Network now...FEATURE
Valve: Are Games Too Expensive?
February 19, 2009
See also:
Related Articles:
Discounting games does not only increase unit sales--it increases actual revenues.
Games may be too expensive.
That is the message Valve Software President Gabe Newell gave the assembled developers at the annual DICE Summit on Wednesday. While the topic of his keynote was the game industry's transition from retail industry to service industry, he revealed sales data from Steam that suggests games are too expensive.
The reason why few have arrived at this conclusion is because you cannot easily experiment with pricing at retail, says Newell. But you can with Steam, Valve's burgeoning digital distribution platform.
On the PC-only Steam service, a wide range of prices are attached to games, and attractive weekend deals throw more pricing variability into the mix. Although Valve was initially afraid that volatility or variability in pricing would confuse or anger its customers--or even cannibalize retail sales--Newell says that was not all the case.
In fact, it dramatically increased sales. Illustrating his point, Newell showed the results of a Left 4 Dead promotion Valve ran last weekend, which cut the price of the game in half to $25. The discount (and promise of new content for the game) rocketed sales of the game on Steam by 3,000 percent.
"We sold more in revenue this last weekend than we did when we launched the product," says Newell. "We were driving a huge uptick in revenue and attracting new customers." And while people believe that we're "screwing" retail, Newell showed that brick-and-mortar sales were unaffected by the online discount.
This phenomenon is not limited to Valve games. Over the holidays, Steam discounted third-party titles. Sales increased 300 percent and units-sold increased by 600 percent.
Still skeptical? Newell said that a weekend sale of one third-party title drove that game's sales up by 18,000 percent and units-sold increased 36,000 percent. It energized the user base, says Newell. When the sale ended, baseline sales were double what they were prior to the weekend discount.
Discounting games does not only increase unit sales--it increases actual revenues. During the 16-day sale window over the holidays, third-parties were given a choice as to how severely they would discount their games. Those that discounted their games by 10 percent saw a 35% uptick in sales--that's dollars, not units. A 25 percent discount meant a 245 percent increase in sales. Dropping the price by 50 percent meant a sales increase of 320 percent. And a 75 percent decrease in the price point generated a 1,470 percent increase in sales.
The conclusion: The games industry is not pricing its products correctly. It's only through the experimentation that such services as Steam allows will the industry be able to find the golden ratio of price and sales. As Academy of Interactive Arts and Sciences President Joseph Olin concluded Wednesday night, this is going to generate a lot of controversy about pricing.
Contact Us / About Us / Advertise With Us / BeltwayBlips / TechBlips / MassiveBlips / GamerBlips / FAQ
Subscribe To Edge Magazine / Corrections / Terms & Conditions / Privacy Policy
Copyright 2006 - 2009 Future Publishing Limited, Beauford Court 30 Monmouth Street Bath, UK BA1 2BW
England and Wales company registration number 2008885
Subscribe To Edge Magazine / Corrections / Terms & Conditions / Privacy Policy
Copyright 2006 - 2009 Future Publishing Limited, Beauford Court 30 Monmouth Street Bath, UK BA1 2BW
England and Wales company registration number 2008885
Steam discounted third-party titles. Sales increased 300 percent and units-sold increased by 600 percent. http://www.crazypurchase.com
These numbers are not surprising. There are three types of people: Early adopters, Laggards (most of us), and Luddites. Early adopters typically don't care about the price tag. Laggards care about the price tag but will pay for the game and Luddites are moochers - they consider those of us who pay for games to be suckers. Here is what I think games are worth: $5 per game. My cutoff point for purchasing games is $12 - and that is only if the game is generally considered "decent". I'll pay $20 for a REALLY good game, but those games don't happen except once in a blue moon. I love the day-after-Thanksgiving. This last Thanksgiving I picked up 12 games for $60. Three of those 12 included: Bioshock, C&C 3, and Kane's Revenge. Paying $50 now for a game that will be a fraction of that price later is silly. Plus the latest games usually demand the latest hardware and won't run at "Maximum Settings". Hardware upgrades are expensive. (BTW, the Crysis pun [Maximum Settings] was intended - I had a gift card - so I spent someone else's money!)
I saw the Left 4 Dead sale on Steam and the thought crossed my mind to purchase it, but then I said to myself, "Is a mere four levels worth $25? Is interacting with 12 year olds online worth that price tag?" Nah. Get the price down to $10 and then I'll buy. Plus, I've got a slew of other games I haven't played yet, so I can wait.
The previous comment about people buying piss in a bucket I think is relevant.
People will buy sh1t if its cheap enough. So the title of this article Valve [asks]: Are Games to Expensive? could quite easily be Valve [asks]: Are Games (Mostly) Crap?
Interesting Article.. It's certainly heralds Steam and digitally distributed software as a great success story.. I like collecting boxes too and some cover art I would hate to see get that back of it. But sadly it's just not sustainable to have games being shipped in such numbers on plastic disks. You'd think an industry that relies so heavily on oil would embrace the technology and distribute everything electronically. It's happening slowly with games, movies and music, but at some point or another there is going to have to be a big shift towards downloadable media or certainly something more "solid state". It's the only way to go in the long run, in my opinion.
