Tobold's Blog
Thursday, June 13, 2013
Welcome to the digital world

So Microsoft replied to their perceived defeat at E3 by stating: "We're trying to do something pretty big in terms of moving the industry forward for console gaming into the digital world. We believe the digital world is the future, and we believe digital is better.". I find that a somewhat unfortunate phrase. The last analog media were tape decks and LPs, every CD, DVD, and Blue-ray disc is digital, so the PS4 isn't any less digital than the XBone. While I had a ZX81 in 1981 that used an analog tape-deck for storing games, I am pretty certain that consoles have always been digital from the start.

I think what Microsoft means is that the future world will be virtual, as opposed to physical. I agree with CNN saying that Sony "won" E3 by "basically doing nothing", that is by saying that the PS4 discs would work pretty much exactly like PS1 discs. That is comforting for customers wary of any change, but hardly innovative. Most people never understood the difference between owning a physical copy of a book or disc and owning the contents of that book or disc. Even the law on reselling media depends on those media being physical. Any move towards a virtual future will leave existing laws and ways of thinking about intellectual property behind, and that will be scary for some people.

That is not to say that any change is necessarily bad. For example I am pretty certain that game companies currently "price in" the lost sales due to used games and piracy into the price of their games. A future in which media a virtual and can't be pirated or resold could thus result in lower prices. Many people (including commenters on this blog) have a very confused opinion about what constitutes a monopoly, and believe that Microsoft would keep prices high because they control who can make XBox games. That totally fails to take into account the competition from other consoles, PC games, and mobile gaming platforms. Apple has the same control about what games are published on the iOS than Microsoft has over the XBox, and iOS games are dirt cheap.

In fact when Microsoft dreams of a future without physical media, something like an iPad must be very much on their mind. Apple is doing quite well without physical media, and so are its customers. And I think this is exactly where Microsoft went wrong: They didn't go far enough with their XBone. They got stuck half-way between the physical and the virtual world, trying to please everybody and ending up pleasing nobody. The XBox Two (or whatever the next generation will be called) will presumably not have a disc drive at all, only a hard disc and an internet connection. If Microsoft wanted to be a visionary of the virtual future, they should have made the XBone virtual only, with no physical discs. That would have left Sony looking like dinosaurs with a 20 year old disc system compared to Microsoft's and Apple's disc-less system. By doing things by half, and still having discs but tethering them to the virtual world, Microsoft ended up with the worst of both worlds. They even could have beat Sony on price if they had gone with a much smaller console without disc drive. And nobody would have asked questions about privacy and DRM, just like nobody asks these questions to Apple.

As it is, people who prefer discs to online downloads will probably buy a PS4. Not that the average customer is very concerned about privacy (just look at his Facebook page) or DRM (just look at his App Store purchases and Steam library). The average customer's first concern will be what games he can play, and with so many multi-platform games out there the secondary concern of the $100 price difference will probably carry the day for Sony. As games availability is the first criterion of choice, the XBone will probably outsell the Wii U. And given past history it is not unlikely that come Christmas 2013 both the PS4 and the XBone will be sold out, which makes sales more a function of production capacity than anything else.

Christmas 2020 there will be new consoles, and none of them will have a disc drive. Microsoft's vision might well come true, they just bungled the execution of it in this console generation.

You're assuming that disks are only used for installing games. Microsoft couldn't release a machine today without a drive without potentially alienating all the customers who use their console for DVDs.

The (generally younger) demographic who either live at home or in other accommodation without 'ownership' of the living room would then require an additional box.
I meant to add that by 2020 this may also have dematerialised, but needs greater penetration by Netflix etc than currently.

Or, a fantastic opportunity for cross-selling....
Try hitting a mall on christmas and compare a shelf full of PHYSICAL games for ps4 to a shelf ONLY containing XBone console system. Imagine what any kid out there would prefer....

On second thought, you as an uncle/parent/gift giver reply to the following two questions.
1. Would you like having the option to just buy a console as opposed to be able to buy a single game of that console as a gift? (300-400$ to 50$)
2. How easy is it to give your nephew a certain game ( i.e. pes2013 ) as a gift in the hypothetical case of ONLY VIRTUAL DRM ONLY gaming as opposed to just buying a PHYSICAL copy and gift wrap it under the christmas tree.

