Pricing On Demand

How much does a videogame cost? It's a trickier question than it looks - and perhaps the most important question the games market faces today.

Many in the industry would answer by pointing to the standard Suggested Retail Prices, which vary across a fairly broad spectrum from £20 for many handheld games up to £55 for Activision's Call of Duty: Modern Warfare 2. Some would even point to higher prices, with games bundled with accessories being slapped with SRPs of over £100.

The problem is, those SRPs aren't really relevant to what the consumer actually pays. They're routinely discounted by around 20 per cent by high street stores at launch, with even steeper discounts online. Within a month, they're in second-hand bins with as much as 50 per cent knocked off the original price. A year later, a game launched at £45 may be selling for as little as £15 or even £10.

Besides, SRPs apply only to one small part of the industry. There's a whole sector worth tens of millions of dollars already where prices range from 59 pence up to £4.99 - the iPhone App Store. There's a billion-dollar product called World of Warcraft, and a host of smaller rivals, which charge a monthly subscription. For some games, the cost is variable - you pay according to how much you play, or which items you want to use. For some, it's free - revenue comes instead through advertising or promotional value.

Things get even more complex when you change the question slightly, and ask how much a game is actually worth. How can this be calculated? In terms of money paid per hour of enjoyment?

That's a common enough measure, but it's far too simple - whereas the vast potential of the multiplayer modes in games like Call of Duty or StarCraft make them immensely valuable, for many players, making a single-player game 20 hours long rather than 10 hours long is actually a negative point, since it makes it less likely that they'll find time to finish it. Value is an intensely personal measurement, one which bears little relationship to actual cost - many gamers will find themselves spending more time playing a free game like Bejeweled Blitz than they spend on some full-price console games.

In other words, there's no simple answer to the questions of cost or value. The diversity of the market is a topic I've touched upon repeatedly, and here it plays itself out in full view - as the market's diversity grows, so too do the number of "right" answers to these questions.

That is not, however, to say that every answer is right. There are also wrong answers to these questions - such as the one which Microsoft has hit upon for its much-trumpeted Games On Demand service on the Xbox 360.

In theory, Games On Demand should be a major leap forward for digital distribution - the ability for another popular console to download and play full retail versions of games is a major milestone in the step towards the rather inevitable digital future. In practice, however, Games On Demand is a huge disappointment - illustrating the huge challenges faced by digital distribution far better than it illustrates the potential.

Aside from the fact that the basic Xbox 360 hard drive is somewhat smaller than the USB stick on my keychain, and upgrades are laughably expensive, the fundamental problem with Games On Demand is price. The prices of games on the service, especially older games, are significantly higher than what consumers would pay at retail - where these games are available in large volumes second-hand, and heavily discounted even when brand new.