Fascinating Article at GOG re: DRM, VAT, & More

Letter from the M.D.: About Regional Pricing
Hey Goggers;

As many of you know, we announced on last Friday that we are going to introduce regional pricing for 3 new games coming up on GOG.com soon. Looking at the amount of reactions (over 3,500 comments at this very moment), it is obvious that this change is making many of you guys worried. We must have failed to clearly explain why our pricing policy for (some) newer games will change and what this means as a matter of fact for our PC & MAC classic games, which account for over 80% of our catalogue.

To be honest, our announcement was a bit vague simply because our future pricing policy is not 100% set in stone yet and we were just worried to make any promises before it was. You know, GOG.com has been growing quickly (thanks to you!), and the more we grow, the more we are worried to make some of you guys disappointed. This is why we were so (over-)cautious with our announcement.

We should have just been upfront about why we've made these changes and what they mean for us in the future and what we're planning. So let's talk. To be clear: what I'm talking about below is our plan. It's a plan that we believe we can accomplish, but while it's what we want to do with GOG, it may change some before it actually sees the light of day. Please don’t blame me for talking open-heartedly today and telling you about the plans and pricing policy we want to fight for and eventually achieve. The below plans aren't sure. The only guarantee I can give you is that we’ll do our best to fight for gamers while still making sure GOG.com as a whole grows (because well, we still want to be around 50 years from now, you know!). So, enough for the introduction, let’s get things started.

Why does GOG.com need to offer newer games at all?

We've been in business for 5 years now, and we've signed a big percentage of all of the classic content that can be legally untangled. There are still some big companies left we're trying to bring into the GOG.com fold, like LucasArts, Microsoft, Take2 and Bethesda, but what classic titles will we sign in the future once we have those partners on-board? We need to sign newer games or else just fire everyone and keep selling the same limited catalog. Either we bring you “not so old” releases from 2010+ or brand-new AAA titles, because these will become classic games tomorrow. It’s as simple as that.

Also, well, we want to expand beyond just classic games, hence the fact we have been offering you brand-new indie releases for almost 2 years now. Why expanding? Well, obviously, because the more games we sell, the more legitimacy we have on the market and the more likely it is that we can achieve our mission: making all PC & MAC video games 100% DRM-free, whether classic or brand-new titles.

To be straightforward (excuse my French):DRM is shit-- we'll never have any of it. It treats legitimate customers like rubbish and pirates don't have to bother with it. It's bad for gamers, and it's also bad for business and our partners. We want to make it easy and convenient for users to buy and play games; rather than give piracy a try. Happy gamers equals a healthy gaming industry; and this is what we fight for. Anyway, I am sure you well know our opinions about DRM.

To make the world of gaming DRM-free, we need to convince top-tier publishers & developers to give us a try with new games, just like they did with classic games. We need to make more case studies for the gaming industry, just like we successfully did back in 2011 with The Witcher 2. It was our first ever 100% DRM-free AAA day-1 release. GOG.com was the 2nd best-selling digital distribution platform worldwide for this title thanks to you guys, despite having regional prices for it. We need more breakthroughs like this to be able to show all the devs and publishers in our industry that DRM-free digital distribution is actually good for their business and their fans. And when I say breakthroughs, I am talking about really kick-ass games, with a potential metacritic score of 85% or more, AA+ and AAA kind of titles.

And this is exactly why we signed those 3 games we told you about last Friday. We believe those 3 games can be massive hits for hardcore gamers, that they can help us spread the DRM-free model among the industry for newer games and we did our best to convince their rights holders to give GOG.com a try. One of those games, as you see already, is Age of Wonders 3. We're planning more titles even beyond these first 3 soon.

Alright, but why is regional pricing needed for those (only 3 so far!) newer games then?

First of all, you have to be aware of an important fact when it comes to newer games: GOG.com cannot really decide what the prices should be. Top-tier developers and publishers usually have contractual obligations with their retail partners that oblige them to offer the game at the same price digitally and in retail. When they don’t have such contractual obligations, they are still encouraged to do so, or else their games might not get any exposure on the shelves in your favorite shops. This will change over time (as digital sales should overtake retail sales in the near future), but as of today, this is still a problem our industry is facing because retail is a big chunk of revenue and there’s nothing GOG.com can do to change that. We need to charge the recommended retail price for the boxed copies of the games in order for developers (or publishers) to either not get sued or at least get their games visible on shelves. You may recall that our sister company CD Projekt RED got sued for that in the past and we don’t want our partners to suffer from that too.

