The Price of Video Games

Intro

Lately Sony, 2K Games, Capcom, Square Enix and other big companies increased the standard price of triple A single player games from $59,99 to $69,99. Several mainstream magazines reported statements of CEOs or key figures working in the industry where they justify the need to increase the price; commentators agree with the increase and try to demonstrate necessity and inevitability. You can consult many of these articles in the list at the bottom of the page. Very few indipendent commentators are against and criticize the increase. In this article I’m showing you that the $10 increase is too much and not justified at all; the video games industry is seriously “ill”, that’s the truth. I will analize the symptoms of the “disease” and propose the way to “heal”. Before writing the article, I consulted several sources, even Economics handbooks.

In this article I write the prices of games in the correct way, $60 and $70, to respect the intelligence of readers; it’s evident that industry doesn’t respect intelligence of consumers.

The reasons why “experts” think that price increase is necessary

1) Inflation. It’s not easy to understand inflation. Supporters of price increase rely on people’s ignorance and flag inflation as the main cause. It’s not exactly like that. Be patient, I’ll analize this topic later.

2) Increase of development costs. According to producers, costs raise because of: bigger size of game worlds, longer playtime, more and more NPCs, more evolved AI, more sophisticated animations and mechanics, more secondary challenges and missions, increased graphics and audio performance, more cut scenes, more renowned actors, longer and more sophisticated mo-cap sessions, more attention to story, etc. As consequence you need more evolved tools and to employ more developers and creators, and their wages are gone up lately. This is just half of the story, the truth lies in the other half! I’m going to tell you, be patient!

3) Increase of marketing costs. This is usually a “hidden” parameter people working in the industry don’t like to talk about; they prefer to talk vaguely and generically of increase of production costs. Few specialized magazines report that expenses for marketing are on par if not higher than development costs! This is a clear symptom of the disease I’m going to analize.

The reasons why prices shouldn’t increase

1) Development technologies and tools advance year after year and their cost decrease. What in the past was difficult, expensive and requiring much time and many employees, it is now easier and cheaper, can be done in less time and with smaller team. Maybe the advancement rate of technologies and tools is not keeping up with the growing technical demands of video games? It doesn’t seem to me that from one generation to the next there is a big leap in terms of graphics, audio, mechanics, game worlds, AI, animations, etc. such as to justify an increase in costs. It seems to me that there is a tendency to recycle mechanics, ideas, gameplay and everything in between. Nowadays the big companies always offer us the usual re-heated soup or watered wine. I don’t see the innovations that you see in indies. Even the graphics don’t make all this huge leap over the span of a generation. If we had a physical and realistic simulation of light today I could say the leap would be substantial, but today we only have pale ray tracing which is a long way from being a realistic physical simulation of light, it’s just a small step further. I’m not saying I’m unhappy, I understand that the steps are small, that’s how it goes. I am saying that the huge increase in costs so much heralded by the companies is not proportionate to the technological evolution, taking into account all the other factors that I am listing here. Bigger virtual worlds? Longer playtime? This is just smoke in the eyes of gamers. This is just watering the wine. They add tons of boring repetitive secondary missions or expand the game world just by doing copy-and-paste and recycling what they developed for the main story and missions

2) More and more creative people can use development technologies and tools that in the past only a few rich studios could afford or was able to use. Today a small/medium indie team on a moderate budget can develop games considered triple A less than a decade ago. Hence the number of people able to develop and create games increases, hence the competition in the industry increases. And increasing competition should lead to lower costs and prices, not higher!

3) Lately the number of players on PC and console has been increasing enormously. Many teens playing games in the ’80s and ’90s are adult now and still continue to play and buy games. Compared to 10 years ago, AAA games are selling more copies. Especially during the covid pandemic. So they could be sold at lower price or at least stationary price. On the contrary companies raised the price while pandemic was still affecting consumers and workers, despite the industry was making huge profits! That’s really despicable! Games like Cyberpunk 2077 or The Last of Us 1 and 2 or Red Dead Redemption 1 and 2 or Skyrim or The Witcher 3 or GTAV or the Tomb Raider series and many others have sold tens of millions of copies in a short time, recovering production costs sometimes at day one or within a few weeks! And there are many other games that recover production costs after one month. When pre-sales are successful, even if producers cannot take consumers money until release, they earn money from the stock market and from sponsors.

To me the problem seems quite different and shows how sick the industry actually is. A disease that is typical of these times characterized by a very extreme and deregulated capitalist and liberal economy, at the mercy of a single irrational principle: the desire for the biggest profit in the shortest time, in one word, greed. Today when a game does not make huge gains in the first week, then investors are not happy; that explains why the industry does not take the risk of making innovative games and wants to raise prices without a valid reason other than to increase speculation and immediate profit.

