With the five-year anniversary of both the PlayStation 4 and the Xbox One quickly approaching, it comes as no surprise that we’re already hearing rumblings about “next-gen” video games and consoles. Hell, we might have even seen a couple of titles (or ones that will bridge generations) at this year’s E3. But just like the start of this current console generation, industry analysts are once again pivoting back to the idea of an all-digital future for home consoles.
“We believe it is a certainty that video games will be ~100% digital in the coming years, and while exact timing is hard to pinpoint, we think 2022 is a realistic expectation.” This quote was from a note by Michael J Olson and Yung Kim, analysts from the US-based investment firm Piper Jaffray. Messages like the above can (and often should) be taken with a grain of salt; however, when a traditional video game retailer the likes of GameStop is actively pursuing a buyout, there may be blood in the water.
I won’t say whether I’m personally for or against the (inevitable) move to digital, but what I can do is speak based on my own current experience with the PlayStation 4, Xbox One, and even Nintendo Switch. Towards the tail end of the PS3 and Xbox 360 cycle, I owned literal towers full of video games: I mean, it could have easily been around 160 titles (but probably even more). Not only was I gaming out of my own personal passion for games, but also for review and preview purposes for this very website. We’re talking about a considerable amount of games here, and it wasn’t until the tail end of that generation where I started making purchases on the Xbox Live Marketplace and PlayStation Store that I began to apprehensively dip my toes into digital.
Fast forward to the 2013 launch of the PlayStation 4 and Xbox One, and once again I picked up where I left off by purchasing a handful of physical titles for both consoles (even before the hardware itself was available to purchase). I still remember Target retail stores were getting cleaned out that October and early November because they were running their “buy 2 get 1 free” video game promotion and it included PS4 and Xbox One launch titles. Following the initial buzz and excitement that typically surrounds a console launch, I found myself simply making fewer trips out to brick and mortar retail to buy games. Friends would send out group messages along the lines of “what are we playing this weekend?” and buying games just became much more accessible by launching an app, hitting the ‘buy’ button, and having the game ready to play by the time I came home from work.
In this case, at least for me, “easy” took precedence over collecting… and in my use case, I cannot foresee that changing.
Before the PlayStation 4 and Xbox One, console hardware was usually sold at a significant loss upfront. Number crunchers for Sony, Microsoft and Nintendo would analyze software attach rates to uncover pricing “sweet spots” where each respective company would start generating a profit after ‘X’ amount of software sold. One can only imagine what that sweet spot number was for the $600 shit show that was the PS3 launch console (“but it can play Blu-ray discs!”).
This console generation, we saw a departure from that business model as both Sony and Microsoft’s console sales were (very slightly) ‘in the black’ right out of the gate. According to analytics research firm IHS, the PlayStation 4 costs around $381 to make, which provided around a comfortable $18 cushion to its retail launch price of $399. To put things in perspective, it’s predecessor (the PlayStation 3) was losing money for every console sold for almost half a decade.
Let us take a moment to think: what about consumers who completely hate this idea of an all-digital future? What can be done to sway those who aren’t finished collecting and trading physical media? This may be a long shot, but I think I know how both Sony and Microsoft can have their cake and eat it too, and it involves blending the strategies of the past (selling hardware at a loss) with the more current model of trying to squeeze anything you can out of the initial hardware sale.
Both Sony and Microsoft should offer a disc-less digital-only variant of their PS5 and next-generation Xbox consoles right at launch. They should still have traditional models that come equipped with disc drives (for those who still have a need for it). But if the digital is the way forward, the disc-less version should come at a considerably lower cost.
Hypothetical dream scenario: if the 4K Blu-ray equipped PlayStation 5 can hit the same $399 price point as its predecessor at launch, the disc-less, digital-only version should be $349 with double the internal storage.
It’s important to point out that a move like this shouldn’t come off as a punishment to those that want to hold onto physical media a bit longer (or need to out of necessity), but instead incentivize consumers who are ready, willing, and able to take this digital-only journey.
Outside of the collecting and ownership aspect, there’s another crucial factor: broadband… and, well, the lack thereof. There are literally millions of gamers that still live in places that just don’t have the bandwidth to entirely give up physical games. According to a forecast by Global Market Intelligence (via PPC Online) in North America, fixed cable broadband and fiber optics are only in 56.1% of homes as of 2017, and expected to grow to 76.5% by 2025. Globally the situation is even bleaker: DSL remains the prevalent technology, making up 41% of fixed broadband subscriptions according to OECD (as if PSN download speeds didn’t already stink as is).
Just to further put things in perspective: our very own Executive News Editor Giuseppe Nelva, who lives in Italy, just made the transition over from DSL this year. He simply did not have a better option available until two months ago. When it came time to review PS4 exclusive Detroit: Become Human it took a staggering 40 hours to download. And while it was downloading, it would make the internet basically unusable for anything else.
Another thing to consider is the initial investment one makes at a console hardware launch which is not just the software, but also the additional accessories like controllers, stands, and the like. Easing the (initial) blow with upfront savings could entice consumers to pick up the extras that would otherwise have to come at a later time.
I know this may come off as an extreme measure for some, but if we’re to embrace this digital future — one that is clearly (and monetarily) in favor of developers and publishers alike — we’re going to have to wean off what has been the more conventional way of buying video games for the past 40 years. There needs to be a give and take for both the consumers and those that are creating the software, services, and hardware alike. Such a move would be in stark contrast to the “take everything” approach that Microsoft believed they could pull at the Xbox One launch (which was met with fierce opposition from consumers).
Last year during Activision-Blizzard’s Q3 earnings call with investors, the publisher shared that more than 50% of its Destiny 2 purchases were made digitally. This came as a “new high water mark” for the publisher of the famed Call of Duty franchise. Not only was it above and beyond what was anticipated by Activision, but it was actually 25% higher than what competing publisher Electronic Arts was anticipating for the industry’s digital sales in 2017. Combine the info above with Microsoft’s recent commitment and investment into cloud services for gaming, and it just further reinforces that clearly — for consoles — the times they are a-changin’.
I’m willing to embrace this change, but if both Sony and Microsoft want to sway others to follow suit as well, I think incentivizing consumers in the model mentioned above might be a way to put their best foot forward. What say you? If you’re shopping for a next-gen console, would a deep discount entice you to give up discs altogether?