On top of that, you have to know that there are still many top-tier devs and publishers that are scared about DRM-free gaming. They're half-convinced it will make piracy worse, and flat pricing means that we're also asking them to earn less, too. Earn less, you say? Why is that? Well, when we sell a game in the EU or UK, VAT gets deducted from the price before anyone receives any profit. That means we're asking our partners to try out DRM-free gaming and at the same time also earn 19% - 25% less from us. Other stores, such as Steam, price their games regionally and have pricing that's more equitable to developers and publishers. So flat pricing + DRM-Free is something many devs and publishers simply refuse. Can you blame them? The best argument we can make to convince a publisher or developer to try DRM-Free gaming is that it earns money. Telling them to sacrifice income while they try selling a game with no copy protection is not a way to make that argument.

Getting back to those 3 new upcoming games coming up. The first one is Age of Wonders 3, which you can pre-order right now on GOG.com. The next 2 ones will be Divine Divinity: Original Sin and The Witcher 3. We’re very excited to offer those games DRM-free worldwide and we hope you’ll love them.

Still, we know some countries are really being screwed with regional pricing (Western Europe, UK, Australia) and as mentioned above, we’ll do our very best, for every release of a new game, to convince our partners to offer something special for the gamers living there.

And don’t forget guys: if regional pricing for those few big (as in, “AA+”) new games is a problem for you, you can always wait. In a few months. The game will be discounted on sale, and at 60, 70, or 80% off, the price difference will be minimal indeed. In a few years it will become a classic in its own right, and then we have the possibility to to make it flat-priced anyway (read next!) The choice is always yours. All we are after is to present it to you 100% DRM-free. We are sure you will make the best choice for yourself, and let others enjoy their own freedom to make choices as well.

So, what is going to happen with classic games then?

Classic content accounts for about 80% of our catalog, so yes, this is a super important topic. We've mentioned here above that we can’t control prices for new games, but we do have a lot of influence when it comes to classic games. GOG.com is the store that made this market visible and viable digitally, and we're the ones who established the prices we charge. We believe that we have a good record to argue for fair pricing with our partners.

So let's talk about the pricing for classics that we're shooting for. For $5.99 classics, we would like to make the games 3.49 GBP, 4.49 EUR, 199 RUB, and $6.49 AUD. For $9.99 classics, our targets are 5.99 GBP, 7.49 EUR, 349 RUB, and $10.99 AUD. This is what we’ve got in mind at the moment. We’ll do our best to make that happen, and we think it will. How? Well, we have made our partners quite happy with GOG.com's sales for years - thanks to you guys . We have created a global, legal, successful digital distribution market of classics for them. This market didn't exist 5 years ago. By (re)making all those games compatible with modern operating systems for MAC and PC, we've made forgotten games profitable again. When it comes to classic games, we can tell them that we know more about this market than anyone. :)Being retrogaming freaks ourselves, we know that 5.99 EUR or GBP is crazy expensive for a classic game (compared to 5.99 USD). We have always argued that classic games only sell well if they have reasonable prices. Unfair regional pricing equals piracy and that’s the last thing anybody wants.

What’s next?

We will do our very best to make all of the above happen. This means three things:

First, we will work to make our industry go DRM-free in the future for both classic and new games (that’s our mission!).

Second, we will fight hard to have an attractive offer for those AA+ new games for our European, British and Australian users, despite regional pricing that we have to stick to.

Third, we will switch to fair local pricing for classic games, as I mentioned above.

TheEnigmaticT earlier mentioned that he would eat his hat if we ever brought DRM to GOG.com. I'm going to go one step further: by the end of this year, I'm making the promise that we will have converted our classic catalog over to fair regional pricing as outlined above. If not, we'll set up a record a video of some horrible public shaming for me, TheEnigmaticT, and w0rma. In fact, you know what? Feel free to make suggestions below for something appropriate (but also safe enough that we won't get the video banned on YouTube) so you feel that we're motivated to get this done quickly. I'll pick one that's scary enough from the comments below and we'll let you know which one we're sticking to.

I hope that this explanation has helped ease your worry a bit and help you keep your faith in GOG.com as a place that's different, awesome, and that always fights for what's best for gamers. If you have any questions, comments or ideas, feel free to address them to us below and TheEnigmaticT and I will answer them to the best of our abilities tomorrow. We hear you loud and clear, so please do continue sharing your feedback with us. At the end of the day GOG.com is your place; without you guys it would just be a website where a few crazy people from Europe talk about old games.

I end many of my emails with this, but there's rarely a time to use it more appropriately than here:

“Best DRM-free wishes,

Guillaume Rambourg,
(TheFrenchMonk)
Managing Director -- GOG.com”

So let's talk about the pricing for classics that we're shooting for. For $5.99 classics, we would like to make the games 3.49 GBP, 4.49 EUR, 199 RUB, and $6.49 AUD.