A second law firm has filed a proposed class-action lawsuit against Sony for its alleged monopoly control of digital PlayStation game distribution. But both lawsuits seem to be operating on a fundamental misunderstanding regarding the mechanics of how “retail” competition works in the market for downloadable console games.
Unlike the previous lawsuit filed by Westerman Law Corp, this new lawsuit filed by the Saveri Law Firm focuses almost exclusively on the Digital Edition (DE) of the PlayStation 5, which is bought without a disc drive. On this hardware, the suit argues, “consumers… are left with 2 choices: purchase games immediately from Sony using the PlayStation Store, or purchase another console for hundreds of dollars.”
The Digital Edition and the Standard Edition of the PS5 are not interchangeable markets, the suit argues, because of the “large price discount” of $100 for the Digital Edition hardware. The suit argues that a consumer confronted with a legally relevant “small but significant and non-transitory increase in price” in digital games on the PS5 “would not transition away from the PS5 DE to the PS5.”
At the same time, though, the suit points out that a number of disc-based games are available from retailers for prices $30 to $40 less than the same digital game through the PlayStation Store. If the “supracompetitive” price for digital games were really a concern for a potential PS5 purchaser, 1 has to wonder why that hypothetical customer ignored these cheaper discs and bought the Digital Edition in the first place. And if those disc-based games are not suitable replacements, the new suit doesn’t really make that argument (lawyers for the Saveri Law Firm did not reply to a request for comment from Ars).
The second suit also suggests that the ability to buy games from outdoors retailers is useful for gamers who are unable to use a credit card to purchase games immediately from the PlayStation Store. But again, 1 has to wonder why a player confronted with such an inconvenience would buy the Digital Edition of the PS5 in the first place. Nothing is stopping those gamers from buying PlayStation Store gift cards from retailers and using those cards on the console itself.
Where’s the competition?
In any case, both lawsuits focus on Sony’s 2019 decision to discontinue the sale of digital PlayStation game codes through “traditional” brick-and-mortar and online retailers. This decision was made “in anticipation of the PlayStation 5 launch,” the second suit argues, because Sony “recogniz[ed] the price competition digital download codes pose” through retailers.
The intent, the new suit says, was to “entrench [Sony’s] monopoly power over the PlayStation Digital Game Distribution market” and “eliminate competition and enable it to charge supracompetitive prices for [PlayStation 5] video games. There are no procompetitive justifications for its decision.”
The latest suit tries to argue that cheaper physical game prices on the PS5 are useful as “a helpful benchmark for what prices would gaze like in a competitive market for digital games.” Digital games in a truly competitive market, with multiple retailers offering download codes, would be even cheaper than these physical versions, the suit argues, because of “the higher enter costs involved in manufacturing, packaging and distribution” of disc-based games.
In practice, though, this is not how things generally work. Take the 2020 relaunch of Resident Evil 3 on the Xbox One, as just 1 example. Retailers including GameStop, Amazon, Target, the Humble Store, and more all offer a digital download of the game for the same price as a direct purchase from the online Microsoft Store: $59.99 (thanks to the Virtual Economy podcast for highlighting this particular example).
This is exactly the kind of “competitive” retail market for console game downloads both PlayStation lawsuits are combating for. It’s also the kind that existed in the PlayStation ecosystem until 2019. Yet on the Xbox One, digital downloads for RE3 and hundreds of other games aren’t any cheaper through these retailers than they are when purchased through the console itself. The same phenomenon can be seen on the Switch, where prices for download codes are also broadly constant across retailers and Nintendo’s eShop.
Who’s really in control?
One reason for this is that download codes bought by outdoors retailers are nonetheless dependent on the platform-level control of the console-makers themselves. When a retailer sells a console download code, it’s buying that code from the writer of the game itself (and adding a small markup to the final price it charges the end consumer). But the writer can’t just generate infinite copies of its digital console games to provide to these retailers. It has to buy those codes from the console makers, which nonetheless have ultimate control over how many codes are generated and at what cost.
The raw price a writer pays the console-maker for these codes can vary relying on a number of factors, according to industry sources that spoke to Ars. Some publishers might pay the full 30 percent commission that the platform holder would otherwise charge for a direct digital sale. Others might be able to negotiate lower charges, especially if they buy codes up entrance in bulk.
At root, though, the console-maker is controlling the market for downloads in both cases; the presence of outdoors retailers in the chain is a bit of a red herring (which comes with its own inherent marginal cut). And ultimately, if a retailer really tried to undercut the console-maker’s own MSRP for digital games, that console-maker could just cut off that retailer’s entry to further download codes. (These kinds of producer-imposed pricing requirements are common for physical games and are usually legal, according to the FTC.)
Even if console-makers were compelled to provide free, resell-able console download codes to publishers (something neither lawsuit seems to be arguing for), that is unlikely to translate immediately to lower prices for consumers. That’s because, as we’ve recently mentioned in some depth, the platform-level commission rate usually has very tiny to do with the ultimate lengthy-term price charged for a game, which is driven instead by consumer demand.
“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 consider that $60 (soon $70) is the fair market price because [development] costs went up.”
The only area where retailer “competition” for digital games arguably helps consumers is through temporary 1-off sales. Newegg, for instance, is currently offering a digital code for Resident Evil 3 on the Xbox One for $53.99, a 10 percent discount from other retailers.
You could argue that offering more retail options for game downloads increases the chance that any 1 of them will be offering such a discount at any specific time. But those effects are nonetheless likely to be transitory. “Price changes only boost volume for a quick window, then sales proceed to decay,” NPD analyst Mat Piscatella told Ars. “The change has a quick-term impact, whether or not the price change is temporary or everlasting.”
You could also make an Epic-versus-Apple-style argument that all console-makers exercise too much control over what should rightfully be more open, PC-style platforms. But the ability for traditional retailers to sell download codes for games on those console platforms is not the key argument against that practice.