The Future is Digital

We’ve been seeing a gradual shift in software sales in the last couple of years towards digital distribution. Full retail games have been available for the Xbox 360 and PlayStation 3 over that time and, although the digital library is but a fraction of the retail library, digital has been catching up. Now, a circulating rumor about software for the PlayStation Vita takes this one step further as the price structure may be significantly different for physical versus digital games.

As with any shift, there are positives and negatives to consider.

The biggest positive to the rumored Vita plan is the lower cost to the consumer. Digital games could be as much as 40% cheaper if consumers buy digitally than if they buy a physical copy. Leaving the expensive proprietary memory cards out of the equation for a moment, these savings would add up before long.  Imagine paying $25 for a game that sells for $40 at GameStop or Walmart. If you bought six games in a year, that’s a savings of $90. Granted, the savings would be offset by the exorbitant cost of the memory cards, but it could pay for itself within the first year if you buy enough games.

This move is long overdue and makes sense. Publishers can eliminate overhead like packaging and printing, plus they can eliminate the “middle man” that is the retail chain. Consumers would stand to gain from this cost-cutting measure more consistently in this system, as opposed to the on-demand retail titles that we’ve seen on the Xbox LIVE Marketplace and the PlayStation Store. In many cases, pricing for full retail titles mirrors MSRP (Manufacturer’s Suggested Retail Price) in spite of sacrificing tangibles. It doesn’t benefit a consumer to buy digitally in many cases under the current system… but the rumored Vita software pricing scheme most certainly provides a benefit. The loss of the physical product and tangibles is arguably more than offset by the lower price, which could be very important for staying competitive. If consumers can get past the high cost of the hardware and the necessary expense for a large memory card, the Vita can be perceived as a good value in the long run. That’s provided, of course, that Sony and its third-party partners deliver consistent and quality software.

There are other positives to digitally downloaded software, which remain for the Vita. Not having to carry (and potentially misplace or damage) physical games makes the platform all the more portable. If consumers buy a large memory card, like the 32GB model, a fair number of games can follow the user wherever he or she goes. Cutting out retail also adds a level of convenience for some consumers. If you want to buy a new game at 3am, digital distribution allows this instead of being out of luck until the next day. Digital distribution eliminates shipping errors or damaged packages from Amazon or any other retailer, as well.

There are drawbacks to digital distribution, as well. Perhaps the biggest one of these is the inability to trade in, sell, or allow a friend to borrow a game. Once you buy a digitally distributed game, it’s yours. Beat a game 100%? Your only recourse, aside from keeping it and occupying valuable storage space on your memory card, is to delete it. In most cases, you can re-download the game later if desired, but you won’t be able to recoup anything. This is most problematic if you buy a game and wind up not liking it. Physical copies of games give consumers a few options in these cases. They can be sold to friends or online, can be traded in at GameStop or Best Buy, and listed at a tag sale. Even if you got $10 for a game that you spent $40 for and hated, you still get something back. Not so in digital distribution for consoles. All it could take is a few clunkers for some consumers to get cold feet.

Demos are usually cited by defenders of digital distribution as methods of ensuring that consumers don’t buy “the wrong game”, but these are unreliable in at least some cases. Demos can sometimes misrepresent what the actual game is like. One example of this was the demo for Brutal Legend back in 2009. The demo came across as a straight-up action game, with some vehicle sequences thrown in. The demo sold me, leading to a preorder and purchase. My delight turned sour quickly when the game added real-time strategy sequences, which I hated. Nowhere in the demo– or in any pre-release articles on the game– was the RTS content mentioned. I wound up trading the game in the next day. If I’d bought it digitally, I’d have been stuck with it and been much more angry about the misrepresentation.

The other major drawback to digital distribution is the limitation of the internet. Some people have great speeds and performance, where downloading even a 1GB game isn’t an all-day affair. For many others, speed and reliability are problems that make digital distribution a futile practice. In cases like we see now with full retail games for the PS3 and Xbox 360, buying physical copies is the best solution since it’s the same price in most cases and provides more timely gratification and experience. In the Vita’s case, potentially, a tougher decision lies ahead for consumers like that. Are they willing to pay what amounts to a penalty for buying physical copies, or do they just ignore the Vita altogether based on its apparent online focus? Sony seems willing to risk alienating a certain segment of their prospective Vita consumer base this way, but it’s arguably indicative of what’s to come as the industry seems to take for granted that consumers have reliable high-speed connections… and may be willing to sacrifice a few users in the name of advancing their online strategies. This remains to be seen, of course.

