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Why Mobile Game Pricing Can Only Go Up
by Elizabeth Boylan on 07/15/12 05:12:00 pm   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

We're in a period of overall technology disruption. In history, whenever this paradigm occurs better capitalized players can afford to undercut weak holders in the industry and dominate the market by exhausting the resources of their lower leveraged competition.

No matter what business you're in- right now is a period that breeds much uncertainty on account of so much advancement in mobile technology and cloud storage. Just look to print publishing and how many news papers are folding trying to keep up with paying the pensions of past employees based on the premice of perpetual advertising and subscription based revenue.  

But for mobile games and indie developers specifically, one has to wake up and recognize the current strategy of large corporate players which is to price so low that smaller studios can't possibly afford to stay in the game. Advances in game technology and mobile has provided for so many indie developers including myself, the opportunity to compete with large studio titles such that games are now as competitive as the art, music, film or book publishing markets. One thing for certain, the biggest mistake any game developer can make is to focus just on one platform, even if it's the iPhone. 

While console sales and their respective game sales priced within the $50 to $60 are being priced out by mobile's abundance of free casual games played on less expensive smart phones and tablets, the freemium revenue model is being pushed as the 'holy grail' of sweet spot app pricing on game developers, but where is it heading? While housing, food and equipment aren't 'freemium' based, many developers are going to burn out their passion and resources if they fall prey to the brainwashing of the 'freemium' model with ads or freemium with in-app purchases. 

Consider how Napster changed consumer expectations with free music downloads which opened the opportunity for iTunes to charge $0.99 or $1.29 per song. An acceptable price point for a single song since CD albums used to cost $15- $20.00, but had 12- 15 song tracks on each album. Who wants the whole album anyway? Yet e-books are still priced within a comparable range to print books despite the fact that the cost of inventory, distribution and print no longer exists and most books are usually written by one person and not a team as is the case for most games. 

Why then is mobile game pricing being driven down according to the value of a song and not according to the value of an ebook? VentureBeat covered the rising costs of mobile user acquisition in February and more recently in an article titled 'Rising costs of marketing iPhones games scares developers'.

The latter article cites that bigger players are willing and able to pay $7 for each new user acquisition of a mobile game. Which inevitably drives the price up for mobile advertising. If $7 is the cost for each new user of a game title which is priced at $0.99, then obviously the larger player will be introducing other in-app purchases or monetized content within that title either immediately or down the road. 

Games are entertainment and they compete for time space with television and film. While many consumers find the cost of console games too high, I would suggest that game pricing for content should be more in line with purchasing an iTunes movie at about $15. Keep in mind a limited rental is still $4 or $5. 

In any event because of basic marketing and development costs- mobile game pricing at $0.99 or free is not sustainable for any studio big or small. Inevitably the price and the quality of top mobile games will increase over the next 2 years and word of mouth referrals will be a significant driver of sales.

 


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Comments


GameViewPoint Developer
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Sure price your game at $14.99 or $9.99 on the app store, and have zero people download it :) the only exceptions to this would be games that offer some kind of leap forward in visuals, or are promoted heavily pre-launch to a particular niche market (who happens to like paying lots for an app store game) otherwise rightly or wrongly Freemium is where everything is heading.

Just the other day I talking to someone, not connected in any way to this industry, and I asked does she buy games on the app store or get free games? and her reply I think sums up a lot of the publics view on this, she said (paraphrasing) "What's the point of paying for a game? if I see a game I like which I have to pay for, I know there will be many just like it, that will be free" she did in-fact tell me she's paid many times over for payments in a game (think it was diamond dash). And that's the point of Freemium, people paying for a continued experience which they already know they enjoy.

Of course games are worth a hell of a lot more than free to download or $.99c, and if no one was making any money through freemium do you think it would have any supporters at all? the facts are that some developers are making a lot of money through freemium, and in a market where as the author wrote acquisition costs are high and rising, to try to get players you need as low a barrier to entry as possible.

Elizabeth Boylan
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My suggestion:
"I would suggest that game pricing FOR CONTENT should be more in line with purchasing an iTunes movie at about $15" so for equivalent content on time spent for entertainment value, that can be $15 like Bjork's apps or paid with in-app purchases that build up to a certain number.