Of course, this sometimes creates anomalous or outright daft-looking results, like Square Enix’ much-derided public disappointment at Tomb Raider’s failure to hit an eye-watering six million sales target in its launch month back in 2013 — but even if publishers’ internal equations and projections sometimes throw up unrealistic or silly targets, this system normally works in a sensible way and a game’s performance relative to target is rightly considered more important than its raw performance.https://www.gamesindustry.biz/articles/2022-01-14-unit-sales-are-only-one-factor-in-the-sequel-equation

4) More and more games are sold in digital format, with no costs for packaging and support (disk) and very low costs for distribution (on-line store instead of retail distribution and commerce). However the price difference between retail and digital at most is only $5, most of the time there isn’t even! Why does the price increase even if you sell it digitally by cutting a lot of costs and intermediaries?

5) Producers have introduced various tricks to make new profits while leaving costs unchanged: microtransactions, loot boxes, in-game advertising and sponsors, episodic publication, season pass, DLC, special editions (ultimate edition, games of the year, remastered edition , etc.), and so on. If you increase your profits this way, you can also avoid raising the prices further! And instead, they still increase the price of games!

6) The gaming industry is actually very healthy and rich, reaching very high profits especially during the covid pandemic. On the contrary, purchasing power of consumers is going down (see later). You would expect decrease or stationarity in prices, not increase!

7) More and more games on day one are not yet fully developed and need huge patches that usually arrive after several weeks or months! It is scandalous that games are sold at full price under these conditions, at least by big companies (I can understand small indies), and it is even more scandalous that players buy them without complaining too much. Nevertheless, prices are increasing!

8) After the release, game’s price does not remain steady but decreases over time. Depending on the sales volume, the price drops more or less quickly. A hugely successful game on day one, with great reviews and stable sales, will keep the starting price longer. Weird! When the demand for a product is very high and there is no risk of saturating the supply, as in the case of video games, especially in digital version, the price should drop to favor consumers while still producing high profits. On the contrary, the price drops more rapidly when the game is not very successful at day one, when the starting demand is low, when the sales are not exorbitant from the start or do not remain stable. The low price convinces more users to buy the game when it hasn’t met with great hype or when the hype is decaying significantly over time. Even when the price drops, for example from 60 to 40, game is not sold at a loss, the profit per copy is just lower. They decrease the price to sell more copies and still maximize profits. This means that in the starting $60 the profit margin is very high! They probably do marketing analysis based on income and social classes. They know that a game with high hype can be sold for 60 or 70 euros and bought by the richer consumers, especially if supported by massive marketing campaign. They keep the price high as long as the sales are stable. Then when the hype and sales start to drop, they lower the price or activate an offer to refresh sales, attracting less rich consumers. It’s just speculation.

What’s happening to gaming industry (and society)

In the last decade gaming industry lost completely its passion and turned in an industry of profit by discovering big sources of profit at low cost: casual/mobile games, MMO with social network trendy features, e-sport. Such games have very low production costs in comparison to story-driven cinematic single player games. They recycle old mechanics, old graphics, they have quite no story and art, etc. Such games can even be given for free or at a very low price; profits come from in-game ads, microtransactions, loot boxes, etc. They are diminutive games that can be played even on powerless mobile devices; billions of casual gamers are attracted because of the hammering marketing campaigns. That’s one of the reasons why companies invest in marketing more than in development. They support specialized magazines that write biased reviews in exchange; they support also so called content creators on Twitch or Youtube in order to promote their games. People trust whatsoever person who is handsome and is acting behind a microphone and a video camera! That’s for sure the sign of a profound cultural decay investing the whole society, not only gaming industry and gamers. Investments in education, culture and learning are going down everywhere, with very few exceptions. There is more. Big companies pay intermediaries and agencies to influence social network by means of armies of trolls and influencers. Companies like facebook, now Meta, own social networks and as consequence have a real big power on public opinion. Social networks are worse than TV and newspapers when we talk of manipulation by media! The illusion of a free internet is already dead!

The historic promise of video games was and still is to immerse players in wonderful interactive worlds and engaging interactive stories. VR is another step in that direction. But the deterioration of the industry and of the society is betraying that promise. Despite technological advances, the market is ruled by games with reductive interactive mechanics or with technical/graphic features that seems to belong to past generations; old mechanics and ideas are recycled with just graphic make-up, like many AAA single player blockbusters. Violence, shootings and fightings are still the best selling attractions. It seems that we are stuck or even proceeding backward like shrimps despite the prospects that technology offers. I can understand the opening of new market sectors like mobile, e-sports, MMO etc. But only if shares of the huge profits are invested in better productons, with higher quality, with great attention to innovation, interactive storytelling, art, social commitment. That’s not happening. We’re witnessing the crisis of single player games, abandoned by an industry that pursues only immediate profit with an end in itself. The sincere passion for the gaming medium has been replaced by greed for easy profit. In recent years some indie productions like Edith Finch, Firewatch, Inside, Journey, Abzu etc. sustained the hope for maturation, evolution and innovation of the medium. But such innovations have never found fertile ground in the mainstream market dominated by companies seeking immediate and easy profit and proposing always the same re-heated soup. Actually is very difficult if not impossible to find good, innovative, original, fresh AAA games fueled by art, narrative, maturity and passion.

