Shut Up And Don’t Take My Money: Why do games cost so much?

Shut Up And Take My Money

By on December 19, 2013 at 8:41 am

Nothing gets the blood boiling (aside from DRM, of course) throughout gaming communities more than the retail pricing of titles. From indies to AAA, Humble Bundles to Steam sales, very few places outside of Australia,  UK and NZ find themselves in such a quagmire when it comes to defining what a game is worth paying for. So I’m here to ask the question — what is a fair amount to pay?

While I’m of the opinion that the $8 I paid for Tomb Raider is perfectly valid (although I would have paid double, knowing now its quality), many commentators claim that the deep discounting of PC games lowers the public perception of their value. It’s an argument that has merit, as the development of a title is hardly an easy process — teams of hundreds, both long and short term, spend years coding engines and developing art assets. Indie developers can and often do, code for up to 18 hours a day, struggling to fill every 24 hour block as efficiently as possible. In our race to bottomed-out prices, we quickly forget that there are people behind these games attempting to make some semblance of a living.

But before we even breach that topic, we need to cover what value is, and how gamers interpret it. Case in point: Does a game need to be long to justify a $60 price tag? Does it require heavy graphical prowess or ingenious secondary systems, like tablet apps, league tables or stat tracking websites? Or can quality alone justify a high price?

One of the reasons game pricing has stayed relatively static is due to the fact that we as an industry, as a group, have not really had this conversation. In fact, many of us tend to reinforce the status quo when we buy a AAA game without blinking for $50, or criticise the developers of an indie title for daring to think that $20 was a decent investment for their hard work.

I remember witnessing a huge debate in a gaming forum this year, with a general consensus agreeing that the critically acclaimed Gone Home was, actually, worth playing… but not at $20 “because its only $10 worth of game”. It’s interesting because this sort of thought process doesn’t factor into other forms of entertainment — albums tend to be priced uniformly, whether the artist is well known or not, and the same applies to movie tickets, digital film rentals and Blu-Ray discs — regardless of whether the film is indie or blockbuster. The debate in those arenas is based entirely on quality, rather than heritage.

So what are we paying for? Games with big budgets tend to reinforce their own existences — creating enormous spectacles at the expensive of innovative gameplay, incorporating the latest and greatest in polygon busting tech, and then putting out their hands for us to reward them. But this isn’t always to our benefit — arguably, games like Call of Duty: Ghosts and X Rebirth on the surface seem like perfectly decent experiences, but the reality is less glamorous. On the flipside, titles like Minecraft or Fez completely changed the dynamic of how we play and interact with game worlds, and debuted at less than $20. In movie or music terms, we wouldn’t have thought twice before paying the cost of admission — but that “indie” status has instead instilled in us a possibility of diminished returns, as if somehow, against all logic, a AAA title is going to be more rewarding “because” it costs $50 as opposed to $20. As a result, we question that $20 purchase a lot more than the $50. Not only is this completely irrational behaviour, but it also perpetuates a stigma that independent games just aren’t worth a higher premium.

Why we think this way is primarily a matter of history. Back when games were first sold in stores, in cartridge or floppy form, there wasn’t much of a price spread. Generally, you could find most console titles at around $95 to as high as $120 – this was primarily due to the miniscule slice of an already small pile that was the Australian market. Due to our shared PAL signal, most games were imported from the UK rather than the US, and thus prices converted from the pound. Almost every game sold in a shop was sold through publishers or publisher intermediaries, and there were hefty license fees for access. This group of fairly significant factors lead to a very high standardised RRP that never changed, even as printing and shipping costs nosedived  – as well as leaving smaller games being locked out of the retail ecosystem entirely. Years of retail power consolidation has firmed, rather than loosened, these constraints; so if publishers wanted to drop game prices (they don’t), then retailers would also have to give on their margins (they won’t).

