Pricing Structures in the Video Game Industry

A tall stack of game CDs next to your console or PC used to be standard sight for any avid player; the oldest games’ cases evermore squished under the weight of each new and redundant instalment of COD. Fortunately, these days are for the most part, gone. The transition from physical game disks to online libraries has been brought about primarily through changes in pricing structures in the industry. In this article, I briefly discuss how and why the way we pay to play has changes over the past decade.

The old model of one-off in-store game purchases is very jarring on consumers. Paying upwards of $100 in cash puts the consumer through a very tangible experience of financial loss. The transition towards subscription based play has allowed developers to both sell more copies of their games by removing the intimidating lump-sum initial payment, as well as extract more money from gamers over long periods of time as they become addicted to the service and thus rationalise the ongoing payments. This is the basis of the strategy – the old model forced players to invest large sums of money into a game they haven’t even tried yet. Subscriptions bait players into giving it a go, and the majority continue playing, paying well in excess of $100 in total subscription fees during the lifespan of the game. In addition, subscription payments feel more arbitrary than cash payments, often being automatically deducted from the subscriber’s account each month.

The notion of downloadable content (DLC) is not a new strategy, but has undergone a veritable explosion in popularity in the past few years. For many games, it almost goes without saying that the base game you’ve purchased or subscribed to isn’t the full package. To get more content, additional payments are required. This is an extension of the above strategy of baiting players in with lower entry cost, and extracting more money from them later. The rise of mobile gaming on smartphones has taken this model to the extreme. DLC on mobile games is almost guaranteed. The ‘Freemium’ model allows players to play for free, but can pay for premium content through microtransactions, usually one or two dollars. We’ve all heard the horror stories of Little Johnny playing Plants vs Zombies and spending hundreds of real world dollars on his virtual ‘zen garden’. His parents weren’t happy, but the garden looked great.

I often find myself wondering: are game developers price makers or price takers? The answer to this isn’t as obvious as it may seem, for a few reasons:

  1. Developers must pay licensing fees to be supported on a platform (Microsoft, Sony, Nintendo etc…).
  2. Developers must often pay licensing fees to the franchise upon which their game is based. This is very common, as many of the most popular games stem from movies or other original content.
  3. Due to reasons discussed last week, development time isn’t decreasing for top-tier games which keeps salary costs high.
  4. Prices of similar games in the market limit developer control over how much the product eventually costs.

Points 1 & 2 are out of developers’ control. They’re obligatory costs that must be paid if they want to enter the market. Point 3 is somewhat manageable through in-house efficiency, and point 4 is probably the least influential. All of this aside, the obvious outcome has been that the prices of top-tier games have not declined significantly over the past decade. Whether this is entirely due to licensing and development time expenses, I cannot say, but the most logical conclusion is simply that nobody in the pipeline has an incentive to reduce prices if they don’t have to. The new pricing structures are making the gaming industry more lucrative than ever before.

Steam, a games distributor, has been an interesting exception to this trend in several ways. On Steam, players buy their games and store them in their secure personal library. Most games are purchased through one off payments. The real drawcard is that players can download one purchased version of the game onto more than one computer. The old fashioned CD-Key model of one game per machine no longer applies, and provides players with much more freedom than ever before. Steam is, however, a great example of the addictive nature of online purchases. Many players end up with extensive libraries of hundreds of games. Steam also provides the medium through which multiplayer games can be launched, blurring the line between retailer and platform.

Online payments and virtual libraries makes the purchasing process for games arbitrary for consumers. With DLC and microtransactions you can invest in your gaming progress anywhere, anytime, and the constant temptation to pay to win feeds from gamers’ desire to play the game to its utmost potential, and to be better than other players.

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