Iwata explains the price parity on digital and retail games

At least as they pertain to digital versions of big-name retail games.

Nintendo president Satoru Iwata has explained why its digital games are not less expensive than their boxed counterparts, which must be manufactured on discs and shipped to retailers.

"Although the mainstream idea regarding the digital business in the industry before we actually started selling software in both digital and packaged formats last year was that the digital version should or must be priced lower than its packaged counterpart, we decided that, since the contents are the same, the company would offer the software at the same price, be it the packaged version or the digital version," Iwata said during a recent investor Q&A session.

Iwata explained that this price parity is the result of Nintendo wanting to make sure the company's software, released digitally, is not devalued compared to the boxed product.

"This is because we want consumers to value software as highly as possible and because we have been trying to heighten the value of our software whenever we produce it," he said.

Credit GameSpot

Even though Iwata was speaking purely in regards to Nintendo, I think the same philosophy can easily be applied to everyone else. After all, price parity between retail and digital versions of games is nothing new. You occasionally see a 10% discount on certain games for pre-ordering the download version (or in the case of Steam, such discounts for launch week), but on the whole, it's standard practice to make them cost the same as their retail counterparts. Which is totally fair. You don't want digital copies of games to seem inferior in some way. Won't help get anyone on board with the eventual all-digital future if there's a perceived lesser value in them.

The kicker is that, if they did discount them, it could create more incentive buy digitally. We've already seen that happen countless times with the annual Steam sales, so it clearly works. The question, then, I suppose, is whether that would diminish their overall profits in the long-run, since everyone could, in theory, just wait for sales and not buy them immediately upon release. Already hear that Steam games quite often, so it's not out of the question.

On a side-note, the 60-character limit on topic titles is really making it difficult to be descriptive. So annoying.

Their explanation for why digital costs the same as retail makes no sense. Consumers aren't going to value a game less if they get it at a discount (Store A is selling a game for $60, but store B is selling the same game for $50. Clearly store B is selling an inferior product!). Along those lines, when Nintendo stuck to cartridges and Sony went with CDs, nobody claimed the simple fact that N64 games were 30% more expensive made them better.

Lower pricing isn't going to make people less likely to buy digital, its going to make them more likely to buy digital.

What really explains the fact there tends to be little if any difference between retail and physical game pricing is the concern that retailers won't stock a game if the publisher's digital copy is much cheaper than the physical copy (in the console space physical is where big budget games make the overwhelming majority of their money).

Even that's suspect, though. Sony was running a promotion last year where buying digital copies of big-name games got buyers $10 off. I don't recall retailers getting up in arms over it. Or if they did, it wasn't publicized.

I agree that the explanation is a bit... weak. (I originally thought about making a comment about the irony of how discounting digital games would increase their value, but decided against it. Didn't want to risk the thread running off course.) But it at least provides a general look at some of the thought process facing the industry. Besides, you definitely see that occasionally when people compare most downloadable games to retail ones. I know I've heard people express that retail games are better because they cost more and vice versa.

As usual when he or Miyamoto try to explain something, that just makes no sense. Basically, I agree with everything Carnage said. These two guys need to please understand that sometimes it's best to just keep your mouth shut and appear to be a fool, than it is to open it and remove all doubt. You keep the prices exactly the same because you are greedy, you want our money. Same reason MS and Sony do it. We know it, you know it, and we know you know it. So please, just shut up, Iwata.

"This is because we want consumers to value software as highly as possible and because we have been trying to heighten the value of our software whenever we produce it," he said.

This is such a crock of shit. I can't stand anything that comes out of this imbecile's mouth anymore. He's doing nothing more than attempting to justify Nintendo's greed as much as possible. I can't wait until he is gone as I find his entire philosophy and many of the things he says to be a bad direction for the industry to head in.

That's not necessarily true. There are many people out there who see much more value in physical media than they do digital, me being one of them.

He and Miyamoto need to learn that you get baked AFTER an important meeting or interview, not before. They always try to wax philosophical, but end up sounding, quite frankly, like idiots.