If this pricing strategy rumor for Vita winds up being correct, the industry will be watching it very closely. If consumers buy into it and sales numbers support it enough, publishers may start talking to Sony and Microsoft about how it can be applied to the next generation of consoles. Although I’m not a proponent of killing physical media in favor of digital distribution, it’s hard to argue against the business side of the decision. It’s financially advantageous to the industry to cut back on physical copies and the overhead associated with the practice. Logistics would become easier and street dates would be easier to enforce. On the flip side, however, I’d be on the outside looking in as a consumer and would likely be forced out of a form of entertainment that I’ve enjoyed for so many years… and that’s obviously not an outcome that I want to see take place.

Time will tell, of course, but I believe that we’re about to see the future– and it’s digital.

3DSasterbacle

Four months into the 3DS regime, Nintendo looks like it’s stumbled out of the starting gate like someone had tied its shoes together. Few people are buying, new games are rare finds, and a new trend towards penalizing consumers who don’t buy new games are just a few of the issues that the 3DS already faces. Perhaps it’s a bit early to be judgmental, but there are problems that really shouldn’t be explained away due to the newness of the platform.

For starters, let’s look at that $250 price tag. That’s pretty steep. It’s the most expensive portable platform in Nintendo’s history and is over $100 more than its highly successful Wii console right now. In fact, that price is exactly what consumers paid for the Wii nearly 5 years ago. Back then, Nintendo was competing with platforms that were $400+, so buying a Wii was a more frugal proposition than splurging on the Xbox 360 or the exorbitant PlayStation 3 platform. The playing field has changed considerably since then. It’s possible to buy an Xbox 360 for as little as $200 now (although it comes without a hard drive) and the PlayStation 3 is only $50 more than the 3DS while doing many of the same things. $250 is also 47% more expensive than the DSi at launch and 32% pricier than the DSi XL, which debuted a year ago. Granted, the 3DS is a brand new platform instead of DS revisions that we had seen each of the last two years, but sticker shock is still sticker shock to the average consumer. 3D without glasses is nice, but for $250? It’s a debatable point.

Lack of games is another issue. Yes, it’s only been four months, but the list of games continues to be short. What are the must-own games for the 3DS? You can argue Super Street Fighter IV, which was a launch title. Many will counter with The Legend of Zelda: Ocarina of Time 3D, which is not exactly new or groundbreaking. After that… well… it gets sparse. Several titles have seen delays, and there have been weeks at a time with no new games to offer on the 3DS platform at all. The 3DS eShop finally opened in June, over two months after the 3DS launched, but the games offered are mainly DSi downloads. Virtual Console games had been added consistently until an empty slot last week, which immediately conjures up bad memories of how Nintendo handled the Virtual Console on the Wii. It’s only one empty week so far, but an empty week only 6 weeks in to the eShop lifespan raises eyebrows. Some have tried to deflect concern by pointing out that Nintendo had offered more than one game in weeks past, but this isn’t a quota problem– it’s a consistency issue, which Nintendo hasn’t proven that it can manage effectively. As for the Virtual Console games themselves, they’ve been wildly inconsistent– Link’s Awakening and Donkey Kong are at the high end of the quality chart while Tennis and Baseball are just awful.

Staying on the topic of games, we’ve been starting to see a decrease in confidence from third-party publishers regarding the 3DS platform. Delays and cancellations are beginning to grow. UbiSoft cancelled its Assassin’s Creed project for 3DS. Capcom recently pulled the plug on Mega Man Legends 3. SEGA delayed Crush 3D and Shinobi and cited poor sales as a factor. Metal Gear Solid: Snake Eater 3D now looks to be facing a delay into 2012. Although Nintendo is promising to fill the gaps with Star Fox 3D, Mario Kart 3D, Kid Icarus: Uprising, and Super Mario 3D, the company is repeating history by having to rely on sales of its own software to succeed. While we saw what looked to be considerable third-party interest at E3 back in 2010 when the 3DS was introduced, that level of interest appears to be waning. It’s not too late for this to change, but sales of the hardware likely need to accelerate for third-party publishers to resume interest.

A new and unsettling trend is starting to appear in third-party 3DS software, too. Permasaves– which are single save files that cannot be erased or rest– are starting to infect these releases. Pro Evolution Soccer 2011 3D and Super Monkey Ball 3D first introduced this trend, but criticism exploded when Resident Evil: The Mercenaries 3D also had a similar “feature”. As I recently mentioned, Capcom has repeatedly tried to explain that the move wasn’t a direct assault on the used or rental game markets, but I’m sure that they’re not all that broken up to find that games with permasaves tend to have lower resale values, either. Namco‘s Pac-Man & Galaga Dimensions title for the 3DS also sports the permasave feature. Once you set a high score, that’s it. There are no high score tables to compare to. Worse yet, there are minor achievements to be unlocked while playing the game. Want to go back and earn them again, or share with a friend or family member? Tough break. Renting the game or buying used practically guarantees that users will miss out on unlocking much of anything themselves. Buy new, or deal with it. Indeed, the industry wishes to punish those who don’t buy new. Welcome to today’s video game industry.