Games tend to cost less than films to produce but more than albums, but the market is much thinner, and spread over a smaller area. Predominantly, most games are priced out of developing markets, and other barriers, such as language and access to broadband internet, prevent many of them hitting critical mass in markets like India and China, where subscription based titles are more common. As a result, the Western World, alongside growth markets in Russia and Latin America, tend to be the areas where most titles are sold. Then there are the regional issues — games in Australia and the UK are priced higher, in line with historical rates of return, and titles in Russia and Latin America are cheaper, in order to combat high rates of piracy. It’s no coincidence, then, that most CDKeys sold on sites like G2Play or CJS are sourced from Eastern Europe, with publishers turning a blind eye in most cases as the comparatively low number of people buying this way doesn’t tend to affect their take.

Because as you’ll find out, retailers aren’t really the problem. 

In my quest to find out how your dollar is split, I contacted a number of publishers to try and get a breakdown. In the end, a single source provided the information on a condition of anonymity — and for good reason.

Your average $89 dollar retail game is split across five hands – the first is the publisher, who takes about 30% straight off the bat. Next, the developer nets a paltry 15% of the entire pot, half of the publisher’s take. This can be redundant if the publisher owns the studio, which is the case more often these days. 15% is spent on marketing, and 20% is provided to the retailer — these amounts can also be shared between the publisher and the retailer, as most point-of-sale advertising is provided or subsidised by the publisher.

Lastly, 20% covers console licensing fees — so your Sony, Microsoft or Nintendo doors to entry (this is why PC games at stores tend to be about $10-15 cheaper, as there are no license costs). I was assured that this breakdown is not region specific — the same occurs across every region and territory. What’s interesting, however, is when you look at the digital breakdown.

It’s fairly common knowledge that Steam takes 30% of every sale on its marketplace, which is comparatively high (Humble Store and Desura only take 15%) but also on par with Apple and Facebook. As Steam are also the retailer and “console” in this situation, the cost balance drastically changes the dynamic. Suddenly, the ball is back in the publisher and the developer’s courts – while the marketing costs still apply, almost 10% of the revenue will return to the source. As a result, games should be at least 10% cheaper, while still providing the same spread to everyone involved – but they aren’t, because the publisher takes back the difference.

This is the true reason why games are not definitely cheaper at a digital shopfront: the publisher and digital provider rake is 2/3 of the entire price. This is before marketing costs and paying the developer even come into play. Yes, while there is no packaging or shipping, no warehouses or couriers, printed boxes and manuals — there are still the same bunch of guys who hold all the cards and who want their cut. This is why Steam sales seem so extortionately cheap – Steam and the publishers agree to temporarily and substantially drop their margins, and bang, Tomb Raider is $8 and consumers feel vindicated for a few weeks.

Indie games aren’t cheap because they are worthless, nor is an independant studio “price gouging” when they ask for $5 or $10 higher than the norm. What’s actually happening is that they are passing on the savings — they don’t have publishers, marketing, retailers or license fees to contend with. In fact, once Steam take their 30%, that little extra is swallowed up completely. Rising development costs, whether they be justified or not, continue to keep game prices high for AAA titles, because publishers and developers need a return on investment for the 12 hour days they’re paying their teams to work. It’s thanks to this double dipping that developers are branching out on their own — ditching publishers to set up their own shops, self market and use the games media to raise awareness of their product, or use online stores like GOG that have cheaper rates.

Sure, ditching brick and mortar retailers will make games cheaper, but not by much. The paradigm is changing, ever so slowly, as the market begins to shift towards the developers and consumers, rather than publishers and storefronts, holding the cards.

35 comments (Leave your own)

many commentators claim that the deep discounting of PC games lowers the public perception of their value. It’s an argument that has merit

I can’t agree.

To quote Civilization IV and/or some famous Roman dude:

Everything is worth what its purchaser will pay for it.

Games were $80 for a looooooooooooooong time. Then something changed: the monopoly/oligopoly over the retail channel was broken, and the oligopoly over game publishing was almost simultaneously broken by indie and retro gaming becoming commercially viable.

Suddenly every new game couldn’t just have an automatic $80-100 price tag and expect to sell. Suddenly every game had to justify why it was worth more than another, cheaper game.

“Deep discounting” is the natural end point of actual competition – if games are no longer selling at their ‘retail’ price, then the price is lowered to a level where they DO sell. Obviously the vendor of said game does the maths, and decides if it wants 1000 sales at $50 or 100,000 sales at $5.

