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Why Games Cost $60
eldavojohn writes "Crispy Gamer is running a very interesting article on why games cost $60. Many games start out at this retail price — but why? Did the makers of The Beatles Rock Band game just happen upon $59.99, as did the makers of Batman Arkham Asylum? After all, those two titles surely took different amounts of man hours to develop, and result in different averages of entertainment time enjoyed by the consumer. They interview a director at Electronic Entertainment Design and Research, who breaks down the pie as $12 to retailer, $5 to discounts/returns/retail marketing, $10 toward manufacturing costs and shipping. That leaves $30 to $35 in the hands of the publishers. Though lengthy, the article looks at three forces of economics on why game publishers continuously end up in lockstep for pricing: sensible greed, consumer stupidity or evil conspiracy. When asked about the next step up to $70 or $80, Hal Halpin (president and founder of the Entertainment Consumers Association) says, 'I'm not sure that we'll see a standard $70 price point at all. To my mind, emerging technologies, subscriptions and episodic and downloadable content should all enable price drops — increasing accessibility to a much wider audience.'"
Many games start out at this retail price â" but why? Did the makers of The Beatles Rock Band game just happen upon $59.99, as did the makers of Batman Arkham Asylum? After all, those two titles surely took different amounts of man hours to develop, and result in different averages of entertainment time enjoyed by the consumer.
It's the same thing with movies and music. There's a certain "standard" price everyone goes with, because if they didn't, it'll affect their sales. Going a bit over the standard decreases sales, going a bit less than the standard can increase them. You have to find the fine line.
And to be honest, they $60 price isn't that much if it's a great game. You pay atleast $15+ to go the movies, probably even more if you make a night out of it. You might spend the same amount in bars too. Both of those give only a few hours of entertainment value, and to be honest aren't all that fun all the time. Good games give a lot more entertainment and fun hours. My stats for Left4Dead show 947 hours and I've probably spend *a lot* in WoW too. And dont even get me started on the civilization and settlers series.
That being said, I would probably try more games if they were cheaper. But I still will get the games I want.
$10 go toward cost of goods sold, which includes manufacturing the game disc, shipping the games to the store, and anything else directly related to production and delivery of the game package.
I think digital delivery is something that can bring this price down a lot. Yes, bandwidth does cost, but its nothing like producing tons of dvd's, packaging them, sending them all over the world and delivering to stores. And the user experience is usually a lot nicer, you can easily buy it without walking to store.
And to be honest, game development is no cheap business and it's getting even more costly all the time. Yeah you could argue that theres great indie games that have been developed at cheaper budgets, and you're right; there are. But their budgets also are $10 000 - $100 000. It means you have to get lots of sales. And indie developers really cant produce the games like Call of Duty series (specially the modern warfare ones!) and Left4Dead and Half-Life 2. There is place for indie developers, but you need professional commercial game developers too.
Games are $60 because enough people are willing to buy games at that price to justify it. Like many other products, if games don't sell at $60, the price drops. If they thought people would be willing to buy games for $50 but not $60, games would be $50.
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"That leaves $30 to $35 in the hands of the publishers."
So why can't we just download games for about half the street price?
"I bless every day that I continue to live, for every day is pure profit."
"subscriptions and episodic and downloadable content" already drive the cost (to the consumer) of games to $70-$80. My kid gets an XBOX game for $60. Plays it. Finishes it. Pays $5 -$10 for points to download an add-on pack, or 2 or 3 or more, and next thing you know, he has invested $70 - $80 in the game. I already assume when he buys ODST, it will cost $80 before it's all said and done, and to me, that's the real cost of the game.
I think they have to keep the initial price at $60 for now because that's the point above which more consumers would say "screw it, I'll get something else". I'm pretty sure downloadable content will soon be (if it isn't already) about the only way game makers profit.
I prefer rogues to imbeciles because they sometimes take a rest.
What TFA didn't mention is that the $60 price point goes all the way back to the NES days.
I specifically remember My family shelling out (thanks!) the sixty apiece for SMB 2 and later SMB 3 and Megaman 2 when they were new. I think that the less popular or complex games costed less, but there were some real turds like Legacy of the Wizard which also went for the full sixty.
Drop in at your local community college and take a course on statistics. Pay close attention to the "profit maximization" section. It'll explain the math behind the relationship between unit cost, units sold and total profit.
Fascinating stuff. If nothing else, it'll teach you to never spend more than $2 on lottery tickets, if you spend anything at all.
Learning HOW to think is more important than learning WHAT to think.
