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Wholesale, $60 games run about $45-$48. The rest is retailer markup, but don't hold it against them... only a dollar or two of that is profit. Around $4 per unit goes towards paying back the costs of development kit fees, legal, corporate overhead, and any licensing or distribution fees. Manufacturing the physical disc and packaging eats up $3 or so, more if they get elaborate. Another $7 goes towards marketing, though this varies greatly depending how confident the publisher is. A major marketing campaign might take a bigger slice; an abbreviated or non-existent campaign takes less.
Then you get into the Big Three's cut. Console owner fees generally run around the $7 per unit mark, but major properties can negotiate this down, particularly when exclusivity deals are on the table. Everything else - not quite half the retail price - pays for the actual creation of the game, and in the last few years, those budgets have gone insane.
The biggest gains have been in design and graphics, and those open world, mo-capped, cinematic eye candies add up fast. For A-list titles, $20 million is a starting point. The final bill for Modern Warfare 2 ran around $40-$50 million. By comparison, Oscar-nominated District 9 only cost $30 million. Activision Blizzard spent crazy money specifically to top its crazy successful predecessor, Call of Duty 4: Modern Warfare, because you demanded it. Put another way, gamers want "better," and "better" automatically translates to "expensive."
The Golden Rule of gaming is this: what comes next must totally blow away what came before. That's how you end up with a two-disc Mass Effect 2, which cost the same as a one-disc Mass Effect 1. Frankly, after five years of solid one-upmanship, it's a little surprising the Bobby Koticks of the world haven't gotten the green light to pile on five, ten, fifteen dollar hikes just to cover the spread.
Ah, but they have. We just usually refer to them as DLC.
For everything there's a tipping point where people stop buying in. A base Modern Warfare 2 going for $70 probably wouldn't have moved quite as well, and publishers pay fees for store returns of unsold stock. Enter downloadable content, which is relatively inexpensive to produce, saves big on production costs, and is now core to game design. Map packs, expansion packs, new areas, new missions, mini-campaigns... all value-added, sometimes ready to roll before the game itself is, and highly lucrative. If you bought all five downloadable add-ons for Fallout 3, your $60 game ended up costing $110. You probably didn't mind, either.
That's how you raise prices when you don't dare raise prices, and it's brilliant. Think of it as a la carte gaming. Buy what you want, ignore what you don't. They make their money, the base price stays the same. And that's a good thing.
Despite my pathological need to horde money, I like a standard price for all games. I like how it levels the playing field between struggling new IPs and monster franchises. I like that it gives good games a fighting chance against well-publicized games. I like the consistency and I really like applying the same general standards across titles, sequels, even platforms. But I love how it makes developers strive harder.
They know it's a crowded field out there. They know every game has to fight for your sixty. Even the hardest of the hardcore only averages twenty or so buys a year, out of hundreds of possibilities (across all platforms, over a thousand games were released worldwide in 2009). So early in the design phase, even an established series is sized up against its direct competitors with an eye towards besting them. They have to deliver a superior product that grabs attention and makes a purchase mandatory. Sixty dollars in exchange for their game has to feel like a complete steal.
Will Kasumi's memory be worth the price of admission?
And now publishers are getting creative about how and where they charge for their games. Microsoft's Platinum line breathes new sales into elder games, microtransactions are making the pilgrimage from PC to console (surprise surprise, Bobby Kotick loves them) just as in-game advertisements did, and publishers' relationship with digital distribution services like Steam and Direct2Drive is moving out of the puppy love phase and into grand romance. Going digital saves a bundle on production costs and spares them return fees, among other things, but it could be used to genuinely evolve the a la carte system they've already toyed with.
Here's how: after the initial release, offer the individual game modes - campaign, multiplayer, online co-op - separately at $40 each. Or introduce a new pricing structure that charges more to download the game early, less to get it a few months down the road. Unlikely? Consider: Modern Warfare 2 dropped to $40 about three months post-release, and it's not like sales were hurting. The rest of us paid a premium to game it over the holidays. And that's okay, too.
Yes, there are times I'm willing (and, admittedly, forced) to pay full price for a game I really want. I also rent or borrow a bunch of games. I'd buy more if they cost less, but hey, nobody's forcing us to empty our wallets. Gaming is a purely voluntary obsession, and it so happens we currently have a good balance between Supply and Demand. A fixed price system is a lot like a social contract between developer and gamer; one puts blood and sweat into a game, the other spends blood and sweat to buy it. When one falls through, so does the other.
For now at least, that's fair enough.
As reported by IGN.
