The Price You Pay to Play

State of Play: Why should every game cost $60?

March 23, 2010 - I'm a cheap bastard. Blame my traditionally tightfisted Scots/Irish heritage if you want, but you'll never see me spend $20 if I can get it for $19.99. When there's something I want, I arbitrarily decide how much it's intrinsically worth, then I wait and plot until I can nab it for that price. Or less.

That makes me the mortal enemy of the entire video game industry, because I don't rate every console release as worth the $60 price tag. Since nearly all console releases run sixty a pop ($50 for Nintendo titles), that standard applies to as many good games as bad ones. Sure, Bayonetta, New Super Mario Bros. Wii, and Assassin's Creed II are arguably the gaming equivalents of required reading, and I played the hell out of them. But I won't be throwing down cash any time soon. Not at these prices.

It's not just a budgetary issue, either. We all went nuts when Metroid: Other M was announced at E3, and everything I've seen so far puts it high on my must-play list. The thing is, I've never shelled out fifty dollars for a side-scroller before and, minus a little stylistic sleight-of-hand, that's what Other M is. These days, for that genre of game, I kick out ten or fifteen bucks, tops. For a download.

Which is to say, a fixed price system makes no kind of sense when it comes to video games. Unless you really start thinking about it.

Value for money is major issue in gaming, and what you get for your sixty varies wildly. The campaign might be twenty hours, or six, or non-existent. Maybe there's multiplayer, maybe not. You tell me, friend... is a fifteen hour campaign equal to an eight hour campaign with online deathmatches? Or a ten hour campaign with local multiplayer only?

Those answers largely come down to personal preference, but there's no arguing unequal games cost equal amounts. A short, broken mess like Rogue Warrior carries the exact same MSRP as Fallout 3, which rocks over ten times the content and a few thousand more layers of polish. But if Rogue Warrior is grossly overpriced for what it offers, then Fallout 3 is clearly under-priced. Digging every secret and side quest out of the Capital Wasteland can take between sixty and a hundred hours... that's a hell of a lot of game for your dollar. To the point where I can't help but think developer/publisher Bethesda got slightly shafted.

Premium games used to come at a premium price. Carts for the Atari 2600 generally ran between $20-$30, with second-party publishers like Activision and Parker Bros. slightly undercutting first-party Atari titles. But if brand and quality were factors, so too was hype. Ports of popular arcade titles usually cost more, and Pac Man for the Atari 2600 (the most anticipated game of 1982) cost more than any other cart on the market. Why? Because it was the most anticipated game of 1982. Supply and Demand 101. Then critics lynched it en masse, and supply suddenly outstripped demand by five million units. The entire gaming market crashed soon after. Whoops.

Nevertheless, flex pricing still has fans. Bobby Kotick, President and CEO of Activision Blizzard, makes no bones about wanting to charge more for his company's products. Indeed, rumors claimed Kotick staked out Call of Duty: Modern Warfare 2 (the most anticipated game of 2009) to finally raise the console cap to $70. That fell through in North America, but gamers in the UK do pony up a few extra euros, and PC gamers get pinched an extra ten dollars for the privilege of playing Activision's moneymaker. Too bad those funds don't go towards dedicated multiplayer servers.

What stopped Kotick from an across-the-board hike? Well, it wasn't the Ghost of Christmas Future. Far more likely, the same people who bumped games from $50 to $60 in the first place stepped in and told him no.

Acting like you are shooting things online isn't cheap.

Microsoft, Sony and Nintendo ultimately set prices for games running on their hardware. If you're looking for culprits, Microsoft inaugurated the $60 price point to offset the huge costs - and huge risks - of launching the Xbox 360 a year ahead of the competition. Nintendo alone didn't raise prices because they didn't need the subsidy; their console sold at profit from day one. Or maybe Nintendo still felt the 2002 sting of a $200 million price-fixing fine imposed on them by the European Commission. Either way, and even though most Year One 360 releases were virtually identical to their cheaper PlayStation 2 ports, by the time the PlayStation 3 and Wii came online, $60 was accepted as the price you paid to game on a 7th Generation console.

Yes, it was a bit of a gouge. And yes, it worked. People tend to automatically translate "expensive" as "better," and if there's one thing gamers want, it's "better."

