The Truth Behind the $60 Video Game
Comments(30)
- By nixiepixel
Have you ever wondered how the $60 price point for video games came to be? Crispy Gamer recently wrote a very engaging article where the author explained that there really is no consensus on why the pricing became what it is today, that $60 is more or less an arbitrary number, and that there may be some price manipulation happening behind the scenes.
One mistake many of us gamers make is to look at the actual material costs of a product, such as the printing, packaging, distribution, retailing, and other tangible numbers. Some of us even go a bit further and try to factor in the development costs of the game.
We look at the percentage of the 60 bucks that goes toward these expenses, and based on what remains we say “hey, this could be cheaper!” Some few of us may even be aware of the darker side to game distribution, such as paying fees (bribes, as one hard-working development studio head called them) to retailers for shelf space, and more fees (bribes) for valuable placement (end caps, eye-level shelves, box face showing rather than side showing, etc.).
Even accounting (pun intended!) for all of that, we’re missing the point: Cost doesn’t matter.
Ok, that is overstating things a little bit. Cost matters, but it is really sort of a pricing floor. Companies have to make a profit to stay in business, so their product pricing has to include the associated costs and expenses. Companies are in business to create value for their stakeholders (most companies, at least) and the reality is that they will charge whatever the market will bear for their products. This means that at the end of the day,we as gamers set the price for our games.
Now that doesn’t mean that you can walk into your local Gamestop and say “Gimme NHL 10 please, and oh by the way I’m only paying $10 for it!” However over days, months, and years, our buying decisions affect the market. Some bean counters hidden away in dark, damp accounting dungeons look at the market trends and say to each other “Hmm, it appears that if we set the game price to $60, we can make more money than at $50, or $70.” They look how many sales are lost by moving the price to $70, and whether if moving the price to $50 the increased demand makes up for the loss in revenue. They also look at pricing psychology studies to determine whether a price set at $xx.99 or $xx.97 appeals to us more.
Ok, so why have video game prices not fluctuated to reflect these attempts at finding the “right” price? We can get clues to this by looking at the computer game industry. Computer games have fluctuated wildly in price over the years. They can sometimes be found, brand new, for $20 or less, and have at times in the past decades cost over $100 each.
The wild pricing in the early days of the industry was due primarily to how they were sold. Because computer gaming was not ubiquitous, there were no established distribution channels, no large retailers that sold games across the country. Individual development houses often published their own games and negotiated or set their own prices.
As specialized software stores like Babbages and Electronics Boutique began selling games, and retailers like Egghead and later Best Buy and Walmart began selling them, they had more and more power in the marketplace. If you wanted your game to get into the hands of gamers, you had to work with these retailers. There was no other way for them to get into the hands of the consumers that wanted to buy them. These retailers were able to more or less dictate prices because there was no other distribution channel available, and so until recently they have had no incentive to change their highly profitable pricing.
Enter the Internet – this changed the game in more than one way. First, people could easily and conveniently go online and order a game, having it shipped directly to their house, without walking into Wally World. Also, as technologies matured, people could log on, purchase, and download games directly to their computers. Digital distribution more than anything else has helped bring computer game prices down because neither we as gamers or the game developers have to be handcuffed to the big, bad retailers any longer. Since we could pay publishers, or even self-publishing developers directly for their games, we cut out a lot of the fat in the process, forcing the big retailers to adjust. Go into your local Best Buy and check out computer game prices these days…they don’t cost $100, or even $60, anymore.
So for now, console gamers are stuck. They are tied to the large retailers who have no incentive to lower prices. They have no incentive to even attempt to adjust pricing at the moment, or we would see things like we see in the airline industry. For instance, American Airlines might announce that their flights from Dallas to Las Vegas will be dropping by $40 in a month. Sure enough, other airlines soon announce that their prices will drop at that time as well, thus keeping prices level among the airlines but avoiding anti-trust hassles.
The reality is that until console gamers have a way to play their games without a CD/DVD in hand there will be no price drops like there were in the computer game industry. Game developers are forced to work with huge publishers if they want to make a game for a specific console, publishers and retailers are satisfied with the profits they’re making, and gamers are happy to spend $60 a game. The price hasn’t dropped because no one wants it to drop - our votes on pricing are with our dollars, and we’re happy to shell out $60 time and time again.
