The death of the sixty dollar game
Purchasing a new video game used to be simple. You’d go down to the local game store, slam sixty dollars on the counter, and bring home your brand new copy of Call of Battlefallverwatch 7: Multiversal Warfare. But as Nobel Prize winner Bob Dylan once said, “the times they are a-changin.”
(Editor's note: That previous line originally said that line was from Willie Nelson, which we thought was an intentional "mistake" on the author's part. But apparently it was just a real mistake, so we've fixed it now.)
Now, each new big release boasts a million different collector’s editions with pre-order bonuses that barely fit inside the box, and they typically retail for a hundred dollars or more. Meanwhile, logging on to Steam or another digital distribution site gives you a chance of purchasing a AAA title for well below the sixty-dollar price point. Then there’s the indie-market, which has begun to offer innovative games for around ten to twenty dollars. It seems like pricing is becoming less and less standard as the gaming landscape becomes more and more complex.
Who sets these prices and, if the sixty-dollar game is really on its way out, what is preventing them from charging us even more in the future? To answer that, we have to examine why games were priced at sixty dollars to begin with.
And to understand that, we first have to look at the economics of video game retail.
Why Are All Big Video Games the Same Price?
You may wonder why you almost never see games priced differently at different stores. All the big retailers sell games for $59.99 on opening day. Meanwhile, Wegmans and Costco stock your favorite carrot juice at wildly different prices.
The U.S. Supreme Court has ruled that product manufacturers can legally dictate a price floor or ceiling on the cost of their product. This is called “minimum resale price maintenance” and it has a whole host of benefits for just about everyone.
First, manufacturers and publishers always know what their exact monetary cut is of each unit sold. Publishers also know that other publishers will not be competing with them on price, so they can instead focus on product qualify. The stores themselves benefit because don’t have to undercut each other’s prices in order to compete. It’s basically price-fixing, but not illegal. Only product manufacturers and producers can do this. Stores cannot.
“But what happens if an individual store just decides to charge more, or less, than the publisher’s suggested price?”
They can, but it’s not a very good idea. Refusing to abide by a publisher’s price is a good way to prevent them from selling you stock. You might make a big profit by charging eighty dollars for the latest Call of Duty, but then you’ll never sell a Call of Duty again. Not to mention that someone else is probably charging consumers the recommended price, and they’ll likely outsell you anyway. Price gouging like this will only harm your store’s reputation with both publishers and consumers.
When the publisher becomes removed from the retail process, price maintenance disappears. That’s why used game retailers can set whatever price point they want. It’s also why import titles fluctuate in price, usually somewhat higher than the asking retail price.
If you’ve ever wondered why the retro game scene has such a vibrant and changing economy, this is why. Nintendo isn’t setting a price point on that SNES Super Mario All-Stars cart. Retro retailers will buy low, sell high, and try to under-cut each other on pricing because they aren’t in danger of negatively affecting their retro gaming stock. That’s why the smart retro collector can always shop around for the lowest price, or even haggle, as long as they aren’t a jerk about it.
Where Does Your Sixty Dollars Go?
For price maintenance to work everyone has to agree on a price that satisfies four requirements:
- It allows the publisher to make profit on each copy sold
- It allows the retailer to make profit on each copy sold
- It pays all extra fees involved in production and distribution of the game itself
- It’s a price gamers are willing to pay
For years, sixty dollars has been this magic number.
According to Alex Pham in an article for the Los Angeles Times, that sixty dollar price is broken up like this.
- 27 dollars go to the publisher
- 15 dollars go to the retailer itself
- 7 dollars goes to “returns” (i.e. games that don’t sell, basically a buffer for price loss)
- 7 dollars goes to a “platform royalty” which is paid to Sony, Microsoft, or Nintendo.
- 4 dollars goes to production and distribution
You may notice that nothing goes directly to the developer, and that’s because in most cases the developer has already been paid. No one is making commission on video game sales.
