Nintendo has been taking steps in recent years to establish more of a digital presence, and one of the biggest changes is a more fleshed out online store. Any first-party game (and some third-party games) that you can purchase for 3DS or Wii U can also be downloaded digitally on their eShops. However, Nintendo rarely gives permanent price cuts to these games, so as their prices go down over time at retail, they stay the same on the eShop.
Nintendo CEO Satoru Iwata addressed this situation at a recent shareholders meeting, stating that he believes digital and physical games have the same ‘value’ and should be priced the same, but his answer left a lot to be desired. When you break the situation down, a more affordable eShop is better for customers, and it’s better for Nintendo.
For starters, here’s what Iwata had to say when asked about the discrepancy between physical and digital sales:
“As for the prices of the packaged versions and download versions, we, at Nintendo, cherish the value of our software and believe that we should sell both versions at the same price because they have equal value (as software products). However, there are various viewpoints on this matter. For example, some software publishers lower the prices of download versions, giving weight to the fact that download versions cannot be sold to secondhand stores or that download versions are rarely sold at reduced prices in retail stores and even sometimes never discounted in the case of direct sales by the publishers. While the prices of packaged and download versions reflect the attitudes of software publishers, Nintendo would like to offer these products to our consumers at the same prices given that their software value is the same.” — Satoru Iwata
Iwata opens by saying that, because Nintendo cherishes its games, they see them as having the same software value whether they are digital or physical. While that’s true at launch, software (like most products) devalues over time. Nintendo clearly knows this, because they don’t sell Virtual Console games or even digital Wii games at the same price now as their launch price. However, when it comes to games that are part of the current generation, even if they’re several years old (such as the still $59.99 New Super Mario Bros. U pictured above) and sales have slowed to a crawl, Nintendo is far more hesitant to lower prices than their competitors are.
Even if the software value is the same, the overall value isn’t necessarily the same. For many gamers, the collectible aspect is also very important, and having the game’s packaging and manual can be a prominent factor in a sale. So while a digital game is still the same game, it lacks both the resale value and the collectible value of a physical game.
My problems with Nintendo’s policies and Iwata’s explanations aren’t just about making sure customers are getting their money’s worth; these policies could also be hurting Nintendo financially. According to research conducted in 2010, selling video games at retail leads to massive chunks of potential profits disappearing. While these figures may not be exactly the same in today’s market, they should give you a good idea about how much more profitable it is for Nintendo to sell games digitally rather than physically.
When an average game is sold for $60 at retail, $15 of that goes to pay off retailers like GameStop and Walmart for selling the product. Another $4 goes to cover the manufacturing costs for the game, case, and manual, and the costs for shipping the game to retailers. Perhaps most surprising is that another $7 is set aside essentially as “insurance” for unsold physical copies of games. In the case of third-parties, another $7 is set aside for platform royalties, but as a first-party publisher, that doesn’t apply to Nintendo. Add it all up, and Nintendo is only making $34 when they sell a $60 game at retail.
Selling a game digitally has costs as well, as Nintendo has to maintain their servers, but it’s nowhere
near the $24 loss that comes from selling a game at retail. In other words, Nintendo could easily knock $5 – $10 off the price of their digital games (incentivizing customers to buy digital), and they’d still be making more money on each digital sale than they would have at retail. If cheaper, well-promoted digital bargains (like the eShop advertisements that appear on the GamePad when a Wii U is turned on) take off and Nintendo’s digital sales improve, it also means there will be less used games floating around (games which Nintendo makes $0 off of), which could also lead to a higher percentage of new game purchases vs used game purchases at retail.
The fact that I can download any Nintendo-published game digitally is great, but when digital prices exceed retail prices, there’s just no incentive. For the sake of both customers and profits, Nintendo needs a more affordable eShop.