THE CHAIR: Just to be absolutely clear, to make sure we are understanding what you are showing us there in this comparison, I think it follows, doesn't it, we are talking about a single game which is sold digitally and physically and then comparing the price and then doing that on eight occasions or occasions?
MR PALMER: If you buy God of War on a disc, I don't know specifically that game but a specific game on a disc, you can also buy it direct digitally --
THE CHAIR: Same game and it will, according to this, be --
MR PALMER: It's a different price and we say that is a direct result of Sony's limitation of the means of distribution of digital games.
MR BEARD: To be clear, we don't accept the comparison or these numbers, but that's obviously not for today.
MR PALMER: No, that's for trial. No, this is our case.
THE CHAIR: Understood. Yes, thank you.
MR PALMER: That's despite the fact that, of course, when you are supplying a game digitally, you are removing the cost of the third party retailer from the process, as well as the costs of providing that physical media. In other words, the other costs, the server capacity. To deliver that game digitally and that, obviously, will also have to be looked at. But the expectation has been that the move to digital games rather than physical games would tend to drive the price down rather than up. That hasn't happened, we say because of this restriction on distribution. So too when it comes to in-game content on the PlayStation. Sony also had a near monopoly for PlayStation games. With only very limited exceptions, all transactions go through the PlayStation Store. If I take you to page 336 of the same report, that's 339 digital, you just have a screenshot based illustration of what the process of buying in-game content actually is. This is taken from Fortnite game and you can see screenshots from the PlayStation, figure 3.4. The first step, the consumer selects the currency purchase from within the game. So he's buying a number of V-Bucks which can be exchanged within the game for various game items but they have in each case, beneath the V-Bucks, a price expressed in GB pounds. This is all within the game. Over the page, step 1(b), you select the currency purchase from within the game again. On pressing purchase, you get into step 2, it takes you into the PlayStation Store which you see in that second screenshot on that page, where the transaction is done through the PlayStation Store, 1,000 V-Bucks for £6.49. That then gets processed by PlayStation and they take that commission figure which I've mentioned from that transaction. Figure 3.5 and 3.6, you can then spend your virtual currency within the game. Also there is a Fortnite in-game item shop in the virtual currency, where you can go. Also, you can buy, sorry, through a real world currency, as an alternative within the game. That's figure 3.6. Again, as you see over the page, 3.7, that leads you again into the PlayStation Store to complete that transaction, even if you avoid the virtual currency. So at a limited exception is something called cross play or cross commerce, where it's possible if you play Fortnite on another device, such as an Xbox or a PC and you make a transaction for the currency in that form, you can, to a limited extent, carry that through to use on your PlayStation but that is limited. There are various hedges and limits on that ability which are detailed in Mr Harman's evidence. I won't take time up with that now but the basic point is almost all in-game purchases operate through the PlayStation Store. Now it's right to note that formerly also, it was possible to buy digital download codes from third party retailers and publishers but since 1 April 2019, Sony withdrew that facility.
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LORD RICHARDSON: Mr. Palmer, just an issue with, sorry, something you mentioned some time ago but I've been wondering about it. Am I right in understanding that until -- I think you gave us a date of April 2019, was it possible for someone to buy, as it were, a digital product from some other source rather than the PlayStation Network and then you would get a code or something and download the product itself from the --
MR PALMER: My understanding is that would still ultimately go through the PSN because of the download function. It's pleaded, if you look on page 73 or 76 electronic 56(a) you'll see that reference.
LORD RICHARDSON: Yes.
MR PALMER: (Several inaudible words) codes by third party retailers and publishers.
LORD RICHARDSON: I am just interested in how you'd characterise a download code, in the sense that is that something that is requiring distribution through the PSN, would you have it or was it not, in the sense that if I understand correctly, I am buying my code from someone else?
MR PALMER: Yes, you can buy the code from (several inaudible words) check out on a range of cards that you can buy --
LORD RICHARDSON: Yes.
MR PALMER: Yes, you can buy it from someone else, and that will entitle you, having paid your purchase price to WHSmith, to use that card to enter a code on the PlayStation and download the game digitally.
LORD RICHARDSON: Yes.
MR PALMER: Now the precise contractual arrangements between the various parties in that transaction we don't have detail of.
LORD RICHARDSON: No.
MR PALMER: I assume, unless told otherwise, that that was all obviously Sony approved and still taking a commission but it allowed at least a prospect, I don't know how widely it was used, for retailers to compete on price by reducing the margin that they took, (several inaudible words).
LORD RICHARDSON: Leaving the finer points to which you are not in a position to help me with anyway, leaving that to one side, I am just interested as a matter of characterisation really, would I be right, therefore, that you would say that that did represent an alternative means of obtaining a digital product which has now gone?
MR PALMER: Yes.
LORD RICHARDSON: So, yes. No, that's helpful. So you see that as being -- that is an alternative source of obtaining a digital product?
MR PALMER: Yes, it's somewhat hybrid because it still uses the PSN.
LORD RICHARDSON: Uses PSN for distribution but not for sale. That's helpful.
MR PALMER: I don't know, of course, what conditions Sony placed on the sale of those and whether there was contractual freedom for retailers to reduce the price on those offers or chuck them in with something else or whatever. I don't know but, of course, having that sort of avenue creates that sort of potential for competition but that has been academic since 1 April 2019. These are the digital distribution restrictions, as we plead them to be, in that paragraph 56. Since you have it open, you'll see at the top of 74, electronic 77, our complaint was (ii) through the PSN, that carries on from (c), imposing the contractual restrictions in the GDPA by which digital games and add-on content may only be distributed through PSN. Obviously, a reference to 9.2.1 as pleaded on the previous page specifically, so that's that point. So those are the digital restrictions on which we claim and we claim those amount to an infringement. So let me now come on to legal characterisation of those matters.
Alex Neill Class Representative Limited V. SIE, CPO Application Hearings