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Videogames have been extremely expensive for a long, long time. And not in a galaxy far away; right here in the U.S. and pretty much everywhere else.
How expensive?
Gaming-capable PC or Mac: $600 to $3,000
Game console: $150 - $400
Games on DVD/Blu-ray discs: $40 - $60
Then mobile arrived and made gaming affordable. Any recent iPhone and/or Android device is a capable mobile gaming rig. Same for most Android tablets and the iPad. Games are free or cost $20 at most.
But before looking at mobile and why it's such a disruptive force in gaming, let's go back in time. Back to the the late 1970s, 1980s and 1990s, when gaming was made expensive because of cartridges.
Carts costs are at the root of the $60 game
CARTS
Memory might be ridiculously cheap today, but back in the 1970s even 16K used to go for thousands of dollars. To solve the problem of "one game/one console" exemplified by home Pong, Fairchild Semiconductor released the Channel F. At first, cartridges only flipped switches (they didn't really contain any memory chips) but soon consoles like the Atari VCS/2600 would introduce REAL cartriges to the world.
Variety = cartridges holding a game each
Cartridges = memory chips
Memory chips = $$$
From the Atari onwards, game consoles would rely primarily on cartridges to boot up and load any games. This trend lasted about 20 years, from the VCS' early days in 1977 until the advent of the Sony PlayStation in 1994.
High cartridge prices made Nintendo 64 games expensive, costing upwards of $80 (in 1996 dollars) versus $40 or $50 for PlayStation. Publishers were able to sell games for less because manufactoring costs for games on CD-ROM were much lower than making cartridge copies. Lower software pricing was one of the reasons why Sony dominated the 5th generation of consoles, leaving both Nintendo and Sega eating dust.
The $60 pricing trend started with cartridges, but then it mutated into something else with the advent of CD-ROM-based consoles. Three-dimensional graphics and 650 MB of storage made games much more expensive to make than the 2D goodness of Mario and Sonic, forcing publishers to steadily raise prices.
$80 = cartridges
$50 = Playstation CD-ROMs
$60 = traditional AAA / next-gen price point
Modern Warfare 3
AAA BUDGETS
Budgets of $30 to $50 million are quite common now. It takes that much money to deliver a game capable of achieving triple AAA status and selling accordingly (think Modern Warfare 3). Teams are huge, Blu-ray discs can hold 25 GB on a single layer and gamers expect hours of entertainment for their hard-earned moolah.
Making AAA games requires a $60 price point from the point of view of both publishers and developers. It makes logical sense. Howewer, we need to ask: is that the whole story? It costs $5 at most per copy (DVD) maybe $10 for a Blu-ray disc. Do games really need to cost $60 since the media itself is so cheap?
RENTAL
To understand the $60 price point, we need to look back at rental VHS tapes. Yes, really.
When Sony launched the first consumer VCRs in 1975, Hollywood studios panicked. They feared consumers would start recording movies off the air (which did happen) for profit (which did not happen). They feared losing control of the original IP.
Then video stores arrived. At first Hollywood was dead set against allowing movies to be rented. It turns out a legal concept named "First sale doctrine" allowed video stores to buy a rental copy ONCE, but make 100 percent of the money aftewards. Hollywood studios were not entitled to ANY revenue after the first sale.
With the popularity of movies on Betamax, then laserdisc and VHS, studios had to relent. Video stores never agreed to sharing revenue with studios. So Hollywood figured they could:
a) Create a 2-tier system
b) Charge $$$ for a "rental" copy and $ for a "sell-through" copy
c) ??
d) Profit!
Video stores would pay, say, $100 per copy of Desperado but consumers could buy the same exact tape for $24.99. The inflated cost of each rental copy was designed as compensation for first sale "losses" -- making up for the fact that the video store would make the money back after a number of rental cycles.
My thesis is that the same principle applies to gaming.
GameStop has built an empire on used game sales
PRE-OWNED
The first sale principle allowed GameStop to prosper. It makes selling (and buying) games on Ebay possible. Used games generate BILLIONS but developers and publishers don't see a cent.
So publishers price AAA titles at $60. Just like that VHS copy of Desperado.