Gief me my gift wrapped virtual copy now pl0xx!!! OMFG
You mean Microsoft, the company that has been successfully sued around the planet for being a monopoly and artificially inflating their prices because of it?

I think it's deluded to think that in any way shape or form that company has anyone's best interests at heart but their own bottom line.

Steam works because of pricing and the ability to play offline. Two key features the XBone does not have.

Using the logic you've posted, Microsoft should price their games 10-20% cheaper than PS4, due to not worrying about used games or piracy. That would be the only way for their system structure to make sense from a consumer point of view.
To expand my previous post even further...

You can only guess what the current game distribution wants.

Only virtual will leave all the shops you currently know ONLY selling consoles and thus gaining profit only from them sales. If that won't do for their revenue how on earth will people buy the consoles in the first place?

You ultimately need a physical distributor just for the console itself in the long run, that is satisfied by the profit of selling JUST that.
Killing the physical suport (dvd) wasn't a possible choice: tthey would have been slained by retailers/shops.
This is not an either-or thing, Sony has the perfect approach: Both variants are possible and the consumer can decide.

Online only? No thanks.
Maybe in places where internet is lightning fast, but here 360p on Youtube is a bit hard to get on weekends sometimes. The last time I downloaded WoW it took 24 hours.

I don't mind so much that themachine wants to phone home, but until internet is lightning fast here that it could say, stream DVD quality, I want physical discs.

Well, see, I don't think Microsoft really dreams of a virtual future. It dreams of capturing a herd of customers and then milking them to death, using virtual fencing.

Basically what they're trying to do is create a walled garden even more severe than Apple. WIth Apple anyone can make software and sell it. They might get on the App Store or not, but they could sell it from their own site. Even for the Ipad, you have several competitors offering the same basic app, and they fight over price. If I could get on my Xbox and then search the internet for the cheapest vendor for a XBox game, I'd be in. But that defeats the point, doesn't it?

MS wants you in its garden so it can sell you product. You aren't going to see cheaper games, because why should they do that once you're inside?

That's the problem. This isn't about discs or downloads, it's about whether the console gamer retains his historically rights and powers. It's that they're trying to use the virtual to manipulate and control the customer by taking away a lot of abilities that console gamers have had since Colecovision. So I'm not buying the put upon visionary. Tone deaf corporate executive who is a lot dumber than he thinks he is, sure. Not a visionary.
A future in which media a virtual and can't be pirated or resold could thus result in lower prices
Could, but will not. First and foremost its more income for the creator. If that creator is under pressure he could decide to give it back to the customers to better sell their stuff. However, new AAA-Games usually generate enough hype that going up or down a few $ won't change anything in terms of sales, I think.

That would have left Sony looking like dinosaurs with a 20 year old disc system compared to Microsoft's and Apple's disc-less system.
Apple manages something special: They trained their customer to say "This is a new apple product, lets buy it and see what cool and useful stuff it can do for us". Microsoft, like 99% of the rest of the corporate world never managed that crazy bit of marketing. If Microsoft created a console without discs and a strong online-connection, people wouldn't just buy it and see what amazing stuff it does.. they would compare it to the previous XBox and would notice advantages and disadvantages.

At least for me the calculation "you get a bit more convenience and in exchange you give up all control, potentially allowing us to shut you out of your own games whenever we feel like it" just doesn't add up. But hey, I also don't buy Apple-Products and those seem to be a big hit for some.
The only thing on first read that I strongly disagree with is the notion of lowering prices if piracy goes extinct (and lets be honest if people want to resell games they will just make new MS account for every game and just trade accounts)

If the revenue increases (which is a big if) the idea that we the consumers will see anything of this as lowered costs is naive. Actually it will help the publishers capture all the surplus.
Well, two things about Apple getting rid of discs:

1) you can get a $30 external CD drive if it really matters to you and
2) it doesn't really matter anymore. But that's because I don't remember the last time I went to a store and bought a software box.

Bit of a different thing. The point is not discs: it's that when it comes to consoles, the disc has certain practical features about it that allow the owner certain rights that he doesn't get with a virtual copy.

So this isn't some nostalgic and irrational love of an obsolete technology. It's a legitimate concern about giving away major parts of what makes console gaming fun and affordable.
I get where they're trying to go, I just feel it may be a bit premature - and I worry that it'll do well anyway.

