Pricing On Demand

Some, perhaps including Microsoft, would argue that the trade-off is convenience. You can pick up a game off the Games On Demand service whenever you like - surely it's worth a small premium to be able to grab a copy of Kameo at three in the morning while wearing nothing but your boxer shorts?

This is something of a misleading argument, since it implies that on-demand games are more convenient overall than their retail counterparts - a blatantly flawed statement. A boxed version of the game can be loaned to a friend, traded in for another game or sold second-hand on eBay. None of these things are possible with a Games On Demand title - in fact, its actual value to the consumer is significantly lower than a retail game would be.

The problem with the pricing is easy to understand, and yet will require titanic shifts in the thinking of publishers and the configuration of the supply chain to change. There is, quite simply, a fantasy of game pricing and value to which publishers adhere with all the passion of a nun clutching rosary beads on a rapidly sinking ship. In this fantasy, game SRPs are a meaningful measure of what consumers actually pay for games, and the retail prices discussed in executive meetings are a reflection of the perceived value of those games.

In this fantasy, second-hand sales are an aberration, a negative force which damages the market. Heavy retailer discounting is a mistake, a foolish move that allows consumers to buy games at lower prices when they'd be perfectly happy to pay more otherwise. Needless to say, this is the same fantasy which causes publishing executives to seemingly believe that everyone who pirates a game would buy it at full price were the pirate copy unavailable.

This is not only a fantasy, it is patent nonsense. SRPs are consistently set at a level which the market would not support. The second-hand market, and retailer discounting, have been absolutely essential in driving the expansion of the games business and the high sales of modern games. Publishers under the sway of this appealing fantasy consistently misjudge the perceived value of their games, believing that consumers will honestly pay £45 for a game experience with a Metacritic rating in the 70s or 80s.

The reality, of course, is that as the market has expanded, taking in more and more people for whom videogames are well down the pecking order of their hobbies, perceived value and willingness to pay high prices has fallen off dramatically. The emergence of games for a few quid on the iPhone, or games for nothing on Facebook, has hammered the perceived value even further. Piracy, demonstrating that the distribution costs of digital copies are essentially zero if you're remotely competent, has delivered a further blow.

And yet, in all of this, there are still companies - Microsoft apparently among them - who think that digital distribution is going to allow them to "fix" prices, that it will give them the leeway to shunt prices back up to what they have somehow decided is their "natural" level. It is, quite simply, a corporate fantasy. Digital distribution will support marginally higher prices than retail, because it offers instant delivery - but it will never, ever support a wide market paying anything close to the SRPs publishers believe in so fervently. Until that lesson is learned, services like Games On Demand are doomed, if not to failure, then at the very least to utter mediocrity.