The “all digital” console is a myth, despite Steam Box and discless Xbox rumors
The rumor of a “digital only” console refuses to die. We’ve heard about Steam releasing a console-like device that would use Valve’s digital distribution service to deliver games to customers. Then came the rumor that the newest Xbox console would ship with no disc drive, and would rely on a combination of memory cards and digital distribution to deliver games. These rumors are bullshit. The world is not ready for an all-digital console, and the United States would specifically present a number of challenges for any company that hopes to rely on digital sales. We’re not saying that this won’t happen in the future, but it is safe to say that we’re a long way from losing discs. How can we be so sure?
You lose a large chunk of market right off the bat
Broadband adoption in the United States stands at 81 percent, according to a “State of the Internet” report released by Akamai in January of this year. The US ranked 13th in average connection speed in the world, with South Korea and Hong Kong taking the first and second slots for speed, respectively. According to those numbers, you’d lose 19 percent of your potential market on a purely-digital delivery mechanism. It gets worse when you look at things among economic and geographical lines. “In rural America, only 60 percent of households use broadband Internet service, according to a report released Thursday by the Department of Commerce. That is 10 percent less than urban households,” the New York Times reported. “Over all, 28 percent of Americans do not use the Internet at all.” This creates a sort of division through American culture that is beginning to impact many parts of life, and its doubtful video games as an industry are in a rush to join that split. There are plenty of people who want to buy new games, but don't have access to affordable broadband. There are also smaller implications: video games are a popular way of passing the time for soldiers stationed overseas. Downloading a 10GB game from Afghanistan would be quite the trick.
Even if your home is wired, your console may not be
“The real point is that a digital-only box excludes people who aren’t connected, or who don’t want to connect. A lot of people have consoles in basements without Wi-Fi or Internet access,” Wedbush Securities analyst Michael Pachter told the Penny Arcade Report. “At least 15 percent of high-definition consoles are not connected to the Internet, and requiring game downloads would be suicide.” The last rumor stated that the new Xbox console may get rid of a disc drive in favor of memory cards, but Pachter doesn’t believe it for a second. “Flash memory costs at least $10 for 15 GB to manufacture, versus the $0.70 for a DVD and $2 for a Blu-ray DVD. The rumor is complete crap,” he said. The other issue is the fact that retailers could refuse to stock the hardware if there isn't enough of a profit margin to justify the shelf space. “This isn't like the iPhone, which has data and voice plans to sell and planned obsolescence every 9 months, or even like other hardware, where you buy multiple TVs, or iPods,” Pachter said. “Here, we're talking about one device every five years. If there is no software to sell, retailers won't support it, and the competition would exploit their weakness by offering disc drives.” Think of it this way: players who enjoy trading in their games or don’t want to download their games would simply find the one system that did offer a disc drive. It would make that feature desirable, instead of being expected. “Without collusion, Sony would likely exploit this, meaning Microsoft wouldn't attempt [a discless console],” Pachter said.
Downloading games takes time and bandwidth. Many ISPs are now placing data caps on customers, and will either throttle your download speeds or charge extra if you go over your allotment. This is bad news for people who want to download games that may be more than 10GB in size. If you knew buying a $60 game would cost you an extra few bucks in Internet fees, would you still buy it? According to some, these data caps won’t be going away. “Over a period of years, as the market becomes more accustomed to (usage-based pricing), we expect these plans to become the rule rather than the exception,” Sanford Bernstein’s Craig Moffett wrote in a research note to his investor clients, as reported by StopTheCap. The site also noted that companies that use a large amount of bandwidth may become targets for fees from ISPs. “Netflix itself is also battling an Internet Overcharging scheme it faces — double-dipping by cable operators like Comcast,” Phillip Dampier reported. “In addition to the fees Comcast collects from customers for its broadband service, the cable operator also wants to be paid directly by Netflix to allow the movie service’s traffic on its network.” Does Valve want to deal with ISPs asking for payment in exchange for moving large amounts of game data? Does anyone? Besides, the situation is even more dire in other parts of the world. Digital distribution is much less appealing if it takes more time than running to the store and adds to the cost of buying games.
It won’t happen because it doesn’t need to happen
Digital delivery is going to become a more popular option next generation. But that’s what it will be: An option. No one is stupid enough to require it. While it’s possible that Microsoft wants to use some new form of storage to sell games, it is unlikely and would create extra costs that would may be passed on to consumers, for very little benefit. It's important that each console use a standard with enough storage to avoid swapping discs, but that's all. Pushing digital as a primary delivery mechanism screws Americans with slow or expensive Internet connections. It would also be a middle finger to soldiers stationed overseas trying to play modern games. It would hurt people who don’t keep their systems connected to the Internet. It would piss off large swaths of the market. Microsoft has no reason to remove its disc drive and give its competitors an instant advantage. And a Steam Box with a disc drive is arguably not even a console at all, but rather just a miniature computer. We’re going to be using discs for the majority of our console-based gaming for a long time, even if the standards change. Don’t believe the hype.