, so as long as games are still being sold in a resale environment (high street, Play.com, etc) then there is an alternative, so price-fixing practices won't apply.

  8. #8
    Secondary Hivemind Nexus Nalano's Avatar
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    Quote Originally Posted by deano2099 View Post
    For games, the box copy and electronic one are the same product, so as long as games are still being sold in a resale environment (high street, Play.com, etc) then there is an alternative, so price-fixing practices won't apply.
    Tho the nature of brick & mortar distribution models kinda implies that they would cost more at any rate.
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    No, it doesn't. At most you can suggest that there's a greater overhead involved. There's clearly greater overhead in Amazon's shipping distribution model than there is in digital distribution, but they certainly don't "cost more at any rate".

  10. #10
    Secondary Hivemind Nexus Nalano's Avatar
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    Quote Originally Posted by Zetetic View Post
    No, it doesn't. At most you can suggest that there's a greater overhead involved. There's clearly greater overhead in Amazon's shipping distribution model than there is in digital distribution, but they certainly don't "cost more at any rate".
    Well, competition should drive down prices down to something quite similar to the overhead of distributing it. The fact that our wholesale sea change to a model that has overall lower overhead is not resulting in overall lower prices is cause for a bit of concern.
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    Well, competition should drive down prices down to something quite similar to the overhead of distributing it.
    No, that makes little sense. You don't need cartels and actual collusion for this not be the case.

    The fact that our wholesale sea change to a model that has overall lower overhead is not resulting in overall lower prices is cause for a bit of concern.
    I think that makes several rather trivially faulty assumptions. Most obviously, concerning the similarity of the distribution methods (in terms of benefits and costs to the consumer) and the belief that we've seen a 'wholesale' change (not least because of a degree of fungibility between PC and console games).

  12. #12
    Secondary Hivemind Nexus Nalano's Avatar
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    Quote Originally Posted by Zetetic View Post
    I think that makes several rather trivially faulty assumptions. Most obviously, concerning the similarity of the distribution methods (in terms of benefits and costs to the consumer) and the belief that we've seen a 'wholesale' change (not least because of a degree of fungibility between PC and console games).
    More than half of PC gaming sales are now direct downloads - up from zero a decade ago. The trend is unidirectional. That's a sea change.

    The similarity of distribution methods? How? The only similarity is the price to the consumer, and the price is arbitrary.
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  13. #13
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    I perhaps should have been more clear - the dissimilarity of distribution methods. For many people digital distribution (and in particular the various DD services) are more convenient than visiting a B&M store, and carry quite different external costs. For that alone, we might even expect services like Steam to command a premium (as they often do).

    I do not argue that there isn't an ongoing change in PC gaming distribution. I do argue that the change is far from complete, and that viewing the PC gaming market in isolation makes very little sense, particularly if we're talking about AAA titles many of which are available on games consoles (and even if they're not, then fairly direct competitors are).

    I don't deny that we're even likely to see some issues in the future. However, I don't think we can suggest that at this point that, for example, Modern Warfare 3 (which I note I will not buy at the price point that it's available at) have 'artificially' (in the sense the market is being distorted by collusion to reduce competition) high price points from digital distributors.

  14. #14
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    Quote Originally Posted by Skyvik View Post
    and video games don't even have books excuse that the physical edition attracts no VAT, at least in the UK
    Yeah, but games are one of the things that benefitted from the "sell via Jersey" VAT loophole the government just closed.
    It's the digital distributor who ultimately sets the price, not the publisher. And there's certainly plenty of competition between the distributors at the moment.

    Quote Originally Posted by Nalano View Post
    Well, competition should drive down prices down to something quite similar to the overhead of distributing it. The fact that our wholesale sea change to a model that has overall lower overhead is not resulting in overall lower prices is cause for a bit of concern.
    Not when you consider game prices have remained relatively static for the past decade or so.

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    Valve is certainly remarkably coy about how much control is in the hands of the publisher:
    3. Who sets the price for my game on Steam?
    Pricing is very title specific, and we've got a lot of data and experience to help you decide on what the best price is for your title. We'll work with you to figure out pricing.

    4. What is your revenue split?

    We don't discuss our revenue split publicly. Once we take a look at your game, we'll get to those details.
    I suspect that Valve will certainly pressure smaller publishers/lone developers to sell at a lower price than they would otherwise, but plausibly at a better revenue split than they afford EA and Activision. I might be being optimistic.

    Edit:Article here that supports that view, so perhaps I'm even just remembering it. Interestingly, Valve's approach to what they will accept, and at what price, has a rather odd effect on the market in terms of giving an impression of how its divided up (including counteracting bargain-bucket games).
    Last edited by Zetetic; 07-12-2011 at 10:55 AM.

  16. #16
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    Quote Originally Posted by Nalano View Post
    Well, competition should drive down prices down to something quite similar to the overhead of distributing it. The fact that our wholesale sea change to a model that has overall lower overhead is not resulting in overall lower prices is cause for a bit of concern.
    That's because publishers know they can get away without passing on savings to the consumer. I don't think the games market is very price sensitive for competing AAA releases anyway, at least not initially. This is because the value of art is more or less indeterminable unlike commodities that perform some form of utility. But one thing that consumers have benefited from are the sales further down the products' life cycle. I assume that the big DD sales (75% off etc.) are only made possible by the small cost of distributing games digitally - I never really saw 75-90% off sales from a retailer in contrast.

  17. #17
    Activated Node Wayward's Avatar
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    I work at a digital distributor. Obviously I can't go into too much detail without getting in trouble, but I can tell you that, ultimately, the publishers DO set the prices for their products and there's no evil price fixing going on in the industry. The worst we get is the European/USD price issues, which is really an entirely different issue to the one brought up here.

    Depending on the publisher, we work with either a revenue share or a wholesale price, alongside whatever SRP we get sent from the publisher.

    In theory, publishers can't legally set prices, which is where this logic that it's retail that control the prices comes from. However, that's not exactly how to works in reality. In the real word the publisher-retail relationship is a business relationship, and it's involves a bit of give and take from both sides. It's far more about who gets what and who pays for what then it is about trying to shaft gamers somehow. The idea that we can somehow fix prices in an incredibly competitive market though is totally wrong, we'd get walked all over.

    We want to make money, the publisher wants to make money. Some publishers have different ideas how to do this, but as a retail store, we're not often dealing with a particularly large margin already, and not every contract pays for all those additional costs of selling a game; DADC, charge-back covers, download costs, etc.

    While I'm sure Steam have a lot more 'weight' in that relationship - I know that some publishers even ask Steam about how they should be pricing on the PC - that isn't the case for everyone. If a B-grade or indie title came to us with a price point that we thought was commercially a bad decision, we might not stock it if we couldn't agree on a better price, but that's about as far as that goes.

  18. #18
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    I just wanted to say thanks for the insightful and helpful answers to my question.

  19. #19
    The problem is that eBooks and physical books are seen as different products


  20. #20
    Do I remember correctly, but when steam was new-ish it used to price games 10-15% less than the high street, even on new releases. I suppose, its the same as any new enterprise, start with low pricing, and move up from there.

    Now games on steam, are pretty much the same price as HS retailers. I suppose the only difference is you tend to get some additional DLC as a bonus/.
    illiteratereviews.com Some badly written reviews, by me, and anyone else who wants to.

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