Articles > The Price We Pay

The Price We Pay

By Hal Halpin
February 2009

One of the more famous journalists covering the games business once said to me, “When they start calling you ‘veteran’ you know two things: that you’ve been around a good long time and that you’re getting old.” I’d add to that the fact that those of us who’ve been around a while have been so for a common reason: a passion for the medium. Unsurprisingly, we older passionate folks tend to also be more than a little vocal with our opinions (the column serves as Exhibit A). Perhaps surprisingly – at least to me – is how often those positions fall completely in line with one another or are diametrically-opposed… not much gray area. Case in point: Lorne Lanning, David Perry and I are on opposite sides of the whole ‘game rental and used games are evil’ debate, but feel pretty similarly on the ‘crediting’ issue. In the slightly-more-outspoken-than-Hal category (which is saying a lot, mind you) we have David Jaffe and Gabe Newell. I don’t know either particularly well, but have exchanged emails and DMs with David. Gabe and I, to the best of my recollection, have never spoken… until now.

In lamenting what to write that might be of interest to both the industry and consumers, I asked (read: whined) to my Twitter followers and FaceBook friends. Among the many very bright ideas – which you’ll see unashamedly bastardized here in future columns – was the concept of ‘game pricing’ as a discussion point. In hits-driven business, product price points can make or break publishers, which is why you’d very rarely hear a CEO stand in front of a room full of analysts to discuss the matter. And over the years I’ve heard everything from: our retail pricing hasn’t increased on par with the price of movie theatre tickets (Really? Not an argument of strength there, unless Publishers are figuring out a way to send me Digital Chocolate – see what I did there? – with some phenomenal mark-up). Most recently, the issue became apparent in the transition from the last generation to the present one, where game prices jumped, on average, about ten dollars. The rationale being that the cost of development, the cost of the media, shipping, retail marketing, et al have risen, therefore the cost of goods and the cost of doing business has gone up.

The flaw with the above is that those who posed that argument, just a few years ago, were often also the very same folks sitting next to me on a panel and telling us how the cost of goods would be decreasing because of in-game advertising income, which would off-set the need to raise prices. Five years later and we have loads of in-game advertising… Hell, even the President leveraged it… and yet the prices remain the same. The ad-supported model has somehow morphed from one that was promised to one in which we agree to accept even more egregious marketing in exchange for a much lower price point. And while it’s appealing to many, and likely a very good business model, it’s a different bill of goods, isn’t it?

So let’s look at it another way: going back a few more years, during the dot com bubble, I’d be on yet other panels sitting next to dot com execs telling the audience that brick and mortar retail was about to evaporate and is ultimately the chain in the link responsible for the high price points. Their company, XYZ.com, was going to change all of that by replacing them. I would reply that the major retailers weren’t going anywhere and, with the greatest respect, XYZ wasn’t going to be the new Wal-Mart. Wal-Mart was going to be the new Wal-Mart. The publishers on the panel would insist that the many channel-related costs too would evaporate if only there was a digital solution – no manuals, boxes, media, shrink wrap, packaging, shipping, re-shipping to distribution centers and stores, stocking, merchandising, marketing and then selling; just straight downloading. And think of all of that cost disappearing, they’d say. The reaction from the crowd was usually met with thunderous applause, but not, as the exec believed, because the consumers disliked retailers. It’s because they were being told that they’d be paying less, way less.

Again, time, and a collapsing bubble, proved that poor XYZ.com didn’t have the infrastructure, brand awareness, customer loyalty and funding that Wal-Mart had. But the publishers did find digital distribution solutions that they thought would replace retail. Some are gone, others persist, and a few have changed the rules of the game. But what they didn’t deliver on was the massive reduction in price. What about all of those channel-related expenses, ahem savings? The new answer is that there were a lot, way more than they’d care to admit, of new expenses in delivering product through a whole new channel, with a new set of rules and a business framework that they didn’t anticipate. OK, fair enough. But what about once the services were amortized and the infrastructure stable? Why can we see different pricing for different titles? Surely a hits-driven business can have multiple price points now, right? No. The price points for AAA titles are largely the same no matter how you buy it, and many of them also have in-game advertising or product marketing of some sort to boot.

Thanks for your patience. Here’s where we get to Gabe and I being opinionated in precisely the same way: the industry needs to change. We need adaptive price points that move based on a multitude of different factors. We can’t assume, especially in this economy, that gamers will continue to pay sixty dollars for the first 30, 60, 90 days and then rely on the tried-and-true mark-down money and discount bins – there’s a place for them, to be sure, but it can’t remain the only solution. As the business increasingly transitions to a digital environment, we are all, collectively, going to be facing whole hosts of new challenges and opportunities. Consumer rights and creator rights will be tested as never before… and that need not be a bad thing. But publishers and developers, like Valve, who take it upon themselves to look at their products, services and customers from an objective perspective and also take the time to re-think the old rules, will be the victors in the long-term. Because, in the end, it’s the symbiosis of those things that make it successful. Companies that don’t embrace that change and remain rigidly affixed to the current price point paradigm shouldn’t complain that gamers aren’t appreciating the value of the art, or having enough respect for the art form. Like anything else, what the product is ultimately worth is no more or no less than the price one is willing to pay.