Iwata-san's use of the word "value" there seems to just be about any that is monetary. All he is saying is that Nintendo would like to get the same amount of money for a game regardless of it being on a disc or completely digital. That is Nintendo's prerogative as the seller. However, it is my prerogative as the potential buyer to boycott the Wii U digital games until they lower in price or buy all their games used. Nintendo should know by now that the video game industry is changing and digital is the future. I think this decision was a disconnected one.

What a douchebag excuse this is. Everyone knows you're full of complete BS Iwata.

Seriously. Every time either one of them speaks I shake my head......it's becoming painful. Although many these excerpts are intended for investors, not PR, and in all truth perhaps Sony and MS are singing similar and nobody cares to bring it up here, but then again their digital offerings speak on their philosophy.

I don't think either of them makes their investor hearings public. Or if they do, not in such in-depth reports. Pretty sure that's why Nintendo's are reported on so often.

Nope. If the same game is at a cheaper price, I'm buying it. It devalues the physical product, not the digital.

I think some of you are missing the point. The point of digital games is convenience for the consumer. If the game is priced at MSRP then it should be sold digitally at that price. Yes the price of manufacturing is absorbed into the overall price of the game. What happens when you drop the price? Do you decrease the digital even further beneath the retail price. Do they match up at some point. It's not a big deal. Why make the game easier to purchase / acquire AND make it cheaper? From a companie's points of view, that doesn't make any sense.

As the breakdown below shows, Nintendo or any other publisher could chop the digital price of a game that retails for $60 almost in half and still see the same amount of money (retailer margin, cost of distribution and cost of unsold merchandise total up to $26) so Nintendo's current strategy doesn't bring in the same amount of money per copy sold, it brings in quite a bit more.

http://latimesblogs.latimes.com/entertainmentnewsbuzz/2010/02/anatomy-of-a-60-dollar-video-game.html

As the chart above shows, if publishers didn't have to worry about consumer resistance (for practical and or emotional reasons many prefer physical) and retail (the overwhelming majority of console games are sold at retail) retaliation, it would actually make them more money to push consumers towards digital. They could drop prices by say, 10 bucks (back to the traditional game price of $50) and still make $16 more per game than they do under the current model.

Passing along part of the savings due to the new medium but keeping another part for themselves is what game companies did in the PS1 era and that worked out pretty well for everyone.

Nintendo is no authority on pricing. They've proven over the years that they have no idea about what they're doing. I saw Wind Waker on a shelf the other day, it was still selling at $50, 10 years later.

You probably saw the recently released Wind Waker HD. Selling an HD remake of a single game for $50 strikes me as excessive but Nintendo fans bought WW HD in larger quantities than they bought Wonderful 101 or Pikmin 3, so the move made sense for Nintendo.

I was half-joking, but my understanding is that Nintendo's insistence on keeping all of its own products at high prices for excessively long periods of time is what got them in their current situation, in which the only people who buy their products are people who value them a lot, and these people only have so much money left afterwards to buy third parties.

Nintendo games take ages to drop in price --> people who buy them have less available budget for third parties --> third parties don't sell as well as on the competition --> less third parties release on N consoles --> people who buy N consoles only do so for N games --> N keeps its games at full price even longer, and the wheel turns.

Game pricing isn't the only reason why Nintendo consoles have no third party support, but I think it's been part of the equation (for decades).

Iwata really needs to stop trying to explain stuff and just shut up.

@c_rakestraw:

I am a bit surprised by Iwata's comments here. The reality is that they want to charge the same price, so that they can make money. The idea that having

a digital version at a lower price point seem inferior to a disc version is irrational.

@CarnageHeart: Carnage, I have read online discussions about how retail video games are priced, so I know about what you are saying. Nintendo knows also, of course. I question whether this company agrees with an opinion of mine which is selling digital counterparts of retail games is a short term solution to acquiring profits when the change to fully digital will be a long lasting change.