That's to cover the costs of editing out textures and censoring.
Why does the CD soundtrack to a $150 million movie cost $17.50 and the DVD goes for $14? It's because those are the price points they got the public to swallow. VHS movies back in the day used to go for $75 or some ridiculous number and only the video stores bought them -- who would have thought private individuals would want to own movies? But eventually the price points dropped and there you are.
Back in the day, Sierra games came with order forms for other Sierra games. Those crappy little DOS games were selling for $79.99. The stores typically had the prices lower but not by much. The entire time I was growing up, the price points for AAA titles for the top systems would be anywhere from $40 to $60. Usually $50 was the sweet spot. I recall Street Fighter having some of the most insane markups. I think SFII topped out at $80 for the SNES. Then you could also pay another $100 a piece for the special controllers.
The two things that strike me now are 1) games were really goddamn expensive back in the day and 2) I'm surprised that they haven't been able to jack that price harder considering inflation and all.
I agree with the article about how crazy it seems for simpler games selling for the same price as ones you know have to be ridiculously expensive to produce.
Kwisatz Haderach
Sell the spice to CHOAM
This Mahdi took Shaddam's Throne
It's the same underlying reason why male dogs lick their balls.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
Relative to the 1970's and 80's the prices now are a real bargain. I recall Pac-Man for the Atari 2600 being something like $50 at first.
Do really dense people warp space more than others?
What is killing console games is the inflexibility in pricing structures. Although AAA release game is okay at $60, a game like "Darkest of Days" is not. But since they are stuck in the same distribution channels they are forced into this pricing structure that doesn't make sense for the game.
This is why online stores like Steam have taken off. "Plants vs Zombies" is a hell of a lot of fun and would have died at the fixed $60 price. A developer may notice their game sales are slowing down so they do a price cut weekend which is impossible to do with the classic distribution chain. Even in the citation, half of the cost instead of being consumed in the distribution chain just putting disks on shelves can be put elsewhere. I don't have much illusions the big boys with the big games will pass the savings on to us but having the flexibility is at least a start.
Why do games cost $60? Because that is what the market will pay. Does this even need to be discussed?
I would think yes; yeah, we all know basic economics, but from someone not working in the industry how much do we know about how this price point was reached? Was this found by trial and error? Market research? Both/other? To what extent have there been deviations and what were the results? To what extent do Nintendo/Sony/MS play a role with "suggestions" about pricing? How does price set expectations about quality? What about the impact of historical prices on the perception of current prices? And whatever else I forgot...There's probably a lot of detail that can be explored about the topic that goes beyond just saying "that's what the market will pay". The article isn't great though it mentions a few points but could have been more detailed and researched.
The article's pricing justification seems like complete BS to me. Just looking at the claimed "retail + shipping" costs tell me that the values are completely inflated.
$10 to manufacture and ship? WTF?
It costs approximately $0.75* to manufacture the DVD, print it's label, print the wrap that goes in the amaray case and package it. The packaging is approximately $0.55-$1.50* more (depending on how much junk / crap they stuff inside plus the manual).
Then once packaged the product gets bulk shipped. Claiming $7.75 for shipping per product would mean that a case of 20 unites would cost $155 to ground ship. That's a pretty absurd number. $7.75 is the cost to me if I were to ground ship each package individually to a different location.
No, this article is nothing but BS justification for game prices. The real reason why games cost exactly $59.99 has nothing to do with costs or logistics and revolves entirely around price point.
$59.99 is exactly the price point that industry wants per game, regardless of actual cost/development.
*Note: I work for a company that replicates DVD's and print the packaging and assemble. Thus I know the real costs for the packaging.
I like Steam because I feel too ridiculous buying a game in a Best Buy in my late 30s :-) Really, Steam is like a brown paper wrapper for Half-Life and Crysis :-)
Damn, dude, I'm 57 but I'll get off your lawn anyway.
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Trent Reznor feels the same way about many games these days: Joystiq interviews Trent Reznor
A timeless game is well worth $45 or more. I have been finding old GBA carts that are selling for more than $45 if they are in good condition. Many of the "hardcore" games on modern systems are not nearly worth that price point. Wait a year and you will see how much the game is *really* worth.
It is amusing that game companies want to shut down used game sales. Maybe they should work on making timeless games with good content.