For a lot of people, internet connectivity is ubiquitous. Where I live, that's not quite true, and there's a very sharp divide between "in town" and "out of town." I hadn't even considered the market of deployed military either, until comments came out in response to the XBox One statements. There may be enough "haves" in the world of reliable, always-on internet connectivity to make that move financially feasible, but there are still enough "have nots" that don't like seeing that leap taken yet.
If Microsoft was so forward thinking about digital why in the world would they make a new console not able to play digital purchases from their current console. I have a dozen games I purchased digitally on my 360, what possible reason is there that I can't play them on the Xbone?
I have a dozen games I purchased digitally on my 360, what possible reason is there that I can't play them on the Xbone?

Because one of the wonders of the digital world is making people pay multiple times for the same product.

I had LP records which I had payed, I don't remember any music company selling me the same music on CD at media cost.... they simply forced me to pay author's rights a second time.
I don't know about other countries, but there's not enough broadband available yet in America for digital-only to work. Last I read about 70% of the country has broadband, but it's closer to 40% that have fast enough speeds to download full bluray games or stream games in 1080p. The fault lies with American ISPs that are taking their time upgrading infrastructure. Well, probably 80% of their customers are satisfied with their current speeds, so who can blame them? Definitely Microsoft's fault for pushing this too early though. In 20 years digital games will be the norm, not yet though.
As pointed out last time, and by other people in these comments, what Microsoft is doing isn't really "innovative" at all. Both the 360 and PS3 have digital games you can download right now. So what Microsoft is really trying to push is "360 minus ability to freely lend/sell used games." Where exactly is the upside?

A future in which media a virtual and can't be pirated or resold could thus result in lower prices.

Oh, please. If this were true, we'd have already seen it in the current digital offerings from Microsoft. What digital really means for these companies is higher profit margins for their current price schemes due to lack of transportation costs + retailer cuts. They are not going to voluntarily give up those profits.

Yes, Apple and Valve pioneered low-cost digital offerings when they didn't really need to... but they did need to because they were competing with piracy, i.e. $0. Compare that to the price of, say, ringtones for your cell phone. Remember those? Companies were selling 20-second MIDIs for $4.95 because they could.

But you know what? Let's see what happens. Six months from now, will Halo 5 be released at $60 or at $40? Let's start taking bets.
I'd posit that in the future, the idea of a dedicated game console whose content is controlled exclusively by the manufacturer will be obsolete.

You will subscribe to a service like spotify and your subscription will allow you to play whatever you want via the cloud. You'll have a box the size of an Apple TV and a couple controllers. Premium games will charge $30 to play for the first three months.

And that's how you end used games.
The gulf between Steam DRM and Xbone DRM is massive.

I think far fewer people would have a leg to stand on in complaining about Microsoft's approach if they had gone with Steam's 'activate online once' (with a handful of games as exceptions) instead of 'phone home every day' form of DRM.

Also, the idea of cheaper prices being the byproduct of an all-digital/all-online distribution medium? That's... I don't know what to say. Hope springs eternal? Optimism to that degree sure is impressive?

We're hoping that by eliminating 2nd-hand sales and piracy on consoles they'll eventually emulate the pricing we currently enjoy on Steam, on the PC platform which is reputedly the biggest den of pirates there is?

It's a very strange sort of reasoning, that.
That is not to say that any change is necessarily bad. For example I am pretty certain that game companies currently "price in" the lost sales due to used games and piracy into the price of their games. A future in which media a virtual and can't be pirated or resold could thus result in lower prices.

The cost to produce a bottle of water for Coke or Pepsi is a few cents. They COULD sell them for $0.30 and make a comfortable profit. They obviously don't, they sell them for $1.50. Because people will pay $1.50. Full video game prices are not going down because people will pay $60 for them.
@Sine Nomine: Microsoft's attitude to 100% mark-up pricing in Australia for digitally-delivered products has long been, "We price for what the market will support."

Translation: "Whatever we can get away with." And unfortunately for us, the general public is never savvy enough to know about grey-importing or proxy servers, or why they should be using either.

AAA console games release for $110-120 where they release for $50-60 US. The standard is $90-100 for non-AAA, and the occasional AAA from a publisher who doesn't want to fuck us too hard.

Sometimes (rarely) we get a Steam version at the same as the US. This happens rarely, and when it does, it's usually smaller publishers (or Valve).

