Digital distribution is a reality; here to stay and proliferating even as you read these words. The construct and delivery system is simply too convenient and profitable to be anything less than the viable future of this medium, even if it must co-exist with physical media for the foreseeable future. Publishers and developers see digital distribution as a way to ensure continued revenue streams by limiting or altogether eliminating the secondary market and, in many respects, this current generation of consoles has been a broadly-applied beta for a paradigm that will no doubt become the prevalent manner in which to purchase software in years to come.

But there is a nagging problem with digital distribution as it pertains to the console market: Where is the incentive for the consumer to purchase digitally?

The beginning of this year saw the release of Mass Effect 2 on the PS3. What was interesting about this release, aside from being a port of a year-old PC/XB360 exclusive, was that EA saw fit to release it side-by-side with a fully digital copy of the game available on the Playstation Network. EA would later tout that the sales of the digital copy had exceeded expectations and this particular revelation got me pondering:  why would anyone opt to purchase a fully digital copy of the game?

 Mass Effect 2 was released with the inflated SRP of 59.99 in stores AND online. That means that any consumer who purchased the game on the PSN paid the same price as they would in store and yet received something that was, technically speaking, less of a product. Not only did they not receive a physical copy of the game along with the requisite case, disc and manual but they effectively gave up the ability to re-sell the game on the secondary market, essentially purchasing software that is tied to their hardware and PSN account forever.

Why?

When I make a digital purchase, I examine the goods and weigh my limited options against the perceived value of what I’m about to obtain. Now, I’m not intending to convey the notion that I spend hours upon hours logically deliberating every digital purchase I make but what is interesting about digital wares is that they are gradually re-defining the notion of ownership as it pertains to this medium. Once something is bought digitally it cannot be re-sold nor in most cases returned. Digital purchases are by necessity permanent and limited products and thus require a bit more thought as we are purchasing something that has virtually zero resale value as soon as it is downloaded.

To be fair, some might peruse my XBL account and scoff at the dichotomy between my supposed philosophies of purchase juxtaposed with the sheer volume of Live Arcade games forever tethered to my account, some of which were anything but good investments. However, when you consider the average cost of an XBLA game hovers anywhere from five to fifteen dollars, the lower entry price point mitigates the permanence and lack of resell value, at least from my own myopic point of view. XBLA, Wiiware and PSN games are often simply fantastic gaming values at the fraction of the price of full retail releases and in some cases these smaller games surpass software being sold at 60 dollars a pop.

But what about those Games on Demand that sell full retail games digitally for prices that often match or even exceed retail? Why is that seen as a reasonable practice?

The idea of owning a game that can be played directly off my hard drive is a marvelous idea in theory and there are certainly games that I would love to exercise this option with, yet the prices for these titles are so incredibly preposterous that I have a difficult time fathoming why anyone would consider it.

Take for example the brilliant Batman: Arkham Asylum, a game I still play on a regular basis. While having a digital copy of this title would be something I’m open to, it sells for between 29.99 – 39.99 dollars on the XBLA marketplace even though I can easily obtain the superior Game of the Year edition for 19.99 or less in any number of retail outlets. Furthermore, a physical copy provides both the benefits of tactile ownership and the option to re-sell the game should I choose. This is not an isolated example but rather the norm, as most games available on the PSN and XBLA sell for equal to or in excess of their current physical retail price, a model that is entirely obtuse and nonsensical.

This brings me back to the main question: what is the impetus for the consumer to buy digitally in regards to full retail games on consoles? The short answer is that publishers haven’t provided one, save the limited convenience of having the game playable off the HD.

However the larger question is will this model change at some point in the future or are the publishers simply blind to the gross overpricing of their software? Do they not see that charging the same price or more for a digital copy makes absolutely no sense for the consumer?

Logically, the advent and proliferation of digital downloading should usher in lower prices for the consumer and these lower prices should be predicated upon two logical deductions:

Given the wholesale value of software coupled with the rapid depreciation of games including sales, markdowns, and promotions, a reasonable discount to the consumer in the amount of a 20 dollar differential for digital copies seems adequate and perfectly reasonable. This would effectively mean that games that sell for 59.99 at retail would be sold for 39.99 in digital form, giving the consumer a serious financial impetus to purchase the game via download.

Without such financial motivations, I’m curious as to how publishers think digital downloads for full retail games on consoles will enjoy any type of widespread success. As it stands the pricing model for console games on the whole is static, clumsy and often grossly inappropriate for the amount of content on the disc. Digital distribution is an opportunity for developers and publishers to slash the price of their wares by delivering their games directly to the consumer, yet to date all they have managed to do is achieve pricing parity with physical copies while actually delivering less to the consumer.

If digital downloading is the future, the pricing structure needs to be as progressive as the technology and consumers need to be granted a sizeable discount for surrendering both physical ownership and the ability to re-sell.