What’s actually happening is that they are passing on the savings — they don’t have publishers, marketing, retailers or license fees to contend with.

That would be part of the equation, but those “savings” are also because they lack the muscle to push their game out there to every game shop, review website, etc in the universe and thus the demand for their game is lower. So when talking about the savings, you have to (IMHO) acknowledge the corresponding lower demand. Games like Minecraft are an absolute exception in this regard.

In the end if companies are willing to sell games at low prices and people are happy to choose to buy them from a range of rival products in a market without price-fixing, then the system is working as intended. If prices get too low, companies will stop making games. At least now if they get too high, people simply won’t pay them.

 

I value a game based on how much game play I get from it. Having said that, I never pay full retail and/or AU tax. I always look OS for best prices and wait if it’s a game I’m not sure of. Of coarse some times I get caught out on a game that I think will be great and ends up being disappointing but then again, some of the cheaper games I buy end up being very surprising and I spend countless hours playing – Thanks FTL. Games like the COD franchise are not on my radar until they get below $20 mainly because of the lack of actual game play time.

Like most things – Value is in the mind of the purchaser – not what the marketing company says. Perception is reality.

 

You can’t compare other forms of entertainment. I pay $100+ for musical tickets per person and they only last 2 hours.

A game’s also worth as caitsith01 said what you are willing to pay for it. Publishers always start at the highest price that they believe will bring in the most returns for that period, then they’ll gradually drop it over time to match the ceiling price of others. The only way you can fix games costing too much is to stop buying them when they cost too much.

 

Thanks for writing this article James, and also to caitsith01 for some additional comments. It’s always baffled me how games on Steam and other digital distributor sites can be on sale for such a paltry amount compared to their “non-sale” price. This has definitely explained the price split that goes from my Steam Wallet to the developers/publishers/retailers.

 

The way I see it, publishers have to contend with pricing their games less than they otherwise would, to deal with things such as Steam sales which people have become accustomed to. If publishers insist on bending people over for the latest CoD game (which Activision barely ever puts on sale and when it does, only scrapes a fraction off the regular price), people will either simply not buy it or perhaps just pirate it.

People have far more choice these days and ultimately have the power of torrents, which regardless of your opinion of pirating is still the last element of power that a consumer has to get what they want without being screwed over. In many people’s minds, if a game costs a ridiculous amount, they can either go without or grab a torrent. Since the publisher doesn’t get any money either way, the latter tends to be a common option. It’s naive to think people can’t and won’t do this, so publishers HAVE to realise this is the environment they’re battling in, and deal with it accordingly if they still want to make money.

 
uglyduckling81

“Sure, ditching brick and mortar retailers will make games cheaper, but not by much.”

This statement is completely wrong.

I used to have to pay $90 for any game released at a store back in the 90′s and early 2000′s. Since digital distribution has started with alternatives to just buying on steam with their regional price fixing. I have not paid more than $50 for any game. Usually in fact I will get a ultimate/complete version or digital collectors edition for $50 which in EB would retail for $130 at times.

In Australia with regional price fixing digital distribution has made games astronomically cheaper, less than half the cost of retail in most cases.

 

rapid101:
You can’t compare other forms of entertainment. I pay $100+ for musical tickets per person and they only last 2 hours.

Yep, but then a great book might take 100 hours to read and cost $10… so I agree you can’t compare.

 

The rumor is Steam Sales start tomorrow not next week.

Also I just got 2 snow globe trading cards in my inventory just before hinting sales are going to start very soon.

 

This is why I buy a lot of my indies directly from the developer when they set up their own page and promise Steam keys (Grimrock, Defender’s Quest, anything from Wadget Eye etc.) I’d like to think they get all or the majority of the profits, but I’m not entirely sure if they still need to pay that steam cut since they generate keys and still use the Steam platform… anyone know how that works?

 

stoibs:
This is why I buy a lot of my indies directly from the developer when they set up their own page and promise Steam keys (Grimrock, Defender’s Quest, anything from Wadget Eye etc.) I’d like to think they get all or the majority of the profits, but I’m not entirely sure if they still need to pay that steam cut since they generate keys and still use the Steam platform… anyone know how that works?