I draw a parallel to Television and Film- these are entertainment business models in place with revenue- Cloud gaming may very well be the equivalent to Television/ cable television a collection Free games with a subscriptions and lots of or intermittent video ads.

In the end developers have to look at the numbers- the more freemium games out there then compete with big studios for how much content you offer for free- or how much content you have to offer with each in-app, it becomes a runaway problem for indie developers who can't compete with the marketing budget of large studios.

Look at Osmos never been free, but has a demo version on Android.

Robert Green
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The most obvious difference between games and the other mediums you mentioned is that in those cases a few publishers control the majority of the market. Those book, music and movie publishers have a vested interest in keeping prices high, in maintaining the perception that their content has a decent value.
In the mobile games business, a few big publishers have tried to do this as well. EA prices their games well above 99c, Infinity Blade II was a big hit at a higher price and I'll be very surprised if the Dark Knight Rises game due out this week doesn't follow the same path, like the Spiderman game before it.
But such publishers represent only a tiny portion of the market, having not turned a physical monopoly into a digital one like in the other mediums, so they lack the power to bring the rest of the industry with them.

But in the long run, I think we have to assume that this is a problem that will work itself out. In fact, I'd say that we're already seeing it happening. Initially prices were all over the place, then 99c started being the default price, now the industry is following Zynga's free-to-play lead, to the detriment of both the games and the consumers. Naturally some are doing this just because they think they can make a quick buck that way, but many others are trying it because over the last year or two they tried releasing games for a price and didn't make a profit, so they had to go in one direction or the other. And many of them chose free, figuring that it would attract a bigger audience and that would eventually pay off.

And for some it will, but for many, especially with more and more games competing for players attention, they'll find that it still isn't profitable, and many of them will either try a different strategy or give up. Because ultimately you're right Elizabeth, 99c for a game that might have taken a dozen people over half a year is ridiculous, and is less like paying a band 99c for a song than for the entire new release album. In a digital medium with no distribution costs, that might be fine for a new band that hasn't played to anyone but their friends and family, but only bands with a huge following could actually make a good living on that model. So eventually, game developers and publishers will have to decide not what price makes the most sense this week, but what price makes the most sense 5 years from now.

TC Weidner
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I tend to agree. For the whole future of mobile gaming to be dependent on a small percentage of players who are willing to pay for some cosmetic pixels to add variation to their avatars is ludicrous. Similarly its ridiculous to think gamers/consumers will put up with a pay to win model, its more of a play to lose, pay to win model, thats not going to go over to well in the long run. People wise up.
That leaves the 99 cent model, which again only works with scale, and with so many game options, only a small percentage once again will realize sales large enough to even cover cost.

Game companies have boxed themselves in here. It will be interesting to see how the industry works its way out. Who knows maybe games become like network TV, the content is free, but comes with advertising?

Its going to be interesting because when this next lil internet stock bubble burst, things will change.

GameViewPoint Developer
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Freemium is not games for free. It's more try for free, but not even in a demo sense, in a sense that you can truly discover if you like the game or not without paying, that might scare some people, but I think for quality developers it never will, actually the oposite should be true. Developers should want as many people to try their games as possible, and then if they like what they experience pay for extra. Ads are fine but in a way are far harder to make money from than IAP's as you need huge numbers of impressions to make any money at all. Ultimately quality games will always do well, and Freemium makes them easier to be discovered which in todays market is maybe the most important aspect to achieve success.

The network TV model might well be where things are heading, in regards to everything being centralised in a few games portals/platforms.

Elizabeth Boylan
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I think the network TV model is where we can expect things to head for cloud gaming platforms. Subscription fee and intermittent ads based on the type of games being played.

TC Weidner
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@ Game view dev.

you same freemium- its called demo, or shareware in real world and is nothing new. Buzz words dont change reality, and it still comes back to price. So you like the demo, now what is the price?

I covered this model when I said, its asking a small percentage of players who are willing to pay for some cosmetic pixels to add variation to their avatars to support the whole business model.

Demo/shareware/freemium have its place, I just dont think it can carry the whole mobile gaming industry.

Restaurant industry wouldnt last long if they gave away meals, and then offered some desserts for those who want to pay for em.

GameViewPoint Developer
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To me that's missing the whole point of Freemium. In your demo example someone plays the beginning part of a game, and then pays to play the rest whether that beginning part is constrained by time or area. in a Freemium game there would be no such restriction, other perhaps in a resource sense. But you can still experience what the game has to offer without having to pay for more.

