Why Xbox’s Games on Demand is Headed for a Rocky Start

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With the Xbox LIVE update being released this week, one aspect of particular interest is the games on demand service.  A brilliant idea; however, I believe that there are several obstacles that Microsoft will have to address in order for the service to be a success.

One obstacle is out of Microsoft’s control, and that is the relatively slow adaption of digital distribution by console gamers as well as access to broadband internet.  Other obstacles are the price of downloadable games, the issues of convenience versus value, and Microsoft’s storage problem for the Xbox 360.


Digital Distribution and Broadband Access

Back in June, NPD revealed data on digital distribution.  Out of 20 million Xbox LIVE subscribers, only 18 percent of Gold members (I’m unsure what the breakdown is between Silver and Gold members on LIVE as I cannot find any released data) regularly download digital content.  The growth rate of Gold memberships also outpaces the rate of adoption of digital distribution.

On the PlayStation Network, only 10 percent of users regularly download content according to NPD.  Sony also has a userbase of 20 million.

In contrast to PC gamers, consoles gamers make up a small slice of the digital pie.  Steam, Bigfishgames, and RealArcade — all digital distributors of PC games — make up 56 percent of all digital sales.  PC gamers also have several other choices, including Stardock’s Impulse, GamersGate, and Direct2Drive.

Adoption of digital distribution is slow enough that GameStop isn’t even worried about it cutting into their business model.

This slow rate of adoption is an initial hurdle, but one that will likely be overcome as more full game downloads become available through the service; however, because the games are expected to be between four and six GB, broadband access will be key to the success of the service.  Unfortunately, broadband growth has fallen sharply since 2008.

Price, Convenience, and Value

The pricing for Xbox’s games on demand services seems a little off.  For instance, Bioshock is priced at $29.99, but the same game in disc form is as cheap as $18.99 ( and $19.99 (GameStop.)  Not all of the available titles have this problem, but the prices are comparable — Assassin's Creed and Elder Scrolls IV: Oblivion each retail for $29.99, which is the Xbox LIVE asking price.

One determined gamer investigated all the games available on demand and compared the LIVE price with Amazon.  Amazon outperformed LIVE in every case, but shipping doesn’t appear to be included (although, if one spends at least $25, shipping is always free.)  This begs the question of whether the convenience is worth the price.

The games on demand service offers the immediate download of games with the small caveat that gamers will likely spend several hours downloading.  While this is more convenient that waiting more than a week for a game from Amazon, it’s questionable whether it’s more convenient than driving to the store and picking up a copy.

Furthermore, by purchasing the game digitally, gamers are relinquishing their consumer rights.  Gamers will be unable to sell these digital purchases as one would be able to do with a physical copy, thus losing their first-sale doctrine rights.

Gamers will also be losing out on some of the niceties of a physical copy, like the packaging and manual (I believe that manuals will be available digitally, but will gamers be able to print these out to reference while playing?  Will they even want to print out such ink-intensive documents?)

With these issues, should gamers be expected to pay the same, let alone a higher, price as a physical copy?

Microsoft will have to convince gamers that purchasing digitally adds enough convenience to outweigh all of the potential drawbacks of digital distribution.

The Storage Problem

This is, perhaps, the most pressing problem for Microsoft.  For as of yet unknown reasons (but likely due to potential profits of such a business model), Microsoft went with a proprietary format for its hard drive.

Unlike Sony, who allows PS3 owners to replace the drive with any off the shelf 2.5” SATA hard drive, Microsoft requires gamers to purchase their 120 GB hard drive upgrade kit, which costs $149.99.  To put the drive’s price into perspective, an off the shelf 2.5” 500 GB SATA drive costs around $90.  Microsoft’s hard drive option is rather pricey.

In addition, Microsoft released two variants of the Xbox 360 without hard drives at all, which means that there is likely a significant portion of the userbase which has no hard drive.  For the variants that have hard drives, the download sizes are likely to fill up the 20 and 60 GB drives quickly, thus easily obsoleting them.

Gamers will have to shell out a lot of money for a hard drive upgrade, and I think it’s going to be a tough sell for Microsoft.

Microsoft does allow gamers to re-download purchases at any time, but with games weighing in between four and six GB, re-downloading can be a real pain in the ass.


I commend Microsoft for launching the service, but I also recognize that it’s going to be a hard road ahead.  Microsoft will have to convince gamers that the convenience is worth the drawbacks, like losing the ability to sell one’s game.

Microsoft will also have to address the storage problem in some way, by either reducing the price to be competitive with other drives on the market or by making larger hard drives standard in all Xbox variants.  In addition to those challenges, Microsoft will have to fight the slow adoption rate of digital distribution as well as the declining growth of broadband access.

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