This is why I buy my indie games direct from the developer without Steam keys where possible…

 

I, like most, value games based on how much I’ve played them.

Example, Skyrim on PC was $90 retail when I purchased on launch day.

I’ve put in >200 hours.

90.00/200=0.45 per hour.

So when I look back, Skyrim was a bargain.

 

f6310,

I’m much the same, I generally don’t care what I spent on game if I enjoyed it, but if I put thought into it I just do a simple $10/hour good, less than $5/hour is great. Puts most games into at least the good category, and not crazy hard to get into great (12 hours from a $60 game).

Good article, nice to see some figure breakdowns.

 

f6310:
I, like most, value games based on how much I’ve played them.

Which in a way is a measure of a couple of things – how good the actual gameplay is (i.e. does it keep you hooked and playing for a long time?) and how much content the game includes.

Skyrim’s a good example – I agree that it was a bargain at release.

Funny thing is there’s not necessarily much of a link between production cost and how long you play a game for. Some of the games I’ve put the most hours into would not have cost 1/10th as much as Skyrim or Fallout 3.

 

To Quote some Lego manager a few years ago

“The reason Lego is so expensive in your country and not in another is because from our research it’s what you will pay to keep steady sales. Why should we loose money if you will pay more for it?”

If you stop buying games “in theory” prices will drop so they can get sales.

 

f6310:
I, like most, value games based on how much I’ve played them.

Example, Skyrim on PC was $90 retail when I purchased on launch day.

I’ve put in >200 hours.

90.00/200=0.45 per hour.

So when I look back, Skyrim was a bargain.

So i brought Terraria at $2.99 and i have done 235 hours.

2.99/235=0.012 per Hour.

Borderlands plus all the DLC is about $180 plus i played 190hours
180/190=0.94 Per hour.

That way i see it People should stop bitching and break it down :)

 

narcarsiss:
“The reason Lego is so expensive in your country and not in another is because from our research it’s what you will pay to keep steady sales. Why should we loose money if you will pay more for it?”

Spoken like a true monopolist!

In a functioning market, they should “lose money” because competitors offer similar products at lower prices, so they have to lower their own.

Lego has such a unique and strongly branded product that they are effectively a monopoly.

 

Nothing gets the blood boiling (aside from DRM, of course) throughout gaming communities more than the retail pricing of titles.

I think the biggest point is being missed.

the above state isn’t accurate.
its not the price itself that pisses people off, its the pricing disparity.
$90 game here is $50 in the USA .etc.

Outside of that its very quickly known if a game is worth getting.
See X: rebirth.
what should have been a great release well worth its cost was quickly found to be junk until it gets a lot more work done and then it might be worth it.

Aside from the disparity in pricing and if a game works as advertised or not the value of it, as with anything, is subjective to the customer.

 

In this age of globalization I hate the idea of someone else paying less for the exact same digital product just because of their location. In the digital age location should not matter one iota. To borrow from peter griffin ‘It really grinds my gears’. I won’t pay it. I feel ripped off if i do. To me its not so much how much a game costs – its how much it costs elsewhere on everyday prices. Take a look at this. That makes absolutely no sense to me apart from a clear desire to gauge a particular market.

Prices should be set globaly and conversion rates do the rest. A digital market has no place for a regional pricing structure. It’s not just limited to games, any form of digital content be it movies/tv shows/applications/music etc etc.

 

I rarely preorder games, I preordered BF3, sorely disappointed in the amount fo money I spent, now ANY game I want, no matter how badly I just wait to drop in price. The only game I’ve paid more then $30 for lately was pokemon.

An this cost divided by hours thing is a good way to look at it.

Counter Strike Source 15$ divide by 3346 = 0.004

 

trb: its not the price itself that pisses people off, its the pricing disparity.
$90 game here is $50 in the USA .etc.

I think you are missing the point here aswell.

The main reason stuff in the USA is a LOt cheaper is because their economy is in such bad shape. that if they sold things for the intended Retail price no one could afford anything.

They deliberately lower the prices on almost everything just to keep them selves afloat.

 
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