Instead, publishers budget games based on future speculation. They estimate how well a game will sell and devote an amount of money to the budget that allows for profit generation. That budget is then paid out to programmers, composers, artists, marketers, QA teams, and anyone else who makes the game go from an idea to a reality. This is an oversimplification, of course. Game budgets fluctuate up and down over the course of development and whole projects sometimes get scrapped because profit estimates were way off. But the basic concept remains the same. A publisher wants to spend less money on making a game than they get back from selling a game.
Common sense says that a game that is more expensive to make should be more expensive to buy. But video game prices never go up. A single copy of Call of Duty: Modern Warfare 2, which cost two hundred million dollars to make, will cost the consumer the same amount of money as a copy of Gears of War, which only cost ten million to make. They'll both be sixty dollars. Both games will only generate 27 dollars of profit per sale. So to make up development costs, the only thing high budget titles can do is sell more copies.
There Are Not Enough Sales to Go Around
Game budgets are skewing upward these days, which is why you always hear talk about publishers “chasing Call of Duty money.” The more money you spend on a game, the more it has to sell, until eventually your game needs to sell several million units just to break even. To reach these numbers, blockbuster games are marketed to the largest possible audience. That means taking fewer risks and being less innovative. This eventually leads to creative stagnation and potentially alienation of your core user-base, but that’s a topic for another article.
While sixty dollars was the magic number at one point, it really isn’t these days. Inflation alone has made the price point hard to maintain. Sixty dollars today isn’t worth the same as sixty dollars just ten years ago.
While the gaming fanbase is growing, it’s not growing nearly as fast as technology. As technology gets more advanced development teams get bigger, and as teams get bigger the price of development goes up. This leads to a simple truth: there just aren’t enough gamers to make up development costs by sales volume alone.
You’d think this would have caused games to become more expensive across the board. The issue is that consumers are used to paying sixty dollars for a game, and you can’t change that price without repercussions. If prices went up, sales would (at least in the short term) go down, which would be catastrophic for companies that have invested multi-million dollar budgets into game development. We could see closures of anything but the biggest studios if games went up to 70 or 80 dollars.
But if you can’t make up your budget by volume and you can't change your price point, how do you make a profit?
Why DLC Exists
The solution is as genius as it is annoying: selling “extras”.
If consumers are told they have to pay more for the same product, sales will go down. But if they are told they CAN pay more for ADDITIONAL product, sales stay the same, because the transaction is optional.
This extra stuff can come in a lot of different forms. Collector’s editions charge you a high price for extra trinkets that cost relatively little to produce. Microtransactions allow gamers to devote more money to their gaming addiction the more they play.
And then there’s DLC. In many cases, DLC is planned and sometimes even made before a game releases. It’s all part of the initial budget. Just as they do with game sales, publishers estimate how much DLC they need to sell in order to make a profit.
But DLC is sold at much higher profit than the games themselves are. It is sold on digital distribution platforms which take a smaller cut out of the sale price than brick-and-mortar retailers do. In addition, none of the sale price goes toward returns, distribution, or production. It’s almost all profit.
So the next time you complain about the good old days when you got a “complete” game for sixty dollars, remember that you probably wouldn’t be getting any game at all if it weren’t for DLC.
Digital Distribution Changes Everything
By now we’ve hit on the big game changer: digital distribution. As I said before, there are far fewer costs associated with digital distribution than physical distribution. Yet new games still retail for sixty dollars on the PSN or Nintendo e-shop. Why is that?
The answer is surprisingly simple. It’s the same reason why the brick-and-mortar price hasn’t changed. The collective video gaming consumer is just used to a sixty dollar price-tag. It’s what we think a new AAA video game is worth. However, it benefits a publisher to attempt to sell as many digital copies of their games as possible because more of those sales translate to profit
This is why you see so many absurd sales on platforms like Steam, the Humble Bundle, and GOG. Say a AAA game goes on sale for 10 dollars off. Those ten dollars, in a physical sale, were just going toward returns, distribution, and production–costs that don’t really exist in the digital world. Even though the price is discounted, the publisher will make more money on a discounted digital sale than they will on a full price retail sale.
