Alex Everatt: Profit allows video game companies to overcome environmental hurdles inside & outside of the video game industry. The chart shows a significant dip in 2007/2008 which correlates with the 2007 subprime mortgage crisis. Financially, this was a very difficult time for American’s, and it’s unlikely they spent as much money on their hobbies, such as gaming. So, rather than being forced to lay off employees and/or shut down studios, video game companies can rely on their savings to continue operating. Profit also allows companies to take risks. If a company like Ubisoft can publish a huge money-making game like Assassin’s Creed annually, they can also take risks with new franchises like Watch Dogs or existing franchises that haven’t been traditionally successful like South Park video games.
So, why do digital copies and retail copies generally sell for the same amount? In a 2010 presentation by Steve Perlman (founder of the now defunct OnLive), Perlman suggested that the retailer mark-up was $15 and games packaging was $4; totaling $19.
Why aren’t consumers seeing a “$19” discount for purchasing digital copies? I would suggest the reason may involve one (or more) of the following:
- Cost to host the game on a platform (Microsoft, Sony, Nintendo). In researching this post, I couldn’t find a cost to host a game. However, if I look at my own home internet connection, I pay approximately $0.19 cents per gigabyte of data. Multiply that by a 30 gigabyte game and that works out to be $5.70. Obviously there are going to be other factors involved (cost of internet, size of game, etc), but this gives us about one third of the $19 mark-up.
- Marketing. It’s not uncommon for games to advertise an MSRP (Manufacture’s Suggested Retail Price). I imagine it’s already difficult for publishers to educate consumers on various versions of the same game (deluxe, legendary, etc). Now imagine if they’d also have to advertise digital version prices as well – talk about consumer confusion! While this may not be an issue for gamers like myself, the casual gamer may get lost in the advertising.
- Box Stores. Imagine trying to encourage a store to sell your game, while at the same time offering a more convenient and cheaper way for consumers to purchase the same game? Retailers wouldn’t care about a $10-$14 mark-up if no one bothered coming in to buy the game in the first place.
- Profit. The most obvious reason for even the least cynical of gamers. Game companies don’t offer a cheaper digital version because they want to make more money. However, as discussed earlier, without profit, companies would take less risks (new franchises) and might not be able to survive economic downturns.
$60 may seem like a steep price for a video game, especially when purchasing digital. Nintendo and Microsoft have recognized this and have both introduced incentive programs that offer variations of “store credit” for gamers who purchase digital games (My Nintendo & Xbox Live Rewards, respectively). These programs help offset the cost of digital to the gamer.
OK Fellas, Time to Really Convince Me…
Alexander Thomas: Major developers need to shift their focus from increasing profit through cost, to increasing profit through sales. This means developers are forced to put out the best possible game they can and rely on their ability to make a worthwhile title rather than a flashy B game for the sake of money. The more copies moved, the more people talk about the product, the more people want it. Companies no longer need to be charging us $70 simply because their name is on it. These increased costs are turning gamers towards independent developers who can often produce more solid gaming experiences at a modest and reasonable price.
Alex Everatt: If $60 still seems like too much, or you feel ripped off purchasing digital, consider this suggestion from a friend of mine when considering the price of games; He would first ask, “How much time will I get out of this game?”. Most games offer 9-10 hours of game time (and often, quite a bit more). He would then multiply those potential hours of game time with how much income he earned. The US Federally mandated Minimum Wage wage is $7.25 x 8 hours of potential gameplay – this equals a value of $58.00. In this example, he’s getting almost the exact value of a $60 purchase price. Ultimately, isn’t value the most important argument to be made? If you feel your money is getting equal or more value than the purchase price of the game, then the purchase price should make sense to you, waiving any buyer’s remorse.