As I mentioned, it may be a bit too soon to be critical of Nintendo and the 3DS at this point, but early adopters have definitely been on the short end of the stick here. With the potential for some territories to drop the price of the unit below $200 so soon after launch, it calls into question the value of the hardware that some paid so much for. After going through so many launches in its history, how does Nintendo not have a decent library of games set up for release? Why are the Mario games so tardy, given that the Mario IP is the biggest driver of sales? What took so long for the eShop to become available, and where are the games that aren’t DSi offerings? Where are the games that aren’t remakes, even if they are in familiar IPs? These are questions that should have been addressed and that Nintendo should have been better prepared for back in April… not as we roll into August. if the price does drop to $200 before the end of the calendar year, what will that say to early adopters for the Wii U and it’s likely price tag of $350+? Disappointing consumers who adopt early doesn’t bode well for future platform releases.

The good news is that it’s not too late for Nintendo to get up, re-tie those laces, and get back in the race. Getting quality software to retail and working with third-party publishers to try and fill the pipeline will be a major goal for Nintendo to achieve as we prepare for Q3/Q4. Generating consistency in downloadable software and video releases will also be important. These issues must be addressed now, because Nintendo is losing market share to Apple and Android gradually and Sony’s PlayStation Vita is waiting in the wings. If the 3DS continues to stumble into Q4, the race between Sony and Nintendo could be closer than anyone might have predicted.

It’s only been four months, but it’s time for Nintendo to start running. NOW.

When $15 became $20

After spending some time thinking about why there’s been an uptick in press activity talking about how pricing for Xbox LIVE Arcade games has been rising of late, something clicked. At first, I thought it was weird that people were talking about it now, given that it’s been a trend for well over a year now, as I posted here back in May of 2010. But then… it made sense to talk about how XBLA games are getting more expensive. Why?

Microsoft will be rolling out a new 1600 Microsoft Points cost level for XBLA games soon.

You could see it as soon as Microsoft‘s next Arcade promotion. At first, the new pricing level will be rolled out across a few hand-picked titles… but the new standard will spread and should be in wide use by Q3 2012, if not sooner. Publishers and developers will likely cite increased development costs as reasons for the increase– along with natural inflation– but it’s worth wondering when or if enough is enough for consumers. How far is the industry willing to push its limits before the market is priced out of caring about these games, in general, or is that even a fear at this point?

The 1200-point plateau has had its share of winners (Bastion, Shadow Complex), but there have been some stinkers (0 Day Attack on Earth) and unexplained pricing decisions (RayStorm HD) that tended to make the plateau a questionable one. There are still some games that buck the 1200-point asking price, like Ms. ‘Splosion Man for 800 points, but by and large most consumers expect new releases to sport the higher price tag. The expectation is that consumers will be conditioned to gradually accept the new price point, as well.

The problem with adopting this new price point will be for publishers and developers to prove the value of their games, especially when some new full retail titles can be purchased for the same amount of money. Games with this price point should and will be subject to tighter review standards and criticism. Expectations for graphics and sound, gameplay, and replay value all rise a little bit. This is why Microsoft will need to be selective with the games that are chosen and green-lighted to sport the new price tag. If games come out of the chute that don’t impress as much as they should, reaction to the increase will be negative and could adversely affect sales moving forward.

Even if consumer conditioning takes longer than desired, don’t expect this move to be reversed or for it to not happen. With the next generation of hardware on the horizon, games across the board will be more expensive in some way– whether it’s directly at retail for $70, sporting fewer features in lieu of DLC down the road, or perhaps even renewable licenses. The standard for downloadable games will undoubtedly move to $20 each. The industry’s path towards getting more revenue will continue unabated, and there’s plenty of confidence that consumers are far too invested to move on to another form of entertainment at this juncture. It might be a bit of a gamble, but revenue continues to be strong despite rising prices and fewer features for software.

Consoleation Opinion: The Price Is Wrong

I talked last week about something called an HD Tax, which is what I define as the extra $10 that Xbox 360 and PlayStation 3 owners are paying for software versus what consumers paid for games a generation ago. This extra cost tends to accumulate over time, so if you average buying one new game per month, you wind up spending an additional $120 over this time five years ago. While some games have arguably “earned” the right to charge this premium, many others (take the recent disaster Iron Man 2, for example) don’t. While this tax/premium seemed like a more reasonable idea at the start of this console generation, times have also changed since then. Unemployment is hovering near 10% nationwide, the cost of living has increased, and disposable income is decreasing. This partially explains why some consumers look to buy used, as it’s money saved and still allows for the ability to play newer or recent games at a lower price point. I know that I’ve gone over this argument a few times here, but it’s a prelude to a related topic that’s at the center of today’s opinion.