It seems to be a lot of the people who have an issue with freemium, actually have an issue with particular freemium games, because many freemium games actually make more money than they woud of otherwise done by allowing players to play them for free, and then giving them the option to pay for extra. If the games good than they are happy to pay for more.

Also people use films or books or other media as comparison to games in arguments against freemium, but that's missing a fundamental point, which is those examples are static, they don't change once they have been released. Modern social games need to be dynamic and offer players new content on a regular basis, in that environment is it better for a developer to just charge once on download, and then have to update content for months maybe years without any extra payment?? the only alternatives are subscription and IAP's. IAP's in many ways seem fairer because they allow players an absolute choice to part with money or not and if not still enjoy some of the game, where as when your subscription stops so does your access to the game.

All of this is a mute point though, regardless of the merits of F2P or not, the public will vote by their downloads, and currently it seems that most expect games at least, to be free.

E Zachary Knight
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There are a few issues with your reasoning behind price for various industries. Robert touched on it above, but I would like to add a few things.

Ebook pricing is not as cut and dry as you claim. Sure the Big 5/6 like to keep ebook prices high and comparable to hardback pricing (they tend to price $10+) the indie side, or self published side) are trending to lower prices. Most self published authors are pricing their ebooks at $>5. Average pricing tends to be between $2 and $3.

On the music side, a lot of indie musicians and bands are starting to release their recorded music for free and relying on concert, merchandising and other scarcities as their primary means of income. They recognize that the music is the advertisement for their more profitable ventures.

Movies are probably the most comparable to video games in that indie film making is still a niche market. However, even indie film makers are recognizing the fact that people want more than to just pay for a viewing of the movie. So while prices tend to stay rather stagnant on the film side, things are changing as consumers change their valuation of films.

On the game side, console games are still high priced because the console industry is still controlled by major publishers. But you see that as indies are added, prices race to the bottom. (as can be seen by XBLIG). On the PC side, you still have the high priced major publishers who can make it to retail, but on the indie side there, prices are dropping considerably. Very few indie games are successful at prices over $20.

On the mobile side, the problem of dropping prices has more to do with the discoverability problem than anything else. If it were easier for people to find and recommend games, we might see a trend toward higher prices. However, since the app stores are still dominated by a handful of lists to help potential gamers to find games, then yes, prices are racing toward freemium. If someone could implement an Amazon or Netflix like recommendation system that rewards people with better results the more they buy and rate applications and games, then you will see a better pricing system.

TC Weidner
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using your movie analogy, do you think that movie industry will ever simply allow people to watch their movies for free, and simply split the money off of concessions? Im not holding my breath.

E Zachary Knight
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Theatre releases are still a big draw for major and indie film makers. I don't really see a free to watch theatre experience any time soon. However, there are a fair number of film tours in which the director or producer will tour with a movie and provide a Q&A session after the viewing.

But we are seeing a trend toward "free" to watch films online. Most of this involves either ad supported or subscription based services. So fewer people are shelling out $20+ for a DVD or Bluray.

Elizabeth Boylan
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At 660,000 apps, you no longer have better discoverability by being free. I've released more than 12 apps over the past 3 years and have witnessed the decline in downloads for a free app. The novelty of free apps have worn off.

Of course there's going to be a range of pricing as with books. But one has to put a price- you can't spend more than you make- the price has to go up to cover basic and fixed expenses. Of course the best discoverability comes from marketing something amazing, and for indie niche there's indie game contests.

The post is mostly an analysis on where we are at in a period of tech disruption. Think 'Art of War' corporate strategy. It served Apple to encourage pricing of games to free and $0.99 in order to undercut and effectively disrupt the game/ console market dominated by XBox, Sony Playstation and Nintendo. Apple could have encouraged pricing more in line with ebooks- but it's war for territory. The App Store had to severely undercut console and pc games to dominate- which they've achieved in less than 3 years.

Also consider the relationship Steve Jobs had as a member of the Board of Disney and the resulting pricing of Disney games on the App Store. Much like how Napster disrupted the music industry by changing consumer expectations on pricing for a song, mobile has disrupted console game pricing. People aren't buying consoles or console games because there's an alternative and less costly entertainment option.

