The Downloadable Content Dilemma

In the physical world, when you buy a new dress for your GI Joe (you know who you are), you understand that it is just a personal hobby and you accept that the money might be going to no good use.  However, when you get tired of it, Joe’s dress can be given away, loaned to someone in your Cross-Dressed Joe fan club or resold on the secondary market.

Not so with downloaded content.

If you are one of the million people who made Call of Duty 2 a huge hit, there is a good chance you are looking forward to CoD3.  When the new installment hits, you will find yourself playing CoD2 less and less.  If you can deal with the emotional rollercoaster, you will donate the old version to a needy friend, or a sibling you don’t hate.

If you want to defray the cost of some new games, you might even sell CoD2 on the secondary market (hello Ebay!).  Maybe you’ll only get $30 for COD2, but after months of good service, 30 bucks ain’t half bad at all.

With Microsoft, Nintendo and Sony bragging about the upcoming possibility of full game downloads, and with next-next-gen fortunetellers predicting disc-free gaming, the example I just illustrated could soon become impossible.

Given the content tyranny at work on gaming consoles, there is very little chance you would ever be able to sell or even donate old copies of downloadable content you no longer want.  Worse still, the prices of aging but unused games could end up floating very close to the initial launch price, even years after a game is first released.

When we see retail price drops for games that are only a few months old, part of the reason is that new titles are vying for the attention of gamers and the old stock is just collecting dust on the shelves.  One of the problems in a download-only future is that there will be no such dust-collecting.  Games will not be produced in mass physical quantities and shipped to stores to eventually demand price reductions.

The other problem is that discounts on games are also driven by pressure in the secondary market.  After all the early adopters have played through Call of Duty 2, their used, but still functioning copies, find their way into the secondary market at a price lower than retail.  This puts downward pressure on overall prices for the game, forcing the manufacturers to cut the rate for brand new copies.

Ghost Recon Advanced Warfighter and CoD2 are both exceptional games and many people don’t mind paying full price for high quality, but one of the biggest reasons those two games have been slow to discount is because original purchasers are still playing them.  With more used copies hitting the Internet and game stores now, we are just now starting to see substantial retail price drops on those titles.

You might be thinking that “virtual” new games could be relatively cheap to begin with, considering that the publishers don’t have to pay for tons of discs, cases, and shrinkwrap, or trucks and drivers to drop them into big stores that also cost money to operate.  Unfortunately, prices have little to do with cost of production.  How much do you think it costs to make a bucket of popcorn at a movie theater?

Price is all about what you are lucky enough to get from an eager buyer.  When there is no secondary market to speak of, and when you control the exact use of every bit and byte you “lease” to your customer, you can charge whatever you want.