Something to think about when the Steam sales roll around next week.
By James Pinnell 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.