Steam’s “price parity rule” isn’t wreaking havoc on game prices


Monopoly control is a hot topic in the games industry these days. Lawsuits against Apple, Valve, and Sony all take slightly different tacks in arguing that these companies exercise unfair monopoly control over their platforms’ market for downloadable games.

Each suit also argues that this monopoly control leads to higher game prices for consumers. Platform holders charge higher commission fees than they would in a truly competitive environment, the arguments go, and those higher-than-normal publishing costs are passed on to consumers via higher-priced games.

There’s something intuitively appealing to the idea of game publishers trying to attract more market share by “passing on the savings” of lower storefront commissions by lowering the asking price for their games. In practice, though, prices for the same title tend to remain consistent across platforms, regardless of the competing platform holders’ specific revenue cuts.

Platform price parity

The Epic Games Store’s two-year-plus experiment in reduced platform fees provides plenty of evidence on this score. Just look at any of the dozens of games available on both the EGS (where Epic charges publishers a 12 percent fee) and Steam (where Valve charges a 30 percent standard fee).

In almost every case, those games will be offered at the same base price. Instead of passing on the savings, the publishers just pocket the 18 percentage-point difference between the EGS cut and the Steam cut. The only real exceptions come when a store is having a temporary sale, after which the games revert to identical prevailing pricing standards in almost every case.

This price-matching might be an artificial construct, though. In Wolfire Games’ lawsuit against Valve, the developer argues that the Steam-maker enforces a “Price Parity Rule” to make sure “Steam keys cannot be sold on other sites unless the product is also available for purchase on Steam at no higher a price than is offered on any other service or website.”

Wolfire’s David Rosen expanded on that accusation in a recent blog post, saying that Valve threatened to “remove [Wolfire’s game] Overgrowth from Steam if I allowed it to be sold at a lower price anywhere, even from my own website, without Steam keys and without Steam’s DRM.”

Prices for the same title tend to remain consistent across platforms, regardless of the competing platform holders’ specific revenue cuts.

Sources close to Valve suggested to Ars that this “parity” rule only applies to the “free” Steam keys publishers can sell on other storefronts and not to Steam-free versions of those games sold on competing platforms. Valve hasn’t responded to a request for comment on this story.

Regardless, even if we remove Steam’s alleged price-fixing from the equation, publishers still seem reluctant to pass on the savings from the EGS’s lower cut. This is apparent when you look at the Epic Games Store PC exclusives that are also sold on consoles, where the platform holders each take their own 30 percent cut.

An Ars analysis found that out of 41 such games, only five were offered for a lower price on the EGS. The rest of the games were priced identically on PC and console, except for eight that were actually cheaper on console thanks to a temporary sale. Again, publishers largely aren’t lowering their prices even though Epic has lowered its relative platform cut.

Ubisoft charges the same $60 for <em>Watch Dogs: Legion</em> when it's sold on Uplay (with no platform fee) or the Epic Games Store (with a 12 percent fee).
Enlarge / Ubisoft charges the same $60 for Watch Dogs: Legion when it’s sold on Uplay (with no platform fee) or the Epic Games Store (with a 12 percent fee).

The same phenomenon remains true even if we take consoles out of the equation. Since early 2019, Ubisoft’s new PC games have avoided Steam in favor of distribution on the EGS and Ubisoft’s Uplay platform.

But even though Ubisoft doesn’t pay any platform fees for games sold through Uplay, the prices for games like Watch Dogs: Legion and Anno 1800 are the same across Uplay and the EGS. Ubisoft isn’t interested in “passing on the savings” from avoiding the EGS’s 12 percent cut in these cases, even though doing so would likely make Uplay a significantly more appealing option for cost-conscious players.

Where’s my discount?

This situation runs counter to a prediction that Epic co-founder and CEO Tim Sweeney made to Ars in an interview over two years ago.

“After you go through several cycles of game developers making decisions, you’re going to see lower prices as developers pass on the savings to customers, realizing they can sell more copies if they have a better price,” Sweeney said at the time. “This sort of economic competition is really healthy for the whole industry and will lead the industry to a better place for all developers and for gamers as well. It’s a supply-side thing, this revenue sharing. It’s some sort of business arrangement between developers and a store that [a] gamer generally doesn’t see.”

But industry analysts see digital game pricing less as “a supply-side thing” and more driven by consumer demand and willingness to pay.

“I suspect that developers and publishers see no reason to pass [reduced storefront fees] on to consumers,” F-Squared analyst Mike Futter told Ars. “Consumers believe that $60 (soon $70) is the fair market price because [development] costs went up.”

Futter pointed out that PC games used to routinely sell for less than their console counterparts, even before high-end console game prices rose to $60 in the mid-2000s. Eventually, though, “market tolerance proved $60 was fine on console, so it was fine on PC,” Futter said. “Publishers realized that the market would bear it. No reason to keep it lower, especially as costs have increased.”

Theoretically, a publisher using reduced platform fees to lower its asking price could increase the overall number of copies sold, creating a win-win situation in which the publisher makes more overall profit as well. In practice, though, things don’t tend to work that way.

Lowering the base price of a game from $60 to $50 “isn’t going to move [enough additional] people” to buy a game, Futter said. “I don’t think it would be statistically significant… even if Valve wouldn’t require price parity, the PR nightmare isn’t worth it.” NPD analyst Mat Piscatella agreed, telling Ars that “price sensitivity in games is such that lowering the base price will rarely drive enough incremental sales to offset” the lost revenue per sale.

Price sensitivity in games is such that lowering the base price will rarely drive enough incremental sales to offset.

NPD Analyst Mat Piscatella

But that general rule only applies to the base price for digital games, Piscatella added. When games go on temporary sale, as they frequently do on pretty much every digital storefront, the resulting boost in sell-through can help increase publisher profits for a time.

“Promoted short-term sales carry a sense of awareness and urgency to purchase, so they combine to boost volume,” Piscatella said. “Price changes only boost volume for a short window, then sales continue to decay… the change has a short-term impact, whether or not the price change is temporary or permanent.”

Sales aside, keeping prices consistent across different platforms (with different platform cuts) might be the simplest way to go for many publishers. “Most game publishers in today’s market seem to prefer the same pricing across many stores, no matter what platform cut they receive,” GameDiscoverCo founder Simon Carless told Ars. “Reduced platform cuts might give them more latitude for greater one-off discounts and other promotions. But price parity often appears to be a commercial decision for uniformity and ease of explanation.”

And regardless of publisher costs and consumer prices, Carless thinks some publishers may have trouble attracting enough potential customers on a relatively unestablished platform like the Epic Games Store in the first place. “Platform cut is really important, but in order to succeed as a platform, you need both a competitive cut and a mass of actual players,” he said.

None of this means that alleged monopoly pricing on digital storefronts doesn’t come at a price or that developers and publishers wouldn’t benefit from keeping a greater share of the sale price for their games. “As developers reinvest more of that 18 percent of additional revenue into building better games, that’s key to the long-term health of the game industry that we all have to look out for,” Sweeney told Ars in 2019.

But if you’re expecting that lower platform fees will lead to lower asking prices for games overall, experience suggests you’ll probably end up disappointed.





Source link