Alternative Access

Alternative Access
The Downside of Direct Downloads

Michael Comeau | 28 Jul 2009 12:28
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In this scenario, that could force console companies to take on the responsibility of selling hardware directly to consumers - a complicated venture to say the least. Alternately, they could entice retailers by lowering wholesale prices or raising retail prices. Neither option seems very attractive for a console-maker: It's either lose even more money on each console or limit your overall customer base.

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Prohibitive console prices may be the least of consumers' problems, however. The biggest one is the elimination of price competition in the software market. I like having a choice when I buy a game. Right now, I can walk into my local GameStop and pick up Fight Night Round 4 for $60, order it from Amazon for $55 or hit up Craigslist and find a used copy for $40.

In highly proprietary, closed systems like Xbox Live and the PlayStation Network, there will be no competing sources for game downloads - in other words, no shopping around for the best price. And no physical game disc means I have nothing to trade in or sell when I'm finished with a game to make a few bucks back.

To celebrate my Xbox 360 coming back from Microsoft for repairs, I decided to pick up UFC Undisputed 2009. Being a bit strapped for cash, I gathered up a few games that were collecting dust and toted them over to my local GameStop. I ended up paying about 74 cents for UFC after my trade-ins. And on the other side, some lucky fellow is playing my old copy of Frontlines: Fuel of War, which cost him about $10. For consumers, it's a win-win situation.

But if I can't shop around for my games or sell unwanted ones, I'm not getting as much value for my dollar - a real problem when the economy is so tough. That's the fundamental problem with direct downloads: They typically cost the same to consumers, but they're worth a lot less.

The current system isn't perfect, but it works. Software companies still have fat profit margins and benefit from downloadable add-ons to existing games as well as full downloads of smaller titles. Retailers like GameStop and Best Buy still have plenty of incentives to continue selling both software and hardware, and console makers will see improving fortunes as their install bases grow and their sales mix shifts from low-margin hardware to more profitable software. And as gamers, we have an abundance of choices, including a thriving used-games market.

Change just might be overrated.

Michael Comeau runs the blogs VideoGameStocks.net and LongShortTrader.com. The Brooklyn-based freelance writer was a columnist for TheStreet.com, where he covered the video-game industry.

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