If some of the income from used game sales went to developers instead, indie houses would find it easier (and less ulcer-inducing) to stay in business. Modern Warfare 5 would cost $20. Mobile games would have some competition :)
In fact, a revenue sharing deal DID eventually take shape in the home video market. It suceeded wildly, making a known brand the most powerful video store in the world.
BLOCKBUSTER
Back in the late 1990s, Blockbuster Video signed a revenue sharing deal with most Hollywood studios. It allowed every store to buy hundreds of rental copies for dramatically lower prices.
First sale / no revenue sharing = $100 rental copy
Revenue sharing = $40 rental copy
The result was a constant income stream for Hollywood studios (versus a surge every time a new movie hit home video), cheap rental copies for Blockbuster and hundreds of copies of new releases for consumers. Getting The Lion King at the local video store at launch was akin to Mission Impossible, but Mission Obvious at Blockbuster.
So Blockbuster killed the video star (local stores), Hollywood made stable income and the home video market flourished.
Blockbuster mopped the floor with independent video stores thanks to revenue sharing
MOBILE
Revenue sharing is standard on mobile development and publishing. Developers pay 30 percent to Apple, then keep the rest.
Mobile publishers like Chillingo might charge 30 percent as well, depending on the deal.
Goods are digital, so the first sale principle doesn't apply. You can't auction your "used" iPhone games on Ebay.
Mobile budgets are still a fraction of the budget found on a AAA title. Angry Birds reportedly cost Rovio $100,000.
Mobile games are free, free-to-play and always cheap when compared to console games, resulting in a huge influx of new gamers. They're doing pricing right by all the parties.
THE FIX
To solve the $60 retail pricing puzzle, any companies selling used games or renting them should have revenue sharing deals with publishers and developers.
I'm looking at you, GameStop and GameFly.
Consumers should still be able to execise their first sale rights though, even if it "hurts" publishers and developers. Some may call it preferential treatment; I think it's a fair approach to the first sale doctrine. Consumers are not the same as giant corporations. At least until physical copies exist -- it might not be the case in five years.
The $60 retail pricing model will be killed by digital donwloads. That's how it all ends. No more used game sales, no more expensive media like cartridges, just bits and bytes through a fat pipe.
Once these two factors are in place, AAA prices will recede to compete with mobile gaming.
AAA Xbox 360 game = $60
AAA Xbox 720 game = $30
Casual Xbox 720 game = $10
These are seismic changes. They will transform the industry, starting with publishers made uncecessary by self-publishing (already a reality with PC games on Steam). AAA publishers like EA might in fact become more like Chillingo, since "retail" will not be one of their responsibilities.
Developers will connect directly with their fans. A subscription model might become a reality:
a) I love developer X's games
b) I pay developer X $1.25 every month to play all of their games as they are released
c) I pay for extra content (note the word extra -- not missing content)
The lines between "mobile" and "console" will be blurred. You will play the same game on your Xbox 720 and on the smartphone of choice, be it an iPhone or the last Android monster.
$60 games are already dead -- they just don't know it yet.
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This also gives studios the ability to make new IPs and test them by making smaller games and pricing them cheaper. Example; Mirror's Edge was a new IP and new type of game. EA could of easily cut the game length in half, end it on a cliff hanger, sell it for less and see what kind of numbers they get back. If it sells well, then make a full-fledged AAA sequel. If it flops, EA didn’t spend too much money and or time on that IP.
The AAA model it follows doesn't work for 95% of the games out there. In a way, these tentpole release are the final remnants of a long lineage of AAA games on high-powered game consoles and PCs.
I also understand games used to be more expensive (I specifically mention $80 N64 games). I know they are cheaper when compared to these cartridge behemoths. The thing is, in absolute terms games are still way too expensive. If you take foreign markets into consideration, away from the buying power of the dollar, it's even worse.
When I lived in Brazil, I literally could not afford original games. And I was from an upper middle class family. A single game would cost $200 in Reais, which is insanely expensive.