Nintendo has stated before that as a company, it does not compete with Microsoft and Sony, and performs as an independently creative one. I have said Nintendo is a good company because of that attribute. Depending on the outcome of this holiday season, I may begin to question if that is giving to much support to that and as consequence, innovations that the rest of the video game industry is improved by are being neglected to its detriment as well as those who buy Nintendo products.

I always thought it was ridiculous how Twilight Princess was sold at $50 new for a good five years. And that was a launch game for the Wii. Wasn't until they introduced some "greatest hits" line that it was discounted, finally. It's absurd how they can get away with that.

I'd rather just pay for the disc if both prices are equal. At least with most Nintendo platform games (to my knowledge at this point) you don't need passes for most (maybe all?) titles. A physical copy can be traded in if you don't like it or want it anymore, you still can't do that with a digital one. The reason why DD services like Steam and the Apple Appstore etc. do well on digital goods is because things are going on sale constantly or being pitched at "more proper" values. If people are going to be stuck with their digital products they're more often to bite when they can find them at values they are more willing to pay than the typical MSRP. That's just my take anyhow.

Only Nintendo is doing what?

Nintendo is insisting upon charging the exact same price for digital as retail forever, under the premise that if they don't and we're able to get them for less we'll somehow, in Iwata-land, see the value of our games decrease simply because we pay less for them? Asinine reasoning here aside, I don't see this philosophy with Steam, nor Sony, nor MS. All their prices eventually drop, and fairly quickly. I'm with you, I don't buy digital unless required (or exceptionally cheap) and won't even humor Nintendo's offerings until they get their head out of their asses and implement universal accounts. But what he's saying runs contradictory to every other means of digital software distribution I've bought through other venues.

Games do not somehow suddenly hold some objective value simply because of how they're priced by the seller. Value is constantly in a state of fluctuation as a product's worth is always subjectively being determined by the consumer no matter what it's priced for. Everything is only as valuable as what someone is willing to pay for it, a fact it seems Iwata and co, unsurprisingly, can't seem to grasp.

Price has little do with manufacturing cost. This is basic economics. Price is set according to what people are willing to pay for the product, or in other words, as Iwata said, how much the consumer values the product. A game is a game, the content of the game, no matter how it's distributed.

But lowering a price also increases demand, something that Nintendo doesn't seem to care about once their games are old. Maybe they'll start dropping digital prices once sales numbers drop for first party games, like third-party publishers have been doing on the eShop.

Wouldn't this cause a problem with retailers? I'm not sure what they could do about it but I think there is something to be said in the way Iwata phrased this. I just don't think it's a big deal cause I personally think different prices on the same software would cause problems.

Also, pubs keeping games at $60 means they are already losing some money compared to last gen.

You'd think Nintendo would try for the best of both worlds. Sell high when new, lower when old. Yet they always remain high as if their belief that their games are the end all be all dictates the same belief for consumers. I don't know what this stems from, but it strikes me it is a product of pride, arrogance, and stubbornness, or a combination of all.

They really only keep their big name games at a high price. Nintendo Land has already dropped to $30 from $60, as Nintendo must have realized that almost nobody seemed to value that game at $60.

My guess is that Nintendo sees decent enough sales figures for years on their Marios and Zeldas that dropping the price would mean more sales but the same net profit, so they'd rather not devalue those games if they have a choice, to use Iwata's term. But a 3DS launch game like Pilotwings sells for as low as $9 now, while OoT3D is still full price.

Price has everything to do with manufacturing costs. This IS basic economics. Price is set according to manufacturing costs in a competitive environment because if you sell too high as a producer, someone else (the competition) will make a similar product at a price that matches costs more closely.

It's a little more complex when dealing with intellectual properties, but it still pretty much holds true. If Nintendo (and Microsoft in my case, as their digital distribution is ridiculously expensive) refuses to pass savings to me, I'll turn around and buy more from companies that do (and that's what I'm already doing by making the vast majority of my games on PC through digital sales).