So maybe you're wondering where that money goes. A lot of things have to be paid off or paid out before a publisher makes money and a developer earns royalties. The numbers fluctuate, but generally it shakes out like this.
Wholesale, $60 games run about $45-$48. The rest is retailer markup, but don't hold it against them... only a dollar or two of that is profit. Around $4 per unit goes towards paying back the costs of development kit fees, legal, corporate overhead, and any licensing or distribution fees. Manufacturing the physical disc and packaging eats up $3 or so, more if they get elaborate. Another $7 goes towards marketing, though this varies greatly depending how confident the publisher is. A major marketing campaign might take a bigger slice; an abbreviated or non-existent campaign takes less.

Then you get into the Big Three's cut. Console owner fees generally run around the $7 per unit mark, but major properties can negotiate this down, particularly when exclusivity deals are on the table. Everything else - not quite half the retail price - pays for the actual creation of the game, and in the last few years, those budgets have gone insane.

The biggest gains have been in design and graphics, and those open world, mo-capped, cinematic eye candies add up fast. For A-list titles, $20 million is a starting point. The final bill for Modern Warfare 2 ran around $40-$50 million. By comparison, Oscar-nominated District 9 only cost $30 million. Activision Blizzard spent crazy money specifically to top its crazy successful predecessor, Call of Duty 4: Modern Warfare, because you demanded it. Put another way, gamers want "better," and "better" automatically translates to "expensive."

The Golden Rule of gaming is this: what comes next must totally blow away what came before. That's how you end up with a two-disc Mass Effect 2, which cost the same as a one-disc Mass Effect 1. Frankly, after five years of solid one-upmanship, it's a little surprising the Bobby Koticks of the world haven't gotten the green light to pile on five, ten, fifteen dollar hikes just to cover the spread.

Ah, but they have. We just usually refer to them as DLC.

For everything there's a tipping point where people stop buying in. A base Modern Warfare 2 going for $70 probably wouldn't have moved quite as well, and publishers pay fees for store returns of unsold stock. Enter downloadable content, which is relatively inexpensive to produce, saves big on production costs, and is now core to game design. Map packs, expansion packs, new areas, new missions, mini-campaigns... all value-added, sometimes ready to roll before the game itself is, and highly lucrative. If you bought all five downloadable add-ons for Fallout 3, your $60 game ended up costing $110. You probably didn't mind, either.

That's how you raise prices when you don't dare raise prices, and it's brilliant. Think of it as a la carte gaming. Buy what you want, ignore what you don't. They make their money, the base price stays the same. And that's a good thing.

Despite my pathological need to horde money, I like a standard price for all games. I like how it levels the playing field between struggling new IPs and monster franchises. I like that it gives good games a fighting chance against well-publicized games. I like the consistency and I really like applying the same general standards across titles, sequels, even platforms. But I love how it makes developers strive harder.

They know it's a crowded field out there. They know every game has to fight for your sixty. Even the hardest of the hardcore only averages twenty or so buys a year, out of hundreds of possibilities (across all platforms, over a thousand games were released worldwide in 2009). So early in the design phase, even an established series is sized up against its direct competitors with an eye towards besting them. They have to deliver a superior product that grabs attention and makes a purchase mandatory. Sixty dollars in exchange for their game has to feel like a complete steal.

Will Kasumi's memory be worth the price of admission?

And now publishers are getting creative about how and where they charge for their games. Microsoft's Platinum line breathes new sales into elder games, microtransactions are making the pilgrimage from PC to console (surprise surprise, Bobby Kotick loves them) just as in-game advertisements did, and publishers' relationship with digital distribution services like Steam and Direct2Drive is moving out of the puppy love phase and into grand romance. Going digital saves a bundle on production costs and spares them return fees, among other things, but it could be used to genuinely evolve the a la carte system they've already toyed with.

Here's how: after the initial release, offer the individual game modes - campaign, multiplayer, online co-op - separately at $40 each. Or introduce a new pricing structure that charges more to download the game early, less to get it a few months down the road. Unlikely? Consider: Modern Warfare 2 dropped to $40 about three months post-release, and it's not like sales were hurting. The rest of us paid a premium to game it over the holidays. And that's okay, too.

Yes, there are times I'm willing (and, admittedly, forced) to pay full price for a game I really want. I also rent or borrow a bunch of games. I'd buy more if they cost less, but hey, nobody's forcing us to empty our wallets. Gaming is a purely voluntary obsession, and it so happens we currently have a good balance between Supply and Demand. A fixed price system is a lot like a social contract between developer and gamer; one puts blood and sweat into a game, the other spends blood and sweat to buy it. When one falls through, so does the other.

For now at least, that's fair enough.


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