If 3.49 is the to-own price, I don't think timed rentals have a place any more. Why complicate things? Louis CK's model has been $5 for DRM-free files, with a cap of 3 downloads and streams so the per-purchase bandwidth is capped. I kind of like that model.

Steam has discovered the money-making magic that it's better to collect $.50 from many thousands of people than to collect $.00, and presumably, that it primarily supplements full-price purchases rather than displacing them [1]. I'd observe that even the other gaming platforms still took years to also discover that even with Steam lighting the way. Movie houses are still apparently completely clueless about this analysis, though I will concede in advance whether cheap movies would displace full-price movies may be different. (But I suspect the only way to find out is to just try it.)

[1]: Bear in mind that the only "full-price purchases" that matter are ones that actually occur. With my gaming habits, I'm perfectly happy to work in the indie space and years behind the mainstream, plus my laptop isn't even in the running to run the latest & greatest right now. I buy many cheap things from Steam, but it doesn't displace full-price purchases because I was never going to make them. If Steam was just a "full-price game service", I wouldn't even have an account. Instead, they've probably made at least $100 from me of profit.

Steam has figured it out because they're the rake; it's like being the house at a casino where you let people gamble against each other at poker. You don't care who wins or who loses, because you're taking a cut of everything. Meanwhile, the user experience on Steam is getting worse all the time, and developers aren't really happy with them either.

And yes, Valve profits off you. But if you were the only game consumer there was, Steam would cease to exist.

"Steam has figured it out because they're the rake"

While that is not literally false, it is incomplete and leads to false conclusions. I've seen indie game developers report that they also see revenue bumps from seeing their games go on sale that they would not otherwise see, so it's not just Steam profiting. I have no reason to believe that the movie studios would not also see non-trivial profits from scraping the long tail. Pretty much everybody seems to win on Steam with those prices, which is why they've been going on for so long.

I have also seen indie houses report that they discounted too far sometimes [1], but all in all what I can see is that the indie houses have found that time-based pricing works quite shockingly well. By "shockingly well" I do not merely mean a rhetorical flourish... I mean, I personally have been surprised at what they've reported.

[1]: http://www.carpefulgur.com/drakblog/?p=9

It's really hard to sell a physical game for 5$ and make any profit. Pre steam ~90% of games had approximately 0 sales within 2 years of release. Steam / GoG / etc are a great additional revenue source for an incredibly competitive market.

Remember, steam sales are approved by the publisher because they make them more money.

This is solid economic theory. This will be taught to future generations. This is one of the paradigm shifts that globalization brings.

While Amazon offers you a lot of DVDs for less than that price, it also offers you a substantial amount of rentals via Instant Video at well above that price.

I'm going to assume - not least because we've paid for those rentals more than once - that they have a good idea about how to set the prices.

Movies that are interchangeable light entertainment will go cheap. Movies people seek out or decide they really want will cost more.

Funny, this is about the same price DVDs are on Amazon for me. $.01+$3.99 shipping. For something I just want to watch once, I think I'd come out ahead with Steam (not have to find a space for the DVD or ripped copy, etc).

There's an inventory cost to keeping DVDs on hand, so for older content that doesn't sell well, it can be worth it to sell a DVD for less than you bought it for wholesale, just to clear it out of your inventory. That's never going to be true of digital download.