The base price of a product is linked to manufacturing costs, obviously, but it's not the biggest factor. Consoles are priced below production cost because the consumer doesn't value the thing as much as it costs to produce it. If people DID value a console at production cost, it would be priced as such, or more, if they thought it was amazing enough. As it is, manufacturers need to price the console as high as possible within the value that they think the consumer will place on it. Competition drives those prices down, but none of the competition sells at cost, so none of them are valued as high as they could be.

But what's the actual manufacturing cost of a game? In comparison to man hours and licensing fees, it's next to nothing, whether digital or retail. But regardless, if Call of Duty were priced according to its net cost to produce, including salaries and disc printing and everything in between, it would be priced at something like $20 because they would know that demand is high enough for that price to cover the cost.

But games aren't priced according to production cost, for the most part. $60 is a pretty arbitrary number, but consumers have shown over the last decade that that's the magic price point for big budget games, at least for now. This has nothing to do with savings in the production process. A single robot could make the next Call of Duty, and if people still wanted it badly enough, it would cost $60.

Oh, but when I say "manufacturing costs", I'm using a lazy shortcut (my bad). What I really mean is the marginal cost; the cost of making, selling and promoting one more game (including licensing fees, the retailer's cut, etc.).

The console hardware example doesn't quite work imo, because Sony, MS and Nintendo get royalties on every software sold and make money on their first party games, so they're trying to move as much hardware as possible to increase the potential market for software. But the marginal costs of making a console are still very much taken into the consideration, or else they'd just release consoles for free, trying to reach the largest imaginable market.

Also, $60 is not the real price point for big budget games: it's the initial price-point. The average price point paid by customers is lower than that, because games drop in price over time. I know that I almost never pay $60 for a game (and I buy new most of the time). What they're doing with the $60 is trying to make early buyers (who value the game more) pay more, and then lower the price for late buyers. If you find the true average price point paid of, say, Call of Duty, you'll find that it's close to the marginal costs of selling one more copy (including advertising, everyone's cut, etc.). The reason why publishers can afford to allow Steam and other PC game sites to make such extreme sales so often is exactly because it's less expensive to release a game digitally than retail. AC: Black Flag is selling for $60 on Steam right now, same as its retail price. But in the summer sales next year, it will sell for $10, while the retail version will still be at $40. It's not because people value the retail version more, it's not because they just don't know better either. It's because Ubisoft has a lot less costs to cover per game sold when they sell through Steam than when they sell through Gamestop.

I agree with pretty much all of that. The reason I even replied to this thread was to get people thinking more in terms of economics, since that's what Iwata was talking about, not some vague idea of a digital game losing some kind of intrinsic value if its price is lower. (I don't think the theory that the true average price of a game is close to the marginal cost is correct, though, because publishers would never make any profit if that were true.)

While your Steam sale example is totally true, Iwata wasn't talking about temporary price cuts. Nintendo has sales and deals on its digital content already, for the exact reasons you described. Iwata is saying that when they want to set a permanent MSRP for a game, it's going to be the same for digital and retail.

One awesome caveat here is that Nintendo currently gives 10% credit for anything you buy on the WiiU eShop. This gives the impression that the consumer is valuing the game at $60 (and it still feels like spending $60 to me), but Nintendo is really only charging $54 in reality (although the money saved can only be given back to Nintendo or never spent at all). It's a solution that kind of provides the best of both worlds for Nintendo, and it works out great for consumers.

@JordanElek: The true marginal cost of a game includes a "normal" profit in relation to the industry, because you have to take into account the opportunity cost of investing capital elsewhere.

I didn't realize that Nintendo had digital-only sales and promotions. Haven't been keeping up with them that closely. And I agree with the rest of your post.

It makes sense. Many people presume a digital game, regardless of size or length, to be "lesser" compared to a "full retail" product. Many people on the internet and in real life don't consider a game "real" until it's in a box on a retail store shelf. Despite many digital products offering more content for less money than $60 retail games.

I fully understand why they are doing this. And it's their choice to charge whatever they want for their games. Their customers will tell them how much they are willing to pay, and they'll adjust their prices according to that.