Are video game companies overcharging us, or are modern games actually underpriced? This article delves into the economics of video game pricing, exploring whether the costs are justified or if we're being taken advantage of.
The average price of a new video game today is around £40 or $60 USD, depending on your region. This doesn't include the cost of gaming consoles or online subscriptions, which can make gaming a prohibitively expensive hobby for many. On average, gamers purchase about 8 games per year, often sticking to well-known franchises like FIFA, Madden, or blockbuster hits like Fallout 3.
Much like the film industry, gamers tend to stick to what they know. However, at $60 a game, are gaming companies exploiting our love for gaming by making it too expensive? Are they capitalizing on our gaming addiction?
Through my experience with HomebreWare, a company that creates software allowing copied games to be played on the Nintendo Wii, I've learned that most people don't understand why games are so expensive. I didn't either until I tried selling games online about eight years ago, albeit unsuccessfully.
Games are distributed from wholesalers who cater to small retailers. My orders were small, just enough to avoid delivery charges. The wholesaler provided goods on credit, amounting to several thousand dollars. But where did the wholesaler get their games from? The manufacturer, of course. The price I paid was fixed to ensure the wholesaler made a profit.
As a retailer, my goal was to make a profit, which I ultimately didn't. A game for the PS2 or Xbox cost me about £15 or $25 USD. At the time, big online retailers sold games for £20-£25 or $40 USD. I tried to undercut them by selling games for £20 or $30 USD. However, after accounting for postal costs and business overheads, my profit margins were razor-thin.
The highest costs were advertising. I had no business savvy and indulged in pay-per-click ads with Google and registered with a shopping comparison site, also pay-per-click. The result? $5,000 in clicks and about 10 sales. I couldn't afford to pay.
So, don't blame your average online or offline retailer for the high cost of games. They need to make money too. Unlike supermarkets, they can't squeeze suppliers to cut costs. This brings us back to the original question: why are video games so expensive?
The development costs of modern video games are astronomical. According to a report by Statista, the average cost to develop a AAA game is between $60 million and $80 million. This includes costs for development, marketing, and distribution.
When adjusted for inflation, the price of video games has remained relatively stable. In the 1990s, games like "Street Fighter II" for the SNES were priced at $70, which is equivalent to about $130 today. This suggests that modern games might actually be underpriced when considering inflation and increased development costs.
The high cost of video games can be attributed to various factors, including development costs, marketing, and distribution. While it may seem like gaming companies are overcharging us, the reality is that the economics of game development and distribution are complex. In the next article, "Are Gaming Companies Holding a Gun to Your Head?" we'll delve deeper into who exactly is to blame for the excessive costs of gaming. Stay tuned!
By understanding the economics behind game pricing, we can better appreciate the value of the games we love.
