We have yet more evidence that video games are too expensive for their own good, in the form of Gabe Newell’s 2009 DICE Summit keynote address. Rock, Paper, Shotgun has the story, and some truly damning statistics:
The recent Left 4 Dead sale lead to a 3000% increase over the previous numbers. That is, more than in the weekend it was released. Plus, another 1600% in new customers to Steam.
The holiday sales lead to interesting numbers. A 10% reduction lead to 35% increase in amount of money which came in (i.e. Not just sales). 25% lead to a 245% increase. 50% lead to 320% increase. And 75% lead to 1470%.
(The Left 4 Dead sale dropped the normally-$49.99 game to $29.99 for a week, if my memory serves me correctly.)
Off-the-cuff intuition would seem to suggest that a price drop would result in more units moved, but not necessarily more overall revenue, due to the reduced income-per-unit. However, Valve saw significant revenue increases right out of the gate at 10%, and the jumps kept getting larger the lower they cut prices!
Obviously there’s a point of diminishing returns, hovering somewhere around market saturation. Specifically, there’s a finite number of people who are even potential customers, based solely on their personal interests. That is, even if your game was free, that doesn’t mean every person on the planet is going to want it. So once you’re moving enough units to approach market saturation, further prices drops are going to stop increasing sales volume and start reducing revenue.
But until then, the evidence seems clear: the more affordable the game is, the more likely it is people will buy it. So much so, that the increase in sales volume more than makes up for the decrease in income-per-unit.
I’ve said this before, and I remain an advocate of lowering the price of games. The argument that game pricing has gone up to keep up with the increased cost of development is, in my opinion, arguing for the wrong solution. As Valve’s numbers clearly demonstrate, lowering the price increases the revenue dramatically, making it far easier to offset development costs than the standard price jump from $49.99 to $59.99 back at the start of this console generation.
Game pricing also has implications for piracy, as Cliff Harris noted (and I commented on) last year:
A LOT of people cited the cost of games as a major reason for pirating… People talked a lot about impulse buying games if they were much cheaper.
Are there really any arguments left for maintaining the $59.99 price point?
February 22, 2009 at 4:28 pm
Well said. While the game companies lament about their ballooning art budgets, in many ways the cost of doing business in video games has dropped dramatically with the proliferation of download services and ready-made middle-ware companies. If all games started to cost $30, I wonder if anyone would bother to pirate them.
May 1, 2009 at 12:08 am
[...] However, even if such a ubiquity came to pass, games are still seen as a financial investment, due to the unconscionable $59.99 standard price point. The most common argument given by publishers at the beginning of the 360/PS3 generation for the price increase was that “next-generation” games were more difficult and, critically, more expensive to develop. While it is true that game development budgets increased significantly from the PS2/Xbox generation to the 360/PS3 generation, they are still, with the exception of a very few outliers, far below the average budget of a feature film. The key difference, as I have argued previously, is the difference in audience size. $10 DVDs sell to tens of millions of consumers and make a handy profit on $100 million dollar films. If a game sold to tens of millions of consumers, it wouldn’t need to be priced at $60 to make a profit on its measly (by comparison) $20 million development budget. And if you’re wondering where we find those extra customers, all you have to do is lower your price point. [...]
June 22, 2009 at 7:29 am
[...] However, even if such a ubiquity came to pass, games are still seen as a financial investment, due to the unconscionable $59.99 standard price point. The most common argument given by publishers at the beginning of the 360/PS3 generation for the price increase was that “next-generation” games were more difficult and, critically, more expensive to develop. While it is true that game development budgets increased significantly from the PS2/Xbox generation to the 360/PS3 generation, they are still, with the exception of a very few outliers, far below the average budget of a feature film. The key difference, as I have argued previously, is the difference in audience size. $10 DVDs sell to tens of millions of consumers and make a handy profit on $100 million dollar films. If a game sold to tens of millions of consumers, it wouldn’t need to be priced at $60 to make a profit on its measly (by comparison) $20 million development budget. And if you’re wondering where we find those extra customers, all you have to do is lower your price point. [...]
July 6, 2009 at 7:07 am
[...] Comments [Monday Musings] Shrink to Success « Third Helix on The Myth About Game Pricing[Monday Musings] Shrink to Success « Third Helix on Why pay more?Joshua Kahn on [...]