Ad-Supported Tiers Won't Save Gamers Money

Thought Leadership•Jun 15

Mark Fillmore

Digital Distribution Did Not & Ad-Supported Tiers Won't Save Gamers Money

As a Marketer and a Gamer, this pains me to say this, but the topic of ads & games has been on the minds of many players over the years, and it surged in discussion recently when Microsoft Xbox Chief Strategy Officer Matthew Ball was apparently misquoted and accused of saying something to the effect that in-game ads will somehow bring down game costs.

I tried to find a direct quote of him saying that, and couldn't. So, I'm happy to see that there has been a correction issued.

Here's the original article, and the correction at: Windows Central

But, What Did This Remind Me Of?

Despite Matthew being mis-quoted, the whole episode does bring up the interesting topic in the Gaming industry of cost and savings.

Does anyone remember what happened with cost of games after the shift to Digital Distribution?

You Will Own Nothing And Like It

Let's go back about a decade.

For those of you not old enough, video games used to actually come in a physical box, with manuals, art books, and the games themselves used to come code-complete on these neat shiny old things called... CDs!

When games were completed and ready for sale, they even "went gold!"

When a video game "went gold," it meant the development team had officially finished the final, release-ready version of the game. This definitive version was written to a gold-colored master disc (a recordable CD-R or DVD-R, which often literally had a gold reflective layer for better longevity and readability).

That golden master copy was then sent to a manufacturing plant to be duplicated, packaged, and shipped to retail stores.

Physical Copies Of Games, Like, In My Hand?

Yes. You used to actually OWN the game you bought, not rent them digitally like you do now.

In fact, I personally just moved to Japan from Texas and I made sure to pack most of my physical game copies! Why? Because I love them and I can play them anytime I like. They're MINE.

The Move To Digital Download

Unfortunately though, about 10 years ago, there was a massive and successful effort to end the video game secondary market and also eliminate the costs of physical goods by going "all digital download".

And you know what the folks at companies like Microsoft said about this at the time?

What Phil Spencer Said In (2014)

In an interview with GameSpot in early 2014, Phil Spencer Head of Xbox was asked why digital games on Xbox Live still cost a flat $60 when Steam was offering massive, flexible discounts.

Spencer responded:

"Digital pricing is something we are going to look at... The marketplace dynamics on a digital storefront are different than retail. We want to find a model that benefits the player, because we don’t have the same distribution, packaging, and shelf-space costs."

You see what he said there? Digital Delivery reduces their costs and companies like Microsoft don't have "the same distribution, packaging, and shelf-space costs".

In addition, even before Spencer took over the top job from Don Mattrick, Microsoft’s way to defend the Xbox One's always-online requirement was that eliminating physical manufacturing, cost of shipping, and the used game market (gamers reselling their CDs) would drastically reduce publisher risk.

In other words, reduce their costs.

The executive team which included Spencer at the time, spoke frequently about how these massive infrastructure savings would allow them to fund riskier, high-budget games without having to raise software prices or rely heavily on aggressive microtransactions.

At one point they even tried to introduce a digital "Family Sharing Plan" to let up to 10 people share a single digital license. And, they appeared to frame it as a way to spread the costs and make digital gaming cheaper per household.

So did it?

Did we see a drop in cost-of-games after Digital Distribution went forward?

Lets Let The Data Decide

While there isn’t exactly a “light switch moment” when delivery went digital, it’s widely understood to have occurred about 10 years ago.

Historical market reviews from industry monitors and data aggregators such as GamesIndustry.biz tracked 2017 as the year full digital downloads for AAA console games moved from an alternative option to the primary consumer choice, accelerated by the mid-generation console upgrades (like the PS4 Pro and Xbox One X) which heavily prioritized digital infrastructure.

Publicly available games industry data appears to show that although digital distribution saved companies on costs like manufacturing and shipping, those savings were not passed on to the consumer. Instead, the MSRP remained high and continues to trend upward.

What Phil Spencer Said In (2024)

Nearly a decade later, Spencer then CEO of Microsoft Gaming gave a remarkably candid interview to Polygon at the Game Developers Conference (GDC).

He essentially blew the whistle on why those early digital distribution promises actually resulted - and you guessed it - not in cheaper games for consumers, and instead he seemed to blame skyrocketing development costs:

"When a game could cost $200 million or $300 million to build, the math changes... It used to be that we could look at the margin of a $60 game and say, 'Okay, if we cut out the retailer or the physical box, that solves our cost side.' But today, the cost of making the game is growing faster than the player base. We are fighting over a pie that isn't growing, which forces us to look at new models." - Phil Spencer former Head of Xbox

The Reality Check: Where the Assumptions Broke Down

The fundamental tension between what Phil Spencer said in 2014 and 2024 is this:

The Assumption (2013-2014): Digital distribution will cut out the middlemen, remove packaging and shelf cost, and will "benefit the player" with purchase costs hovering around $60.

The Reality (2024-2026): Development costs exploded with AAA game budgets ballooning from $50 million to some well over $200+ million. Digital distribution savings were completely swallowed up by these massive development cycles with purchase costs increasing to around $70.

Ballooning Game Dev Costs: Indie + AA vs. AAA Games

I give Phil credit for speaking the truth, and he was smart to bring up the rise and in many cases, the exploding costs of AAA game development. It's not easy to find hard numbers around this topic, and more transparent data from the industry would help.

However, it appears from the outside (and the layoffs we see today) that it's becoming harder for AAA to turn a profit. This has been widely discussed for quite a long time, and there are commentators our there who speak at length -- if you're interested in the gaming industry I highly encourage you to check them out.

But, here are some estimates we found for some of the top AA/Indie games vs. AAA games in the last year -- and again keep in mind that these numbers are not insider information and are just estimates.

Many AA & Indie Games Are Returning High ROI w/ Incredibly Efficient Budgets

The Wrap Up - Ad-Supported Tiers Will Save Gamers Money

While Ball clarified he was advocating for platform-level ad-supported pricing tiers rather than literal in-game ad placements, the underlying economic conversation remains: historically, publisher-level savings rarely trickle back down as consumer savings.

I hope I'm wrong, but my fear with any in-game or subscription ad-model is that the publishers will once again absorb that new revenue as they did with the massive savings from shifting to Digital Distribution. This could result in little to no savings to consumers, and it does Ball no favors to even touch on the topic right now and open himself up to be quoted like Phil is now, with past statements discussing consumer savings.

I strongly recommend that if Gaming industry executives are going to take the mic, bemoan rising game costs, and speak as if they feel our pain as consumers, they should only do so if they actually have a plan to lower prices by somehow reigning in AAA gaming production costs. But can they? Time will tell.

The gaming industry loves to treat players like we have short-term memory loss. But lifelong gamers have long memories, and executives would do well to remember that.

We won't forget what we're promised, but if we ever do, we still have the The Wayback Machine to remind us.

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Document Download: Digital Distribution Did Not & Ad-Supported Tiers Won't Save Gamers Money (June 2026)