The Crispy Gamer article hints at emerging technologies that will enable prices to drop, and this may be a turning point. If consoles start coming with huge hard drives and full games get distributed over your broadband connection, the big retailers can be cut out. Unfortunately for us, because the hardware itself is sold by a single company, guess who sets the prices for that digital download? Sony. Microsoft. Nintendo. Not the game developers. So don’t expect a big drop in pricing once this is available. Gamers may have to wait for something new to challenge a market dominated by Sony, Microsoft, and Nintendo. Perhaps the upcoming linux gaming console?
Sadly, a new competitor may not even make a difference. In the end, it may come down to gamers having to delay gratification and choose not to buy a title they want badly because it costs too much. I don’t know any gamers like that, do you? So the chances of console game prices dropping look pretty damn bleak to me…
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Photo Credit: (order of appearance) Hermida, DavidD, NathanGibbs, AdamCha, Bdu
Very engaging article NixiePixel! i’ve always wondered why pc games cost so little compared to the gaming system prices, I know EA is killing alot of gamers with their prices via sports games, they basically told all of us that if you dont buy from us you can’t buy from anywhere else! i.e. Madden/Ncaa football, no other dev makes a pro football game only because they cant! EA has locked a contract with the NFL to be the ONLY makers of lic football games along with the NCAA, I think EA felt the heat coming from 2k sports, they made an equally enjoyable football game but for…$20!!! and the game had more detail in it as far as crowd response,side line respose etc! just imagine what could have happened if EA had not locked up the NFL and NCAA, 2K would rule the gaming industry right now! look at what they have done so far as Basketball games go, I believe they(2K) has the #1 selling pro basketball game AND NCAA basketball games out there!
So my rant is about placing blame entirely on the developers, the front offices etc.
See also OXM's "Where Does Your $60 Go?" for another way to slice the pie.
http://www.oxmonline.com/article/features/where-d...
But the core makes sense: If it sells at $60, it'll be $60 until it no longer sells at that price.
It still doesn't explain why buying a game online direct from the publisher is the same price, when issues of buying shelf space are not an issue with an online store. Example buying a EA title direct from EA vs buying from a retailer.
One way I can see them rationalizing that $60 price point for digital copies is three-fold:
1) Fees for digital distribution (listing on services – like Steam & Direct2Drive, advertising, hosting, bandwidth, customer service and support, etc.)
2) DRM/anti-piracy code licensing fees that may not be present on physical media.
3) Convenience. They probably figure that they consumer will eagerly pay more to be able to get something immediately, and most times they're right. After all, isn't $5 worth not having to drive to your local game store, or wait two days for Amazon to ship it to you? Overnight shipping and gas (or bus rides) are costly!
Bryce, sorry, I thought I had addressed this. The reason EA won't sell for $40 when Wal-Mart sells it for $60 is simple – they don't want to undercut their distributers, or they soon won't have any. Not because Wal-Mart will run out of money, but because they will quickly stop selling products where their suppliers are charging less for the same product.
I re-read and you did cover it I guess I had interpreted that paragraph differently the first time I read it. My fault.
Brand new original Xbox 360 games in Hong Kong (with English AND Chinese packaging) retail (depending on the popularity of the game) US$30-40 each! These are not pirated games (those are cheaper like 3 for $12) Because of this price point and the cheap console the 360 has really grabbed hold of the local gamer and won't let go. When I see that the US games are $60 that seems almost insane.
The fun part is when you're not living in the USA. If you're from Europe then $60 quickly becomes 60€ completely ignoring the exchange rate between the currencies and puts a prize tag of $90 on the game.
The crazy part is when you try to buy a game online (either the whole box product or just download), you usually get refused and told that the product is not available in your country.
In India we have to pay as much as Rs 1000 for a good popular game. Is it fare?
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There a very easy answer to this.
The business model of console developers is to manufactuer a gaming platform with some neat hardware in it, and then sell that hardware for really cheap to rope in a massive customer base. In fact they sell the hardware so cheap initially that they make a large LOSS in doing so.
The costs are recouped because they own the platform and charge royalties to game developers, and the game developers still have to make a profit so they hike the cost of the game to cover the additional cost of paying Sony/Microsoft
No one owns the PC platform, anyone can make games for it and the only cost is making the game itself. So there is no offset cost for the hardware making PCs more expensive, but games come in at a reasonable price.
in the long run consoles will cost you more money despite initially being cheaper, if you buy lots of games that is.
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