I had a teacher that worked on EA Brazil, and he said that sometimes console games here had to be sold in the store for 350 reais to have profit (specially Activision Games, because Activision charge a very high royalty, and the government charge tax over that royalty... yes, in Brazil EA sells Activision stuff)
I think for me the issue is that game developers asking for my consistent $60 as a game fan when not every game has the same level of work, planning , or dedication put into it is absurd. gaming is not an cheap business I fully understand and appreciate that but with that said there is a huge disparity in terms of game quality and I think that should be reflected in game pricing. I think if anything is killing console gaming it would be games of lower quality charging a premium price. if your game is of lower quality i expect a lower price. i am not going to expect the same level of detail from a $40 game as I do a $60 game but when every game comes out priced at $60 those games of lesser quality are signing their own death warrants.
please don't take it as me saying devs from smaller studios deserve less for their labor or that their games are in any way less demanding. However i am saying that when it comes down to me as a potential consumer looking at my wallet, if you want to charge a price comparable to MW3 , skyrim, arkham city , etc. I do expect for you to have a comparable level of quality overall .
again not trying to be offensive but just speaking as a consumer asking me to shell out $60 new just because that's the standard price tag is reaching and chances are i'm going to wait for your game to hit the bargain bin or be used when if it was just cheaper new i would have higher chances of picking it up.
I am sure halo anniversary is going to do well , it probably would do pretty good at $60 too but it is only $40 . which is only going to benefit it in terms of sales which it would already do well in. still a good point to ponder. i would hate to see console gaming die , because I grew up with consoles and even now I consider playing a game on PC lightly.
The pricepoint will be around 30 dollars (i am skeptical about this) but the industry is going toward a DLC mechanic to curb second hand sales. So the game will cost 30 bucks but there will be DLCs to "complete" the experience and they will probably cost around 10-15 bucks each elevating the cost of the "complete" game to 60 again.
In the end the pubs will exploit any loophole or marketing strategy to squeeze out the most money, even if it means releasing "unfinished" or "incomplete" games.
In the future the DLC will not be optional, it will be mandatory. Its one of the steps to pure subscription gaming.
They're not developed from the get-go as smaller games. They might even have retail SKUs, so digital distribution is just another way to get to gamers' hands.
In general, I do think games will abandon retail, end the first sale loss for developers/publishers and recede in price. Price reductions will be possible because of the lack of publishers, for example.
Example: Section 8 Prejudice, which cost $15 at launch and was distributed via XBLA/PSN on console.
And unfortunately, I can see tiered bandwidth broadband connections in the same future of digital distribution. With digital, you may not have manufacturing costs, but you do have bandwidth and infrastructure costs. That said, I welcome experimentation in the field and would love to see something innovative pop up.
I don't know why this is so. Maybe digital stores like PSN/XBLA are still too much like a monopoly. But if digital distribution doesn't affect the price right now, why should I believe it will in the future?
"The cost of producing an N64 cartridge was far higher than producing a CD.[63] Publishers had to pass these higher expenses to the consumer and as a result, N64 games tended to sell for higher prices than PlayStation games.[60] While most PlayStation games rarely exceeded US$50,[61] N64 games could reach US$79.99"
source: http://en.wikipedia.org/wiki/Nintendo_64#Production
A lower price point would no doubt increase sales, but as there are less people interested in these games in the first place regardless of price and the people that are, are often already willing to spend a higher price (relative to production values) for a game that appeals to their tastes, it seems unlikely that the sales increase will be worth the price drop. The same can be said for used sales and rentals.
Funny. It almost seems as if you are suggesting that "we" consumers rent out our game collections.
http://www.escapistmagazine.com/news/view/114009-56-of-American-Gamers-Dont-Buy-
Games
It seems that with a little coordination between family and friends consumers can deliberately obtain unique members of a shared set of (single-player) games - i.e. there is no point in both friends buying Batman : Arkham City, they may as well get different Campaigns, complete them and swap. Hence, the focus on MP
which tends to force everyone into getting duplicate copies so that they can play with their peers in social groups. However, this isn't a cure-all as consumers are sufficiently savvy to question whether a game will have sufficient online participants, e.g.
Frontlines: Fuel of War
Split Second: Velocity
Are both excellent games that sold poorly due to a (justifiable) perception that they lacked players.
I look forward to the day when developers can publish their games to the Xbox LIVE Marketplace, for launch day download to the 1TB HDD of my Xbox 1080, which (in the manner of iOS) will resemble a "Multimedia
Jukebox" - letting me pause a game at any point and resume another song/movie/tv-show/game where I happened to last leave that, without any futzing around with save files.
/me bought the Deluxe Edition of Catherine for $80