According to the ESA’s annual survey digital sales have exceeded physical sales in the last two years. This is fantastic news for publishers because it allows them to adjust their profit speculations higher. If you’ve noticed that more games are allowing you to unlock content without purchasing it as DLC, this is one of the reasons why. When publishers make more profit on digital sales they don’t have to lean on DLC so hard. So if you really don’t like DLC, buy digital.
The Wild West of Pricing
With severely reduced publishing costs comes severely reduced publishing restrictions. In short, price management is less of an issue in the digital world. This is why Blizzard was able to sell a version of Overwatch on PC for 40 dollars. It was sold directly through Battle.net, which is run by Blizzard. All the profit went directly to them, so instead of charging the requisite sixty dollars they charged a lower price they still made money on. The deal appealed to gamers on a budget and increased their PC sales volume. Remember, Blizzard likely made just as much off of a 40 dollar PC sale as they did from a 60 dollar physical PS4 disk, if not more.
The ability to sell your game for cheap has allowed indie games to blossom on digital distribution platforms. Remember, over half of a sixty dollar price tag doesn’t even go to profit, and most indie games are sold for less than twenty dollars. Many of these indie developers and publishers would never have the budget to produce and distribute physical retail copies.
Digital distribution platforms also introduce whole new methods of paying for a game. Crowdfunding allows a developer/publisher to budget for profit before a game is made. If a Kickstarter goal has been reached, the game is already a “success” monetarily. This keeps costs down when the game finally releases because the publisher will only have to make back however much they went overbudget.
Early access allows fans to pay for games that are not yet out of development. Early access developers have to rely less on estimates, because they can see their sales come in as they make the game. This allows them to spend their budget as they make their budget.
Then there’s just simple math. If your game costs less to make and less to distribute on a digital platform, you can sell it for less and make the same profit. As long as you make 27 dollars a copy you are making exactly the same amount you would be making on a physical sale.
So, yes, the sixty dollar game is dying, but that’s largely because game worth has become more fluid. It’s ludicrous to expect Undertale, a game with a fifty thousand dollar budget, to sell for the same price as Call of Duty, a game with a two hundred million dollar budget. But it’s not ludicrous to believe that the developers and publishers of both should see some degree of monetary success. There’s no reason why a small team should be locked out of the same success multi-million dollars projects have. The fluidity of digital pricing is what allows that to happen.
As digital sales overtake physical sales, pricing will become more and more fluid, and eventually we will find ourselves paying different prices for games with different budgets.
The Problem of Price Gouging
But what is really stopping retailers or publishers from vastly increasing prices now that price maintenance is fading away?
Technically, nothing–just like technically nothing stopped any brick-and-mortar store from trying to price gouge you, aside from the threat of ruining their relationship with the publisher. The same “threat” exists in the digital space, just in reverse.
All digital distribution platforms have guidelines for product quality and fair business practices. Break those policies and your game will be taken off the platform. Now you can’t make any money.
There’s one other thing that prevents the price of games from inflating, and that’s the existence of physical media. It will be a long time before physical copies of games stop being sold entirely. Until then, these physical copies will continue to be sold at that magical sixty-dollar price. As long as a sixty-dollar physical copy exists there is no hope for a more expensive digital copy to sell. So before any large-scale inflation can occur, physical media video games need to be wiped out of existence.
Maybe the sixty-dollar standard isn’t dying, it’s just changing. Instead of being a standardized price, now it’s a standardized maximum. You will never spend more than sixty dollars on one game transaction. You may spend more on DLC, collector’s editions, and microtransactions, and you may spend less on indie games, Early Access games, and Kickstarted games. But a single game with no other add-ons will not cost more than sixty dollars for the foreseeable future. If prices can only go lower, it will mean better deals for the consumer and more opportunities for game developers.
The only price we have to pay is our tolerance of DLC.