There's been a debate over the price of video games for a long time now.
On the one hand, some have made the perfectly reasonable argument that games have cost $60 for a very long time and that between inflation and rising development costs, video games ought to be priced accordingly. After all, it costs more to go to a movie or out to dinner than it did fifteen years ago. Why shouldn't games be more expensive as well?
As it happens, there are several perfectly good reasons why video games not only shouldn't cost more than $60, but probably ought to be cheaper.
1. Video games rarely actually cost $60 to begin with, once you factor everything in.
The $60 sticker-price is just one of several revenue streams for video games these days. Other revenue comes from add-ons like DLC, season passes, micro-transactions and, increasingly, from loot box purchases. Games like Call Of Duty, Destiny, The Division, Battlefield and Overwatch all rely on some mixture of these other revenue streams. If video games suddenly cost $70 or $80, game publishers wouldn't magically stop relying on DLC or loot boxes for additional revenue. It's far too profitable.
Take Call of Duty as an example. The latest in the series, WW2, released with a season pass that cost an additional $50. A few weeks after launch, Sledgehammer Games and Activision added credits that players could purchase with real money in order to buy loot boxes. Sure, some players only buy the base game, but a very sizable portion of the player base go one or two steps further, buying the $100 Deluxe Edition instead, or even tacking on the season pass after the fact. In other words, many copies of Call of Duty: WW2 sold for nearly twice the asking price. And many of these players are also purchasing loot boxes still to this day.
2. Digital distribution drastically lowers costs for publishers and essentially kills off the used game market.
A second important point about the costs of games is the rise of digital distribution. It's no coincidence that video game stock prices have skyrocketed since the release of the Xbox One and PlayStation 4. On February 15th, 2013---just months before the launch of these video game consoles---Activision shares cost $14.37. The publisher of Call of Duty, World of Warcraft and various other big hits was already a giant in video games. Today ATVI shares are $67.70 (at the time of this writing.) Battlefield publisher EA shares were valued at $16.97 five years ago and $121.18 today. These are truly massive gains, and they can largely be attributed to the rise of digital distribution.
It's expensive to sell games at retail. There's the cost of the physical media and packaging. There's the cost of shipping and distribution. There's the cut that retailers take, and then the loss when used games are traded in and re-sold instead of new copies. At every step of the way, a physical video game is costing publishers like Activision and EA money. Digital distribution changes much of that. Gone is the physical media, the packaging, the shipping costs and the threat of used games. Yes, Sony and Microsoft and Valve all take their cut of the sales, but it's still nothing like the cost of physical media.
In 2017, Activision posted net bookings of $7.16 billion. Of these, a record $5.43 billion was from digital sales. That's digital game sales, but also digital revenue from micro-transactions and so forth across Activision, Blizzard and mobile game-maker King. That's over 75%, and it means that Activision's margins are higher than ever. EA, Ubisoft, Take Two and all the rest of the industry's publishers are in the same boat.
Meanwhile, companies like Rockstar not only continue to sell copy after copy of GTA V, they also continue to make oodles of money off of GTA Online year after year. These "games-as-service" releases keep making money long after the initial sale.
3. More expensive games could scare away players.
Between the lower cost of doing digital business and the record profits game publishers are posting thanks to additional revenue streams, it seems unlikely that a price hike would even be in the best interests of game publishers, potentially scaring away purchases and all the subsequent revenue a lost sale would potentially result in.
There's a limit to what any product can cost, and publishers have found ways around this hard cap. If games suddenly cost $70 how many fewer copies would be sold? How many of those missing sales would have been customers who later purchased DLC or micro-transactions? And how much of a PR hit would a publisher take if it started selling its games for more than the rest of the pack?
Meanwhile, we can already see a world where games don't cost $60 at all. Microsoft's subscription service Xbox Games Pass gives players access to a whole slew of new and old games for $10 a month. That's already hurting brick-and-mortar shops, but it's giving players access to more content than ever. And each subscriber could potentially be the next whale for any number of these games, spending plenty more in micro-transactions, DLC purchases and so forth down the line.
There's certainly a second debate that we could have about the cost of game development and whether or not massively expensive AAA games are healthy for the industry, but that's a debate we'll have another time.
Listen to our podcast and let's continue this conversation.
In our latest Forbes Overworld podcast, I talk with fellow Forbes contributor Paul Tassi about all of these topics and how we see the industry evolving in the digital age. Check it out below. Our segment begins at the 49:50 minute mark.
As always, thanks for reading and listening. If you'd like to continue the conversation hit us up on Twitter: @ErikKain @PaulTassi. You can also find the podcast on iTunes.
