Personal Economics of Digital

Since moving to New York City, I’ve been reading a hell of a lot: waiting for my elevator, waiting for a subway train, on the train, waiting to meet people, etc. I’m pretty surprised at how much I’m getting through. And since I’m a big huge tech nerd, when I see people with e-book readers on the subway, I am drawn to rudely look over their shoulders. Those are precious little devices. And normally, I’d want one. But e-books have this problem that I can’t currently reconsile and it’s the same dynamic that makes buying a game at Best Buy better than buying a full-priced digital download on Steam.

My cost to play a game is not simply the price tag at retail. Physical copies come with a call option. I can always sell the game on half.com or eBay or, god forbid, a Gamestop.

Let’s take a recent example. I bought Brutal Legend back in October at a Toys R Us sale. With tax, the game ended costing $42.80. I played through the game and beat it fairly quickly. At that point, I could sell it or keep it. I ended up selling it on half.com for $39.99. When you add the shipping surcharge and take out the site fees and packaging fees, I received $35.38.

The cost to me of the experience of playing Brutal Legend was therefore, $7.42. This, of course, ignores the time value of listing something on eBay or Half, but I find that to be easy and quite negligible. I had the option where I could have kept the title in my collection, but then the price of the experience would have gone back up to the original $42.80 I paid. I passed.

These economies kill digital sales and its why publishers seek to kill it in any way they can. See EA’s recent shift to adding DLC to every game to force secondhand folks to pay in.

So when you compare the $7.42 to the $49.99 the game would be on Steam or some-such site (if they made a PC version, of course), you can see how the scale is weighted towards those that would take a few minutes to sell games they are completely done with to other gamers.

Some games, like sports titles go down in value on the secondhand market fairly quickly. This makes the total experience usually more expensive and the option to keep cheaper. Some games end up being rare and keep their value very well. This makes the total experience quite cheap, but the option to keep expensive. I bought the limited edition of Bioshock when it first came out and ended up selling it for a profit secondhand. Playing Bioshock made me money.

To simplify, the cost of the game isn’t the retail price, but the total price you pay minus the money you can get back from selling it after fees times some probability that you won’t sell it back.

COST = RETAIL + TAX – SELLPROB*SELLINGREV

So back to the topic at hand, e-books. While I love the cutting-edge tech, it would vastly increase the cost of books for me. I bought Hespira on Amazon recently for $17.93 including tax and shipping. I could turn around today and likely sell it on half.com for $16.74. After fees, it’s $14.23, assuming that the shipping surcharge equalled your shipping costs. My total cost of experiencing Hespira would be $3.70 if I chose to resell it. This is versus the $10 + tax for the Kindle and Nook stores or $13 for the iBookstore in addition to an amortized cost of the reader itself. This ignores the other issue – that Hespira isn’t even available yet for Kindle or Nook. I expect that to change if these devices get popular.

Now, if you plan to keep all of your books and games, if no matter what the title is your SELLPROB is close to zero, then it doesn’t matter. Pick the cheaper retail price (probably the digital option if you buy a lot of titles) and rock out. But if you are willing to put in a minimal amount of work, gaming and reading is much cheaper with the real physical objects.

Publishers hate that fact, understandably, but it is great if you want to consume a lot of media.

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