Big companies are like big dinosaurs. They want more and more profits. If in one quarter they earn 5 million dollars, the next quarter they want 6, and the next quarter 7, and so on. If unfortunately the next quarter earnings drop to 2 million dollars, companies risk bankruptcy, investors withdraw their offers. 2 million dollars is a huge amount in a quarter, but infinite growth is what matters more in this sort of poker or gambling game that our irrational economic system has turned in. When you are crying for making 2 million dollars instead of 8, you are devaluing the value of money and spitting on poor people; you’re causing more poverty. Companies are too big to fail, but their race to growing profits causes inflation and poverty. Richness is more and more capitalized in the hands of few corporations and families, but money are never enough, they are like black holes wanting and absorbing more and more. And when they get less then expected, they fall like overgrowth fat dinosaurs! They have flexibility no more, they cannot risk to innovate. It’s a matter of scale factor. They work at a not sustainable scale degree where 1 million dollars are like 100 dollars for an average consumer.

Let’s talk of inflation

Summing up for someone who don’t want to read further: it’s not inflation that pushes companies to increase price of games; on the contrary, it’s the increase of price, due to the greed for major profits, that causes inflation and lowers the purchasing power of consumers.

Inflation is the prolonged increase in the general average level of prices of goods and services over a given period of time, which generates a decrease in the purchasing power of money.
As prices rise, each monetary unit will be able to buy fewer goods and services. Consequently, inflation is also, considering all other conditions unchanged, including income, an erosion of the purchasing power of consumers.
Both inflation and deflation have done serious damage. Both processes operate on the distribution of wealth among the various classes and, in this respect, inflation is worse.Keynes

Economist Luigi Einaudi on several occasions has defined inflation as the most unfair of taxes because it affects the weaker classes to a greater extent; unlike taxes, however, it’s not caused by laws. And what then? The race to personal profit of course. I’m a producer/seller and I raise the price so I earn more in a shorter time, I don’t care about the consequences. But raising the price of goods generates inflation, lowers the purchasing power of consumers, makes poors poorer. Before, with $70 you bought a triple A game at $60 and also went to the movies ($10); now you can only buy the game at $70 and can’t go to the movies! So, the cinema theater manager sees the audience drop; to recover profits, he increases the ticket price; as a result, an inflationary chain is created. The result is an ever faster rise in inflation. The rich, who are producers or sellers, get richer and richer, while consumers get impoverished more and more because income remains the same for quite some time. Sooner or later, this deliberate price increase must come to an end, because there will be less and less buyers and consumers of products or services if the price continues to rise. But in the meantime, the rich gets richer and buys land, houses, luxury goods, opens new businesses and enterprises, etc. but the poor gets poorer. At some point, incomes and wages will increase to cope barely with inflation and consumers will always find themselves at the starting point, when not poorer.

Governments and central banks try to keep inflation low; is it possible to reset the price growth rate? How do you reset the search for profit? Moreover, we don’t want prices to decrease excessively, because otherwise we create deflation which in the long run puts the production system in crisis. Inflation is managed by varying the amount of money to be introduced into the system. If I put less money in, prices will not be able to increase that much because there will be fewer consumers who can afford those high prices. I basically raise the value of money. If, on the other hand, I put more money in, prices can increase because there will be more consumers who can buy at a higher price. In this way I increase inflation; this is done only in rare cases to avoid deflation. If I put too little money in, I could generate deflation, as producers and sellers would have to drop prices excessively and make a loss, which would send the production system into crisis.

According to economists, inflation should not exceed 2%. Some say 4%. Higher rates are generally considered negative for the economy (unless deflation is to be fought). The economic system currently is in an inflationary regime around 5%; the inflation rate is constant or increases, it certainly does not decrease, there is no risk of deflation.
Let’s see the inflation generated by the $10 increase in the price of triple A games. Before, the price was $60 euro, now it’s $70. So the increase rate is (10/60) * 100 about 17% !!! This is a case of hyperinflation! A great harm to consumers! Unacceptable! Especially taking into account the factors discussed previously that explain why the video game industry is getting richer and richer and therefore not losing anything due to inflation!