Apologists have tried all sorts of reasoning to explain why the pricing is so high, but it's basically opportunism. We pay it, therefore that's what we get charged.

Australians don't have the US sales tax, but we do have a similar tax (GST) which is a flat 10%. So a US$60 would cost $63.96 in the US, $66 here. A whole two dollars difference in tax. Shipping? The things are printed locally, and the ones which aren't are pressed in Asia, it's closer to Australia than the US. Shipping shouldn't factor. ESPECIALLY not for digital. There are no import taxes on video games like there are on luxury cars (anything over $100k), no extra laws. The cost of submitting to the Office of Film and Literature Classification is about $50 per submission, and their requirements for the presentation of the review material are much the same as the ESRB, so someone in the distribution department can file it without spending several weeks of lawyer money on it.

The big difference is that Australia has a high minimum wage (but we don't 'tip'. Tipping isn't done here outside of sometimes there'll be a tip jar in a cafe or bar). So, the extra dollars spent on keeping a cashier in at retail and advertising locally are the only real increase.

But it's still not enough to damn near double the price of the game.

NONE of this applies to the digital-only products (such as corporate MS Office licences) which the major digital content providers were recently grilled on by the government. (Apple, Microsoft, Sony, Adobe.)

Microsoft's answer was the 'market adjustment' one. The price is supported by the demand and willingness to pay it.

It's basically Microsoft et al 'taking what they can get'. I see no reason why they'd adjust that attitude to other countries or markets. They'll continue to charge what they can for games, for as long as they can.
"I had LP records which I had payed, I don't remember any music company selling me the same music on CD at media cost.... they simply forced me to pay author's rights a second time."

Indeed. The "licensing" argument kinda falls flat when they force you to pay full price for the "licenses" you already own in a different medium.

So the only consistent thing is that companies will interpret "copyright" and "licensing" in the way most beneficial for their bottom line.

But it's our collective fault really. We are unable to see the big picture and rather than vote with our wallets/feet we want that gratification and, damn it, we want it now.

I will probably buy a PS4 but probably in 2016 when I know which games are out there and also how things will work out for console gaming. For now I'll stick to my PC (more and more) and my PS3 (have a large backlog) :)
Apple is getting away with 'digital only' because most apps for the ipad are only a few MBs. The consumer attitude would be entirely different if they had to download several GB of data every other day.

Plus, the PS4 has the best of both worlds. By allowing self-publishing from indie devs on their online marketplace, they've essentially stolen all the customers of XBox live Arcade.

Add to that the lower pricing and I see no reason whatsoever to ever buy the XBone.
I guess it's about who is using console. While adult players who use their XBox or PS3 or Wii tends to buy several games and play them for recreation. Such players rarely use to sell/exchange/loan games from friends. Absolutely different story is with kids, who rarely have all games they want and for that reason exchange games with friends.
I like this post and the idea of not going far enough. While I would want Microsoft to leap into the future, if I were an exec I could easily see not being willing to be that daring.

Eventually, it will happen. I don't know anyone who still buys physical CDs or DVDs (some buy BR) and I know some antediluvian grandparents who can still buy iTunes gift cards.

I recently bought a Cartel Coin pack at Walmart for the pet. It was a scratch-off card, unguarded on the rack and only valid after being scanned at the register. Imagine if every video game was just a card and serial number at Walmart et al. Any software DVD needs to be patched when you get home anyway, it just saves some download time.

Virtual is proceeding apace:

Re Azuriel:

About Microsoft and virtual - their biggest moneymaker, Microsoft Office is being strongly pushed to be a software rental.

it’s clearly betting that it can get most of its customers to move to the new model over time.

“I would say in 10 years, the majority of customers, perhaps all customers, will be in a subscription relationship as opposed to a perpetual,” Kurt DelBene, president of Microsoft’s Office division, said in an interview.

TBH, Orwell would be proud of "subscription relationship as opposed to a perpetual" - I'm guessing a "perpetual relationship" is what was referred to in ancient times as "buying the product."


Apple sold over 5 billion dollars in apps in the last year, most of those games. I don't think the upcoming generations are going to Occupy Redmond in defense of physical media.
Check out my blog on next-gen consoles:

Just found this article from MS stating that they aren't dropping their prices for games. There goes the argument for anti-piracy saving consumers money.
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