Price Hikes by ActiVision and Microsoft…. Long Overdue?
August 15th, 2009
Money Money Money...
The recent announcement by ActiVision to up the price for Modern Warfare 2 a notch in the United Kingdom has angered many gamers. Microsoft, quickly following suit with Forza Motorsport 3, didn’t do anything to stop the usual “don’t support this” and “I will pirate that” posts flooding popular gaming forums. The price hikes are tests, to see if they can squeeze out an extra few bucks per sale of their top tier franchises, games that without a doubt will be platinum sellers. My question is: why do people seem surprised that this is happening?
The videogame industry is very unique, especially the console part of it. Companies like Sony and Microsoft are selling their hardware below production cost, at a loss, with the hope that gamers will buy enough games and other content for their chosen system that a profit can be made from, for example, game license fees - the chunk the console maker gets from each game sold on their system.
At the same time the videogame industry is very different compared to movies and music in that there are no multi-million dollars profits made at the box office before the DVD even hits the market, or outsold arenas with 50,000 people paying $50 each for a two hours long live gig. With the exception of pay-to-play MMOs a videogame has got one shot - retail. If a game fails at retail it doesn’t get another chance, there is no alternative revenue stream there to help recoup potential losses for developers and publishers. DLC you say? Well there won’t be many around to pay for it if your game didn’t sell in the first place. The big Hollywood production companies and the music labels may be the ones making the most noise about piracy, but it’s the videogame industry that is hurt the most by piracy.
As the cost of developing a game for this generation of consoles (360 and PS3) is estimated to average over $20 million (Ubisoft says $30 million for their titles), making a game is a very risky venture and few can afford to gamble much with innovative ideas. Development costs have skyrocketed compared to previous console generations and many videogame publishers are struggling to turn any kind of profit. All would be well if every game could sell a million copies, but most games never get close to those numbers, and over the past year we’ve seen many development studios shut down because their latest game simply failed to open enough wallets.
In 2005 Japanese CESA (Computer Entertainment Supplier’s Association) compiled the average cost of developing a videogame on the then available systems using known budgets, and they reached the following breakdown:
* Xbox - $1.8 million / 13 titles
* PlayStation 2 - $877,634 / 194 titles
* GameCube - $822,857 / 11 titles
* PlayStation Portable - $822,857 / 6 titles
* PlayStation - $731,429 / 1 title
* Game Boy Advance - $484,571 / 47 titles
* DS - $338,286 / 3 titles
* Dreamcast - $228,571 / 2 titles
If the price tag for a retail console game in the US was to multiply in the same manner as the cost of development then a game should not be $60, it should be $600. Of course no one would pay that much and this is a problem for the industry, the consumer price for games is already at its threshold. What publishers are doing is finding ways to earn a few extra bucks from their games. Downloadable content, or DLC, has become the norm for this console generation and is no longer exclusive to the PC platform. We’re seeing more pre-order deals, more collectors’ editions and more key-codes to unlock online features. People shouldn’t be surprised that we’re now about to get modest price hikes on the retail products, as much as I hate to pay more, I expected to see this long ago.
I do not see a problem as long as each game stays at a price point that justifies the quality and longevity of that game. If publishers can raise prices on their AAA franchises, and greatly improve their profit margins on those games, maybe that will free up more capital for risky new development projects? At least I hope so.
There are good games and there are bad games, just as there are good and bad ways to try and profit from DLC, but unless we want game innovation to totally take a beating this generation, and fall entirely upon the Indie community; we have to at least let the publishers experiment with ways to turn investments into profit. If you don’t like it you can send the publishers a message - don’t buy their products.
-Daniel Lindberg
Tags: Activision, DLC, featured, Games Industry, Microsoft
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August 15th, 2009 at 3:41 pm
I cant afford the game prices as they are, I guess im gonna have to cut down even more on how much I buy.
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September 29th, 2009 at 10:49 pm
Great article with some excellent points. Let me just touch on two however.
The one flaw in the $60 versus $600 argument is that the games themselves are not 10 times better than they used to be. In fact, some of them are less fun. It may cost a lot to turn out next-gen graphics, but in terms of gameplay designs many publishers are just slapping on the same old cookie-cutter template they developed in the PS1 era (the last major innovation in game design was the move to 3D - everything since has been refining that).
Also, I think your logic that publishers raising the prices on franchise games will lead to more innovation is a bit dodgy. It seems to me that the lack of innovation can be blamed partly on the fact that games like Call of Duty, Forza, Halo etc. continue to sell millions of copies - so why should the industry try to innovate when some of the least innovative games sell the best? In other words, by buying these overpriced releases this holiday, you’re actually sending the message you don’t want innovation in your games. The publishers will only start innovating when the same old, same old stops selling at inflated prices.
I actually agree with the general idea that price hikes are overdue in terms of improving the industry’s financial health, however I’m not convinced they will spur much innovation. Sometimes, the opposite is true: innovation is only seen when industries get desperate. Financial desperation motivated Squaresoft to create the Final Fantasy franchise. Financial desperation motivated Nintendo to create the DS and Wii (for better or worse). Financial desperation is what is motivating most indie developers. And so on. When companies get rich and complacent, they may actually be less likely to invest in new ideas because they see no need since the money is rolling in with established paradigms.
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