It also served Apple between 2008-2011 to build up the 'App Store Gold Rush' story to get as many developers to create content for the iPhone in the hopes that they would also emulate the same success as a hand ful of independent developers or developer teams. But people are starting to realize apps aren't all that- they only care about their favorites, the rest are clutter.

While the Film industry is unionized- the consumer is willing to pay a certain price for entertainment content. It's not about what's fair so much as what the consumer is willing to spend to be entertained.

Indie developers then need to consider what they can create to please and entertain the consumer in order to remain profitable or at the very least break even.

Thanks for the input Zachary!

Elizabeth Boylan
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Thanks for the comments- it's an important discussion for indie developers who dream of working on their games full time and earning a living from their artistic expression. As indie developers, we have to look long term and who are biggest competition is, larger studios with more capital.

Another thing about Mobile is how much a game developer can push attractive graphics on a mobile device- for instance cloth and terrain. So it makes sense that pricing is lower on mobile than console until mobile devices are as powerful/ responsive as PC or console. Free loaded with shitty ads for dating sites clash with and degrade the art.

I think the best strategy is to create a game title that has bredth and depth, is multiplatform and worthy or word of mouth referral in order to be a financially sustainable model that has legs for future earnings.

TC Weidner
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I see a lot of Pet.coms like software companies right now out there, I think if this low cost gaming takes hold, it will be the smaller developer that will ultimately survive, as low overhead and cost will be a must. There are no free lunches in this world, right now there is just a lot of dumb free money fueling some speculative companies, but it will all come out in the wash. We have some crazy turbulent times coming up.

Elizabeth Boylan
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you don't want to be a sock sucked in the spin cycle ;)

Justin Nearing
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Comparing games to other forms of media doesn't really make sense, because the variables for product success are different. The price of user acquisition, the methods of monetary return, the amount of developers pushing out products are different from other forms of electronic media.

I think people have already started to accept higher price-points in mobile games (especially in terms of in-app purchases), but it will depend on increased quality of apps and the amount of content being pushed to each app. The Cambrian evolution of mobile games we are currently seeing artificially lowers the perceived price-value of all apps. As platforms, developers, and users come to understand this new market, quality apps will start to pull away, allowing the price points to increase (This also means larger studios will be in a better position to compete in this kind of market).

Elizabeth Boylan
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It makes sense to compare pricing games to film/ tv because they compete for a similar time space of entertainment/ escape. They are both entertainment media consumed via a screen.

The comparison to music and ebooks as digital media is again about pricing content in what is an acceptable range to the consumer while working to achieve profitability as an indie developer.

Whether it's an in-app purchase structure or one time flat fee, I agree Justin, people are beginning to accept higher prices for better quality. The overall price point is trending up.

James Coote
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If I charge $15 for my app, I need 5000 players to make $75k

The $15 app must be of exceptional quality, and be targeting an under-served niche. That means more development time and/or higher costs, which translates into worse cash-flow

If I go freemium, then I need 100k players making $0.75 IAPs to make the same $75k revenue

The freemium app, I need to provide customer support for 100k players. However, after I have released the app, I can use initial revenues to offset the support costs and funding the marketing I need to reach a critical mass of players to break even. I.e. better cash flow

So, from a business perspective, that means freemium wins every time. It also means games with smaller scope or lower quality

That leaves a gap in the market where bigger, better games are missing. So large studios, who can take on the risks, come in and fill those gaps with high quality freemium. To do that, they can't target too niche an audience, or they will never get the critical mass numbers wise.

That leaves small niches and high costs to indie developers who don't want to go down the freemium route. If the niche is too small, the indie can't recoup their costs. Too large, and a big company will come in and out-compete them.

Trying to find a niche that is 'just right' for an indie, that no other indie is in, is the challenge

There is no reason why you can't charge $15, or even $50 for an indie game, so long as it is based on an understanding of the elasticity of demand for that particular part of the market.

Robert Green
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"If I go freemium, then I need 100k players making $0.75 IAPs to make the same $75k revenue"

The problem with that line of thinking is that in order to get 100k players actually paying anything, you probably need 20X that many to actually download it to begin with, if not 40X. So the comparison is actually 5000 players at $15 vs 2 million with a 5% chance of paying $0.75
And in order to get 2 million people to download your app, it's going to need to stand out, which is getting harder and harder to do, as more and more freemium games compete for your attention.


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