Price Pressures

Retailers and publishers murmur about price rises on the horizon. This is suicidal talk if consumer trends hold true.

Published as part of our sister-site GamesIndustry.biz' widely-read weekly newsletter, the GamesIndustry.biz Editorial is a weekly dissection of one of the issues weighing on the minds of the people at the top of the games business. It appears on Eurogamer after it goes out to GI.biz newsletter subscribers.

Pricing is a perennial conversation piece within the games industry. That's hardly surprising, given the variation we've seen over the decades - from cassette games for home computers selling for two or three pounds in the early eighties through to the latter days of the Nintendo 64, when cartridge price tags could hit 50 or 60 quid, right through to the modern day when consumers happily spend well over a hundred pounds on a box full of plastic instruments for Rock Band.

Despite historical fluctuations in the price of interactive entertainment, price has never been quite such a hot topic as it is today. Everyone in the industry has a viewpoint, but few of those viewpoints are particularly aligned. Prices are set to rise, say some. Prices are in freefall, say others. Others again argue that traditional pricing is becoming obsolete and will soon give way to more novel ways of generating income.

The most recent ripples in this particular pond have been caused by the launch of EA's hotly anticipated annual update to FIFA, the critically acclaimed FIFA 10. On the weekend of its launch, some major UK supermarket chains had dropped its price below 25 - using their mass-purchasing muscle and willingness to push loss-leading headline products to sell the game for less than some other stores were paying for it wholesale.

Perhaps unsurprisingly, this generated resentment from specialist retailers, especially smaller chains and independent stores who feel there's something innately unfair about supermarket giants treating as a loss-leader a product which, to the smaller stores, is their lifeblood. There are even anecdotal tales of independent retailers actually buying supermarket stock to sell in their own stores.

This whole story is something of a hoary old chestnut, of course. Specialist retailers complaining about the effects of supermarkets muscling in on the games business has been a feature of the trade press for as long as I can remember, and indeed for as long as many people rather a lot older than I am can remember.

However, there's a particular urgency to these complaints, and an unusual tone to some of the comments coming from many specialist retailers. There are various common refrains doing the rounds, such as claims the supermarkets will drive competitors out of business and hike prices (not true - the supermarkets don't really care about competing with specialist retailers, only with one another) or that price drops create consumer confusion (unless consumers are easily confused by having more money left in their wallets than they'd expected, I suspect that this is as untrue as it is condescending). Buried amongst this nonsense, however, is another common theme - how can such price-slashing make sense, when game prices are actually on their way up?

That particular claim is based, presumably, on the elevated price point of the forthcoming Modern Warfare 2, the high SRPs of games with bundled peripherals (an increasingly common sight on store shelves, ever since publishers realised that a piece of shoddy plastic made in mainland China for pennies can add 10 pounds or more to the price-tag of a game package) and some pretty aggressive statements from various publishers about widespread price rises at some point in the ill-defined future.

The justification, as ever, is that development costs are rising, so the price of games needs to rise in order to pay for those rising costs. This is a piece of business logic which would only be praiseworthy had it been scribbled in crayon by a not particularly bright five-year-old, and illustrated with a nice picture of a smiling sun and some trees. Coming from the mouths of supposedly economically-aware businessmen, it's enough to raise question marks about the education and common sense of some of the people at the top of our industry.

As the costs of development rise - fuelled by technological advances which mean that games require more detailed and extensive assets and more complex code - a healthy, growing market should mean that sales are also rising in parallel. We're not only talking about growth in boxed-game sales as the market expands, at that - after-market sales of DLC and add-ons, in-game advertising, merchandising and even the possibilities of highly profitable special editions for high-profile games all add up to extra revenue, which means that you can develop more expensively, sell at the same price, and still watch your profits grow.

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