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GamesIndustry.biz: Impulse Power

Are next-gen games pricing themselves out of the market?

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 a day after it goes out to GI.biz newsletter subscribers.

A few years ago - not long after we launched GamesIndustry.biz, in fact - there was a small, but vocal and determined, campaign in the UK aimed at bringing down the price point of new videogames. Describing itself as a grassroots campaign by gamers, it won a number of headlines (and even some mainstream press coverage) but very few friends or allies, thanks to a combative approach which culminated in an abortive attempt to orchestrate a widespread boycott of game purchases over a crucial pre-Christmas weekend.

At the time, the campaign was doomed to failure not only due to its own aggressive tactics, but because the economics were all wrong. The PS2 generation of hardware was at the mid-point of its lifespan, game sales were soaring, and full price games were still emerging at between 30 and 35 pounds for the most part. Moreover, the following months and years would see the mass market being attracted to games as never before thanks to products like Singstar and Eye Toy - an expansion of the industry's demographic base which seemed to confirm that the price points were right, as long as the products were right.

To trot out a tired old chronological cliche; that was then, and this is now. GamesIndustry.biz strongly criticised the price campaign at the time - as editor at that point, I felt that the economical arguments were weak, boiling down to a fairly over-simplified "if you drop the price X per cent, you sell X per cent more units." Moreover, the approach taken by the campaigners was wrong; the aggressive nature of their comments encouraged an industry seeing rapidly growing revenues not only to dismiss the arguments of the campaign, but to entrench behind its original viewpoint.

Now, with the transition to the next generation of home consoles well underway, it's worth re-evaluating where the industry stands on price - because a lot has changed in the last few years. Most notably, the upper end of the price spectrum has jumped significantly - with publishers and platform holders alike taking the move to next-gen consoles as an opportunity to raise the launch price of software to 50 pounds.

This price point is a step too far. Twenty pounds, the level software hits on budget re-release, is often cited as the "impulse purchase" level for UK consumers - and a similar pricing level applies in other territories around Europe and North America. Thirty pounds, even thirty-five at a stretch, is a price an affluent consumer will pay for a game which they spot on the shelves while idly browsing. Beyond that level, you're into the realms of purchases which are serious money, even to young professionals with a lot of disposable income - and once you hit fifty pounds, consumers are going to be asking very tough questions about the actual value of the entertainment experience they're buying.

Those are questions for which the videogames industry currently has absolutely no answers. The ten to fifteen pound premium being levied for next-generation software has no justification for the average consumer - and even the old argument about the length of time spent enjoying games by comparison to DVD movies falls down at this price point, since entire DVD box-sets of high budget television shows can be purchased for less than 50 pounds on the UK high street. At that point, next-gen games start looking like astonishingly poor value.

The justification wheeled out by the industry, of course, is that next-gen games offer a significantly better experience than current-gen titles, and that they cost far more to develop than their current-gen equivalents. In some cases, this almost rings true - but in the vast majority of Xbox 360 games currently lining shelves at retail, these arguments are hollow and blatantly false. Many publishers in the last nine months have released games simultaneously on Xbox 360, PlayStation 2, PC and other platforms, with the Xbox 360 version costing significantly more than its peers - and it has been blatantly apparent to even the least technical of gamers that the Xbox 360 version is a tarted-up port of the PS2 version. By no means does the gameplay experience or the development cost justify the price premium.

Even for next-gen exclusive titles, the concept that a premium should be paid for the software is faintly ludicrous. From a consumer perspective, it assumes that consumers are prepared to accept paying above the odds for games on next-gen consoles, having already paid hundreds of pounds to buy the console itself. The counter-argument is simple; the consumer has paid for the console hardware in order to increase the fidelity of their gaming experience. They should not then have to pay extra for the software on the same grounds, any more than they would expect to pay above the odds for a widescreen

Ultimately, this is a foolish and short-sighted move by the industry which stands to seriously damage the early growth of the next-gen console market. Pricing next-gen software at 50 pounds will not lead to increased revenue; it will dissuade consumers from buying into next-gen hardware early in the cycle, will depress the attach rate of the consoles, and worst of all, will accelerate the damaging trend of knocking prices down early in the lifespan of a software product. This cycle is already frighteningly fast, with full price games hitting ten pounds within a matter of mere months, whereas products such as DVDs and audio CDs can hold their value, or a significant part of it, for well over a year. Pricing at 50 pounds will simply increase consumer resistance to buying at full price, forcing games to drop more of their value even faster than before - and increasing the consumer expectation that software will be available more cheaply months after launch, which feeds the vicious circle of devaluation.

The company with the keys to fixing this problem, of course, is Microsoft. They alone will have a next-gen console with a significant installed base this Christmas - and they alone are forcing prices to sit at a 50 pound level at present. If Microsoft is serious about pressing home the advantage they have been handed by Sony's botched launch plans, it needs to drop the headline price of next-gen software to the same levels that consumers are used to paying for current-gen software - because if it doesn't it isn't PS3 that it has to fear in the marketplace. It's the huge installed base of PS2 owners, who will shrug their shoulders and opt to stick with the current gen until the next gen becomes affordable; perhaps more importantly, it's the Wii, whose software will be priced at current-gen levels and will make Microsoft's offering seem even more expensive.

Microsoft of course has only one blunt instrument at its disposal on this front - the licence fee which it charges on each unit of software sold by a third-party publisher. If it wants the retail price of games to drop, it must also drop the licence fee - which will hurt its bottom line. That will be a difficult and painful decision to make.

Tough luck. If Microsoft is serious about competing in an industry in which, despite its strong start in the last nine months, it is still very much an underdog, then it has to be prepared to make some difficult decisions - and let's not forget that unlike every other platform holder, Microsoft is also currently raking in a monthly fee from every Xbox Live Gold subscriber on its system, a fee which few if any publishers see any kick-back from. In for a penny, in for a pound; Microsoft is already four billion dollars out of pocket, at least, on its foray into the videogames market. By making the bold move of dropping its software prices before Christmas, and dropping the licence fee to take the sting out of the move for publishers, the firm stands to turn Xbox 360 into a genuinely mass-market proposition before PS3 even has a chance to get its foot in the door.

The alternative is that Microsoft's console could still be trapped in its current hardcore niche by the time Sony - the proven masters of the mass-market - arrives in force. The outcome of that scenario is as familiar as it is easy to predict. Microsoft has been handed an opportunity to capitalise on Sony's misfortune and build a genuinely solid lead on its rival - but first there needs to be an acceptance in Redmond that this lead will not be built by releasing hardcore games at hardcore price points.

For more views on the industry and to keep up to date with news relevant to the games business, read GamesIndustry.biz. You can sign up to the newsletter and receive the GamesIndustry.biz Editorial directly each Thursday afternoon.

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About the Author

Rob Fahey avatar

Rob Fahey

Contributing Editor

Rob Fahey is a former editor of GamesIndustry.biz who spent several years living in Japan and probably still has a mint condition Dreamcast Samba de Amigo set.

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