Dysfunctional Console Industry Struggles For New Profit Centers

MojoKid writes "The rumor mill is still churning out quite a bit of information on new consoles this week, including new data on Nintendo's upcoming Wii U. According to unnamed developers, the Wii U actually isn't as powerful as the Xbox 360 or PS3, despite boasting HD graphics and significantly improved hardware. Meanwhile, the Xbox 720, codenamed Durango, is reportedly targeting the holiday season of 2013 as a launch window. Rumors are floating about of a required always-on internet connection and of locking out the used game market. What this discussion truly highlights is just how dysfunctional the entire console industry is and how skewed its profits are. Profits on hardware sales are so small, game shops can't survive on console sales alone. $60 MSRPs are subsidized by exchange and trade-in programs. Kicking Gamestop in the teeth may occasionally sound like fun, but the idea of killing the used games market doesn't make much sense. If used title values collapse and MSRPs stay the same or rise, the entire industry could hamstring itself in the name of higher profits."

Comments

Higher profits

[Enderandrew]

Killing used sales doesn't mean higher profits for console makers. Those who are only willing to spend $20 on a used title aren't suddenly going to drop $400+ for a new console and then start paying $60 for new games. They'll likely just spend $20 on used games for current gen titles like they do. Console makers will hurt the adoption of their consoles and lower profits. And some gamers will be less likely to spend $60 on games that already currently do so, if there is no longer an option to sell the game back and make back some of their money.

I don't understand how Microsoft and Sony think this will lead to higher profits. And frankly if Microsoft or Sony does this, but the other does not, then it will just drive business to that console.

Re:Higher profits

[localman57]

They aren't going to be married to a $60 price point. If they cut out the used game market, then it becomes a curve over time. Right now, we have a situation where a small number of die hards pay $100 + for a pre-release version with some extra trinkets, the first-day adopters pay $60 for a new game, a large number of people buy it at retail for $40 a year later, then it goes in the bargin bin for $20 or $30 a few years later. That's the curve. The problem for publishers is that they have to compete with their own used games at the end of this curve.

The new model will look different, and will vary a lot from game to game. Basically, the game publishers will try to maximize revenue by getting each customer to pay the highest price they are willing to pay, with the reward of getting the game sooner than you would have for a lower price. When your distribution costs approach zero as they do with digitial distribution (remember that Wal-Mart probably gets somewhere between $10 and $20 out of that $60), you can sell a game for $7 and still make a profit. And that beats not making a profit. So expect used games on consoles to follow the same thing that's happened on Steam. Eventually some pretty good but old games will show up for a few dollars on the consoles; this is a price point that isn't worth GameStop's trouble. There's already some flavor of this with the fact that you can buy MarioCart for N64 on the Wii market for $5.

Re:Higher profits

[Enderandrew]

Technically, it is the game publisher who sets the price. For instance, at one point someone decided to challenge the Madden franchise by offering a $20 alternative.

Developers and publishers have both been going belly up. Budgets on games are going through the roof. You need $20 million to put together a AAA title these days, with some games costing $100 million to make.

NES games in 1985 were $35, which is over $70 in today's dollars. But the cost of making a game is considerably higher today than it was in 1985. Some people claim that there are more consumers today, so you can sell more copies.

But there were 62 million NES consoles sold. There have been 62 million PS3 consoles sold and 65 million XBox 360 consoles sold. Given that many people have replaced 360's due to defective hardware, I'm not sure you can honestly say you can expect more sales from a console game today than during the height of the NES.

$60 isn't ridiculous when you look at it. I don't know why people felt $35 was fine in 1985, but assume better games today should sell for $15 as you suggest.

Re:If they kill the used game market,

[Eponymous Coward]

You're not the only one. It's interesting to note that there's no market for used iPad games either. I suppose when the game is a few dollars, nobody cares.

Mobile device games are a lot like the games we used to play in video arcades. Frankly, I welcome the return of these smaller games.

Same story over again

[billcarson]

I believe the console market is in the same position as the arcade halls were back in the early '90: filled with 'mature companies', struggling to provide added value to their product over the then relatively new home consoles. If the console market wants to survive, they really need to move away from copying the success factors from the PC market, and provide added value to their product that the PC industry can't easily copy, just like surviving arcade manufacturers are doing nowadays. And, while I agree it is hard to find such elements, they certainly exists. The wii-type thing was a good start. Just adding a faster internet modem and high end graphics card isn't going to do it this time.

Re:If they kill the used game market,

[AngryDeuce]

Oh yeah, also, historically speaking, we're paying much less for a new game than we used to be. Ditto consoles.

According to The Inflation Calculator:

Atari 2600 - $199 in 1977 - $707 today (in 2010 dollars, anyway)
Intellivision - $299 in 1979 - $886 today
NES - $199 in 1985 (US release) - $398 today
PC Engine/TG-16 - $249 in 1989 - $432 today

Games were also pretty expensive. I didn't actually buy my own games until the NES-era (and I'm having a hard time finding historical retail prices on video game cartridges), but even then, a new game was somewhere in the neighborhood of $50 back then, which would translate to $100 today. And look at how little you got for it in the case of a lot of games! I paid the equivalent of $100 for Mario Bros. 2 and beat it in a day. Ditto Mega Man 2 and 3. Ditto a lot of games.

I think many of us are more cognizant of how much were paying for games today because we're not using birthday money and allowance to buy them anymore, coupled with the fact that it's harder and harder to justify the expense with the economy being rough like it is. But in truth, we used to get charged a hell of a lot more.

That's not to say that I don't have my own misgivings, particularly related to the abuse of DLC as a concept. It seems like more and more games are coming out with 2/3 of the content they used to, with the intention of selling the remaining 1/3 in a few $10 increments down the road. The DLC on disc bullshit is even more ridiculous and unforgivable in my opinion.