Why do games cost more to direct download on a console than to buy a disc? Surely direct download saves the manufacturer costs on transport, shipping, actual materials for disks and packaging, setting up deals with retailers etc…
In: Technology
This is not a factor of costs. Just because they lower costs does not mean they pass savings onto the consumer.
The price of something is locked in to maximize profits. You have two counteracting things — as the price gets higher, less people buy it, but it also produces more profit. You have to find that sweet spot where the majority of people buy it at the right price to maximize profit.
For in store games, people have locked in that price pretty hard.
While realistically it could be lower in an online store, there is likely some agreement with a few big retailers that they do not undercut them. It could easily be seen as anticompetitive if the majority of people could buy a game online for cheaper, and stores are only there to help with the people who need physical purchases.
It’s all about convenience. Do you wanna drive to the store, wait in line, all that just to buy the game or click a button and it’s yours?
Same reason Ticketmaster charges like 120% fees on top of their tickets for online sales. Convenience. I’m sure not going to the box office and standing in line.
Same reason AMC now charges a convenience fee for online tickets. It uses no ticket stock but somehow they need to charge more.
You could go to Redbox and rent a movie for a buck or two, or click the button on your remote and rent the same movie for $5.99 or so.
Phage is spot on with pricing not being related to costs
Another factor is that a manufacturer will often promise not to sell directly for less than a certain price as this would undercut the sales of their retail partners. This is common for hardware that is rebranded and sold under a different name, there’s no reason to buy the rebranded model for $80 if the identical original model model is only $70. What the manufacturer loses in margin they make up for in volume and reduced distribution costs on their side (its cheaper and easier to send 10k units on a skid to a store than to 10k different addresses)
This is because of a common error people make when thinking about companies pricing products: It has almost nothing to do with the expense to produce it.
Suppose you want to make some money. You hire a worker and pay them $10 to make a product, you spend $3 on materials to make it, you spend $0.50 to package it, $1 to ship it, and $2 on marketing. How much should you charge for this product?
As much as you can get! The goal is making money, not offsetting your costs with a certain percentage markup. Obviously you need to make more ~~then~~ than you spent on it or you are losing money and shouldn’t do that again, but even if you have a product you can’t sell for more than you spent on it the goal is still to get as much for it as possible.
So in your question about selling a game that the producer doesn’t have a bunch of costs they otherwise would have, the price doesn’t change because there is no reason for it to do so.
I read that Nintendo have some sort of agreement with retailers that they won’t undercut them with their online prices. If the digital downloads were cheaper nobody would go to the stores for them and they’d likely refuse to stock their games. I imagine that’s part of the reason for other companies as well, on top of whats already been posted about charging what people will pay
Because they can, and it’s good business sense to do so. The monetary value of anything is what people are prepared to pay you for it – not what it costs you provide it.
People often have the naïve idea that companies are in business to serve their customers. They’re not; they’re in business to do what’s best for their shareholders. The two sets of interest may coincide – but often they don’t.
Basically – if a significant proportion of your customers will pay a premium for an immediate download, you likely charge one. If it’s cheaper to do that as well, that’s even better; more profit to cover your costs, reinvest or pass on as dividends. What you’re not in business to do is to pass that saving on to your customers, unless it’s as a consequence of some hard-nosed business decision that it will likely bring a return. OK, so some people won’t like it, and will walk away. Others will be prepared to wait and buy the physical media. You factor all of that into your calculations and relative pricing.
The MSRP is usually the same. The reason you would often find a disc cheaper is that the retailer (GameStop, target, Walmart, Amazon etc) has chosen to offer a sale or discount. Whereas most digital sales are from the software vendors online stores. While they sometimes do run sales as well you’re much more likely to a get a discount from a store.
The console manufacturer, or even the game producer, does not want to screw their own distributors by undercutting them. Obviously, nobody can price-compete with the manufacturer.
If Blizzard was selling Diablo for $40 on their website while everybody else was selling it for $45, obviously nobody would buy it anywhere else. Great, you think, Blizzard gets all the profits! In reality, they lose a lot of money because nobody will even try to sell that item in their own shops. Blizzard loses all the sales in physical and online shops.
If you go to a manufacturer of any product and try to buy it as an end user, they will most likely send you away with a contact number to one of their vendors.
Simple answer is to have parity with brick and mortar stores and to not upset your supply chain. If you make things inherently cheaper online, you’re going to have your stores upset that you’re undercutting them. Start doing that and all of a sudden they have no room for your consoles or accessories.
So even if you can sell for cheaper online and selling online is inherently cheaper than shipping a disc and displaying it, you want to keep the prices the same to appease stores that sell your products so you have a footprint in the physical places people shop.
There are two other things that I haven’t seen in the other comments.
1. Even though digital is cheaper to produce but there are costs associated with hosting and maintaining servers where the digital code is stored.
2. Companies that publish video games don’t want upset the relationship with stores that sell physical copies of games. If EA sells their games cheaper digitally on Xbox or PlayStation than GameStop or Walmart there will be no incentive other for retail stores to continue selling EA’s games and if they do that then EA will lose a lot of money.
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