2. The truth is that supply side pricing is pretty consistent. He listed out the costs to deliver to a store. That is a solid $27. You need to throw in at least $5 for development and another $5 profit. OK, so the minimum price is $37 for a new game. But $5 profit out of $37 is a low margin on. Clothing is about as high as it gets at x20 cost for high end. Food goes for about profit margin about 5% at a grocery store (less than x2). But the truth is people LIKE making games. We do it for free. So they can't really raise the profit up to that high x20. They can't even get it above x2 for $74.
3. If you can wait a year, you can get the game for $20. Pretty much all games.
4. Games are priced at $60 not because of an evil conspiracy but because that is how much we budget for NEW games. It is the demand that is setting the price, not the supply. When supply sets prices, it varies more.
5. The real problem is that of difficulty in accurately measuring the pleasure provided by the new game. There is no simple way we can get an accurate worth on the product to us, in the short time that the game comes out. The best we can do is read articles, which by the time they come out, the item is already priced.
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...for myself as to why $15 per month was not an unreasonable WoW fee. Then I stopped paying for monthly subscriptions and reunited my life with the real world. I learned something when I did that. WoW and video games in general, as much fun as they are, shield you from the joys of reality. Granted, the fees being paid are less than those you would pay for going to the movies or going to the bars, but you don't actually get to meet people face to face in WoW or Halo 3 online. Frankly, if I don't play WoW all day, I probably will get bored, get outside, and might just meet someone. Suppose I ask that someone to come hang out and watch a movie with me. Well now I just made a friend and watched a possibly decent movie for $15. I would say that having a pal to go run amock with rather than spending my afternoons and evenings in front of my computer was well worth that $15.
In fact, you can also find fun things to do in the real world that are cheaper than WoW AND movies. Imagine that. For instance, suppose again that I don't play video games all the time and instead walk down to the beach every so often instead. After awhile, walking alone might get boring so I start swimming, skimboarding, surfing, or playing volleyball there. Now not only have I saved myself the cost of the video game, but I have started learning a new skill, which in and of itself is a much more rewarding experience than epic loots. On top of it, I'm at the beach, even if I don't meet anyone I can gawk at all the cute girlies in bikinis. Priceless.
Don't live by the beach? Make for a mountain hike, or go explore a forest, or go buy a $15 bike off craigslist and start mountain biking...the possibilities are endless really.
I suppose what I am getting at is that this mindset of "Either video games or drinking or movies..." is really stifling. For some reason we think it makes sense to pay a crapton of money for eye-candy which really just paints a picture of what's already alive and well in our own imaginations when, in fact, we could be going out and living our own adventures.
Do yourself a favor...just say no to video games (mostly, I do admit that I still play Halo regularly and own both Mass Effect and Fallout 3).
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We all know the supply and demand thing, but the question the author asks is, games don't inherently have a value, so how does the market determine its price to be $60 ? That is, why isn't the market clearing price not $30 or $90 ?
In addition to the points the author mentions, another explanation is in the phenomenon of anchoring. Humans inherently do not know the value of any good, so the first price they see for a product stays in their mind and they compare all prices for that product off that anchor. We have grown used to seeing $60 as price for games - it has become an anchor - so all new games are priced at that.
A brilliant example of anchoring is given in the book "Predictably Irrational" by Dan Ariely. He gives an example of Tahitian black pearls. When they were discovered all pearls used to be white, so black pearls had no market and no value. But a very clever marketing campaign was launched to *anchor* the black pearls with very expensive jewellery, and hence there value became very high.
Economics assumes that people are rational. However, people are often irrational. There is a subject called behavioural economics which studies irrational behaviour of people and the limits of normal economics.
The real answer to games cost $60 is "because people will pay that much". That said, I think there are signs that the price point is more than the market will bear. Look at the meteoric rise of the trade-in market and digital distribution. I'd argue that the lower pricepoint are a big factor.
Furthermore, look at Left 4 Dead. When they lowered the price to $30 Valve sold more copies that weekend than they did at launch!
We know why most audio CDs cost $17.99. Illegal price fixing.
We know why video games cost $60. Illegal price fixing.
The FTC and the Justice Department's antitrust unit were out to lunch during the Bush administration, but that seems to be changing. Stay tuned for enforcement.
Minor correction, The Witcher had to be retextured to remove all of the nudity before it was released in the USA. Thankfully the developers finally released their official uncensor patch.
USA has proublems with nudity and sex. EU has proublems with violence. Germany has proublems with Nazis.
It is a shame that in this day and age a creator must be forced to change his work in order for it to be publicly viewed. Hell, even da Vinci's Vitruvian Man had to be censored in the Assassin's Creed 2 trailer.