Inexplicably, we’re seeing the average price of downloadable titles marching higher. Both of last week’s Xbox LIVE Arcade releases– Zeno Clash: Ultimate Edition and RayStorm HD– were priced at 1200 Microsoft Points, or $15. These examples are the most recent evidence that the $15 mark is the new standard for these games, after $10 (or 800 Microsoft Points) was the standard for a majority of the Xbox 360′s life span. In fact, in the platform’s infancy, there was a decent split between $5 retro/arcade titles and $10 original releases… but titles like Braid and Shadow Complex broke the previous $10 barrier and sold for $15. We’re not only seeing the new $15 price point become more prevalent, but we’re seeing that the quality of these apparent premium releases is arguable at best.

While I’ve not yet played Braid, reviews and impressions that I’ve read seem to indicate that the game is worthy of the premium price point. Shadow Complex was a fantastic game with decent length and options that certainly earned the $15 that I spent on it. Conversely, releases like 0 Day Attack on Earth, NBA Unrivaled, Invincible Tiger, and Fret Nice don’t come anywhere close to deserving a $15 premium. Other games in the $15 range, like RayStorm HD and Scrap Metal, are questionable at best. Of the 21 XBLA titles released so far in 2010, 9 of them are $15 titles– that’s 43%. Compare that with 24% of XBLA games released in 2009 (21 out of 91) that were more than $10, and you see a significant increase. Almost double, in fact.

The price point for RayStorm HD was quite unsettling to me, as the cosmetic changes are not all that drastic and that the new modes of play really don’t break any new ground. Considering that you can buy Taito Legends 2 for the PlayStation 2 for less than $10 new and that RayStorm is but one of 39 total games included on the disc… $15 is rather steep. Yes, it’s got Achievements and Leaderboards, but are the additions made to the original arcade version of RayStorm that significant? I don’t think so. 0 Day Attack on Earth is another example of fleecing; it’s short, repetitive, and relies on expensive paid DLC to extend the experience… and you’re still expected to pay $15 for the base game. Where’s the precedent here? Is it because the game uses satellite imagery of actual cities for background visuals? I certainly hope not. There’s just no rhyme or reason to what qualifies as a $15 game anymore. It used to be the exception, based on a variety of factors. Now it seems to be more of the norm, a 33% increase over what XBLA consumers have generally been accustomed to paying for quite some time now.

Speaking of paid DLC for XBLA games, it’s getting ridiculous. Square-Enix is getting a reputatiion for gutting content from their XBLA releases in order to resell that content as DLC shortly after launch. Many of these games are Taito offerings, like Bubble Bobble, Arkanoid, and Qix. This is not to say that paid DLC has not existed previously for XBLA games, but these examples are the most egregious ones. The base games may sell for $10, but the DLC is $5 or more in order to make the game complete. Capcom’s DLC releases for Mega Man 9 and Mega Man 10 are clear revenue builders and arguably should have been part of the original releases as space was never an issue. For publishers, these are great ideas… but unsuspecting consumers are getting fleeced, and there’s no end in sight to this trend.

I’ve always been a proponent of downloadable games for services like Xbox LIVE Arcade or the PlayStation Store. These can be impulse purchases and some of these games can really be impressive, like Battlefield 1943 or Shadow Complex. As prices begin to creep up to the $15 range, however, the danger exists that there will be less impulse and more caution on the part of consumers. Downloadable games are not refundable and you can’t trade them in or sell them, so you’re basically stuck with what you buy. Dropping $5 or even $10 impulsively on a game and walking away less than impressed stings a bit less than dropping $15 on a stinker like 0 Day Attack on Earth or NBA Unrivaled that you inevitably either wind up deleting or just forgetting about… and consumers won’t forget after they’ve been burned. If $15 is going to become the new standard, then the level of quality needs to be higher. Something has to give.

As prices go up, it becomes harder for me to be an impulse buyer. The same situation applies to the HD taxed disc-based games and to downloadable titles… in fact, it applies more strongly for downloadable games in my case. Unlike the price of gasoline breaking through psychological barriers like $3 and $4, $15 downloadable games aren’t necessities. I’ll simply learn to play what I have and wait for the right title to come and earn my $15. Killing off the impulse in consumers has the potential to hurt the market in the long run, but the industry will continue to be to self-centered to notice until it’s too late.