Why Are Digital Downloads More Expensive Than Physical Game Copies?

This article originally appeared on Musings Of A Mario Minion March 5th 2017

I bought Horizon Zero Dawn alongside millions of other players this week. A budding collector of hard copy games, I will always buy releases i’m particularly looking forward to in disc format. So I was surprised to find, on my habitual PlayStation Store flick through session, that I paid almost £10 less for my physical game copy than I would have to secure a PS4 or Xbox One digital download code.

In fact, even games barely a year old are being sold at ridiculously differing prices between new hard copies and digital downloads. At first look, it makes little sense for a product that costs more to produce, and yields less returns in the form of trade-ins and renting for the publisher, to be priced down when compared to its ephemeral online counterpart. It’s a puzzling question, but one i was intent on finding the answer to.

My research took me to the process by which publishers sell their games in different storefronts. When approaching a physical retailer, video game publishers offer a wholesale price with a minimum amount they can charge for the game. For example, a publisher might sell a PS4 game to GAME for £38 and expect them to sell it for a minimum of £49.99. This is the Minimum Advertised Price that GAME has to sell the title for. In return, the retailer might receive a couple of pounds off the wholesale price, or funding for marketing. If the retailer wanted to mark this price down for a discount, then this agreement is cut short. The retailer can sell the title at a discounted price, even below what they initially paid for the wholesale copy, if they are willing to absorb the costs involved. This concept of breaking price works for retailers in a bid to lure customers into the shop itself, or create a brand image that promotes cheap prices.

However, when the retailer is removed as a middle man, the publisher can sell you the game at exactly the minimum price. This is what happens on digital storefronts like PlayStation and Xbox. When you buy these digital download codes, you are purchasing your games directly from the developer. PlayStation and Xbox have no control in themselves over the price set by the publisher, or the discounts they can advertise. So PlayStation and Xbox digital storefronts have to sell at the minimum £49.99 price for their PS4 or Xbox One digital download game codes.

This is where it gets interesting. There’s a model in place that ensures a publisher cannot provide an exclusive discount to just one of its retailers. If a publisher sells a batch of physical copies to a retailer at a lower wholesale price and tells them they can sell it under the original minimum, they must do that with each retailer they supply. If GAME gets a new title for a reduced £28, and is able to sell it for £39.99 then every retailer, including digital storefronts have to be able to reflect this.

This is when you’ll see price cuts emerging online. This is the publisher choosing to discount the price, which essentially frees up the retailer to discount at their will. When the retailer chooses to discount, they absorb the costs. However, massive retailers find it easy to absorb, and are more concerned with grabbing their customers with attempts to clear out stock. This is why you’ll often find that physical copies are cheaper than digital game downloads.