The increase in prices is not justified by the increase in inflation in the last 20 years. According to this reasoning, net of inflation, the price of games has decreased. Now the $10 increase puts it back on par with the price of 20 years ago. This reasoning makes no sense! What’s the sense to compare prices of the past, 20 years ago, to today prices? At most you have to consider the actual inflation rate at 5%! Prices must be valued in relation to the yield of the goods produced and sold and to the purchasing power of consumers, today, not 20 years go!! In the last 20 years the gaming industry has grown enormously rich, well beyond inflation! The price of $60 for triple A games has generated and is still generating a lot of profits despite inflation and it is therefore a sustainable price for the producer/seller. By increasing it to $70, they want to voraciously increase profits; or they want to keep profits high with fewer productions and fewer buyers in less time. Huge profits at day-one is the today mantra! But in this way the poorest consumers are impoverished, those who were already struggling to buy a game for $60 and waited months to get it for 40 or 30 or 20, they would play less and less single player games.

According to the Pew Research Center, the purchasing power of the average American has stagnated for decades. Despite increases to the minimum wage — both on the federal and state levels — purchasing power has hardly budged in 40 years. That could put $70 video games out of reach for many consumers. Pile on the fact that we’re experiencing rising income inequality, as well as political and social upheaval — not to mention the global pandemic, which has led to historic rates of unemployment — and increasing the price of video games feels like adding insult to injury.” (Blue underlined words have active links to sources).

As you see the growth rate of profits of producers is bigger than the growth rate of wages and purchasing power of consumers (quite null): the consequence is more and more inequality. Inflation is just a fake alibi for increasing prices and profits to the detriment of consumers.

Let’s suppose that by increasing the price of AAA single player games, sales would decrease. Profits would remains unchanged or would increase, depending on the sales decrease ratio in comparison to the price increase ratio (17%). However consumers would continue to play more affordable games, in particular casual/mobile games, MMO, e-sport, etc. that are sold at low price or for free! As explained they grant high profits at low costs to big companies; the latters find convenient to move consumers from AAA single player games to casual games! It’s happening now. Digital offers like Xbox Game Pass are good for casual or indie games or for small to medium productions. Triple A games need high-intensity investments, productions that cannot be supported by this sale model.

Conclusions

In conclusion, factors and reasons why prices should remain constant are many more than factors and reasons why prices should rise. Even if you don’t want to ignore the latters, a wiser decision would be a much more moderate price increase comparable to the actual inflation rate at 5%. 17% is an excessive increase with negative consequences for consumers and triple A single player games. It is this price increase to generate inflation, not the contrary! An intermediate increase of 3-4 dollars would be a good compromise. Furthermore, we should stop with the variability of prices, high on day one and then gradually lower. Not to talk of presales! We should make a clean sweep of these aberrations. As well as making amends for post-release patches. It is unacceptable that games sold at such high prices are released full of bugs and require additional work in the following months, when the consumer has already bought the product at full price! We are clearly witnessing a steady decay of the gaming industry and market, going more and more towards cultural barbarism, just as the rest of the society and economy. The only way out is to recover the passion for the medium and to bet on video games as a form of noble interactive narrative and expressive art committed to cultural and social progress.

A few sources

https://www.eurogamer.net/articles/2020-10-01-we-need-to-talk-about-the-cost-of-next-gen-video-games

https://en.wikipedia.org/wiki/List_of_fastest-selling_products

https://slickdeals.net/article/deal-guide/stop-paying-full-price-for-video-games/

https://www.polygon.com/2020/7/7/21314545/console-video-game-price-increase-70-video-game-ps5-xbox-series-x

https://www.bloomberg.com/news/articles/2020-11-09/game-prices-go-up-to-70-the-first-increase-https://arstechnica.com/gaming/2020/07/the-return-of-the-70-video-game-has-been-a-long-time-coming/

https://www.businessinsider.com/video-game-price-increase-60-70-nba-2k-xbox-ps5-2020-7

https://www.makeuseof.com/expensive-video-games-the-new-normal/

https://www.theringer.com/2020/10/23/21530092/rising-video-game-prices-70-dollars-call-of-duty-ps5-xbox-series-x

https://www.cnbc.com/2020/09/29/xbox-series-x-and-ps5-gamers-brace-for-70-video-game-prices.html

https://www.escapistmagazine.com/video-games-were-due-for-a-price-increase-but-not-quite-like-this/

https://www.marketwatch.com/story/the-age-of-70-videogames-has-arrived-11602257572

https://it.wikipedia.org/wiki/Inflazione

2 thoughts on “The Price of Video Games

  1. This was interesting to read! I didn’t think I had an opinion on this. I think you pose an interesting point. I think some games I would be okay paying $10 more, but other games I don’t think it’s worth the cost.

    Liked by 1 person

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