November 04, 2009 | Category: Uncategorized

On Digital Marketplaces for Consoles

I’ve been thinking a lot about digital marketplaces, and how they can widely differ from physical marketplaces. In particular, I’ve been looking at the world of games. First, a digression into music…

Until recent years, I had been a firmly in the physical music camp. Although I’ve had digital copies of most of my music in MP3 format for the best part of 8-9 years, I always liked having an actual CD. There was something about having the artwork, the lyrics, and nice little touches by the band that made it special. There is also the collective urge: the need to gather up more of what I already had. I’ve got every Idlewild single so far? Great, I’ll get all the new ones on CD too. I’ve not counted in a while but I’m certainly over the 400 CD mark.

Two things changed my mind about how CDs (as a physical medium for music) can be so great. Firstly, I have moved a number of times in the last 5 years, more than I’d have liked. This has the very obvious consequence of packing, moving and unpacking 400+ CDs. While one CD is certainly not heavy, when you start scaling up you’ve got a very obvious physical problem. It’s not fun.

Secondly, I started thinking about the amount of time that I’d spent admiring the artwork and liner notes on most CDs. For the vast majority, it’s under a minute. Very few actually contain much beyond the cover art and the credits. There are a few outlying exceptions to that which I’m glad I own (such as NOFX’s “45 or 46 songs that weren’t good enough to go on our other records”, Bad Religion’s “Tested” and the Refused compilations), but they are very few and far between.

The pain of moving and storing these products just isn’t worth the benefits any more.

For the most part, I buy all my music digitally these days. Either on iTunes (not it is DRM free),, 7Digital (my favourite for a long time) or Amazon (best price-wise for most of my more recent purchases). I can pick between them based on price, any extras, exclusive tracks, longevity (some may not go the distance), copy protection (market forces have all but killed DRM in audio) etc. That’s a VERY good thing.

Now, games. I am a gamer, and have been for as long as I can remember. While I don’t tend to keep consoles for more than a generation or two, it’s still fairly easy to build up a decent number of games. Given that games face the same physical issues as music when the numbers get large enough, and they can be represented digitally, it makes sense to start building digital marketplaces.

It was no surprise to anyone, then, when Microsoft announced their Games On Demand service at E3 this year. It has now launched and features older games for cheaper prices. In and of itself, a digital service like that is probably a good thing, but there are some serious causes for concern.

As the platform holders, Microsoft are fully in control of the digital marketplace for their console. That means that they are the only people selling anything and they’re the ones setting the prices. We have a situation where, effectively, Microsoft have a monopoly. History has taught us, time and again, that marketplaces are good for consumers only whilst their is genuine competition.

If you pick any game on the Games on Demand, you can buy a copy much cheaper elsewhere in physical form. Whether the premium is worth the lack of box to store is entirely up to you, but I think that doubling the price probably isn’t worth it. That’s also ignoring the fact that digital products are cheaper to produce that physical products and that fact should be reflected in their prices.

It’s unfair to just pick on Microsoft. Sony have the same situation with their offering. (I’m leaving indie games, XBLA and Steam out of this discussion for the moment and may revisit it later).

What we need are alternatives. We need Microsoft to open up the platform from a sales-perspective at the very least. Different distributors could fairly well compete in the digital games marketplace for consoles. Pricing is an obvious differentiator, but with products like games there are a number of ways to build a competitive service: in-game extras, download speed, limited remote access (play from a friend’s console), limits around re-downloading, exclusive multiplayer servers (less of a concern with the 360), avatar awards, etc.

For now we’ve got a fairly weak offering in terms of its competitiveness. The worry is that the next generation of consoles move further from the retail and into digital (see the most recent PSP iteration) without these concerns being addressed.