Obviously you can't swap your downloaded content for redeemable credits at you local game or whatever. But it's to the advantage of some people who want to play immediately and are willing forgo having the manual and the box, especially on older titles (to be fair how many of us "men" read manuals anyway) Usually the price is lower, because there are no expensive distribution factors like using air, rail or road to distribute dvd's and merchandising media to all the retailers.
I like steam more now that we have our own network and pricing structure here in the United Kingdom. It was always a little confusing and sometimes more expensive converting to dollars and adding tax and such. £26.99 isn't bad price for a new game like Left 4 Dead and I don't mind paying that, it could be a £10 more on the high street.
Digital Distribution also clears up in part some DRM issues, it's very easy to see with clients like steam who's legit and who's not and surely one question is, if games are cheap and freely available, why shouldn't users login to steam and pay rather than going to their favourite torrent site? Obviously that's not to say people are going to stop circumventing DRM completely, but at least you giving people a fair chance, before the need to strong arm them with threaten letters and lawsuits.
I purchased street fighter 4 yesterday for just 40 euro.That's pretty cool considering its a AAA game imo.Ended up getting it for my son also.Happy campers!
Absolutely, if games were 29.99 a pop, i would end up spending much more money on games...
I would probably even buy games before looking at ign ratings...
and one more comment, i purchased left4dead at 59.99 on my 360, i actually considered buying it at 29.99 just so i could also get the pc copy as well; i didnt; but i didnt feel betrayed by valve since i wanted it the first day it came out...
Also for those saying 'retail has more overhead' yea, its true- you have to pay the retailer, you have to pay shipping, packaging, all that stuff... so why not just do everything through steam? Less overhead- gets passed onto the consumer so more games for us!!! Also its environmentally friendly!
Makes sense. Lower prices and you can pick up all the sales that are usually made later as used games that never benefit publishers. And you can do that before the title is old or outdated.
Dude, I'll give up food before I give up video games!
RT
www.anonymity.eu.tc
The problem is, The game Developing company has to charge X amount to cover overhead, X amount gets tacked on for the publishing company and PR, then marketing gets to throw their X amount on, and then The store Tacks their little tuft amount on, so by the time it gets to you, your paying X 4 times plus taxes, so Valve is able to sell their games a lot cheaper because you don't have the cost of the packaging, shipping, here's an important one, a price you pay to get your game right there in the middle of the shelf so that people will be more likely to see it and buy it. so, now that's why people like valve CAN reduce their prices, Other companies just aren't able to and keep paying the bills
As a former employee of Electronics Boutique, I can tell you there was no special placement going on when I worked there. The games were divided into sections and alphabatized, period. If you wanted better placement on the shelf, you needed to have your game title start with a letter around g or h.
No store makes much money on new game sales. At Gamestop, I think they pull about $5 a title. At independent retailers, their cut might be $1. That's why used sales are so key. If you buy a $60, trade it in for $30 and Gamestop can resell it for $55, THEN they are making money.
Brian
www.brianwoods.com
As a former employee of Gamestop for several years, I can tell you that there was indeed special placement going on. They do it in such a crafty way that even the employees don't realize that is what is going on.
You know the boards you used to slap the new game titles on? The games you were told to push reservations on? The new boards that actually hold game-art boxes of upcoming games? The signs that dangle from the ceiling? The posters on the windows?
You think people didn't pay or work out a quid pro quo solution for that advertising space? I know they did. Even the games that everyone knew were going to sell well, AAA titles... they didn't get a dangly sign without paying for it.
Before the initiatives by companies like Microsoft standardized game box sizes, computer game companies designed ridiculous boxes to stand out from their competition. That was before gaming became the billion dollar industry that it is. Before Gamestop, when the employees of a local gaming store KNEW their products and made recommendations that were truly from the heart. A lot of Gamestop employees still have a passion for gaming but many of them are just there for a job. They "recommend" games to you as part of their greeting without knowing anything about your tastes.
Is it bad the way it is now? I don't know I just know that it was more "fun" in days of yore.
The point of the article is that all of them can charge x/2 and recoup the money and then some by charging less. Packaging and shipping is practically negligible in today's market (less than $2USD a disk). The middle shelf argument also holds no water, as every video game retailer I know now alphabetizes their various games sections.
I can say without any hesitation that my game purchases definitely dropped by way more than 20% when they went from a $50 to a $60 entry price.
used at gamestop!??! gah, read my post on that article...
:P
No wonder Piracy is on the rise...
Boy I tell ya, now that you mention it, those games are getin pricey. I am about ready to start waiting for them to come out used at my local GameStop!
RT
www.anonymity.eu.tc
Are games too expensive? When they're first released they are.
@zakrocz he cited revenue not units so that makes it more compelling... and interesting...
@omegaVader yeah ON SALE PSYCHOLOGY is hard to prove but is worth noting that the sale did not result in cannibalization of sales at retail which kinda means it pulled in a "new" audience who may have been on the fence due to price.
Generally there are long tail games that will sell at full price much of its life, then there are games that need a price reduction to spur sales... add the human element and i say that the hardcore group will be picking up games week one full price, but that plenty wait for the game to drop in price outright or those holiday sales, if you build those sales into the price already then you get more people week one... week twenty
Discounting prices via Steam and seeing a good uptick in cash generated makes a lot of sense. What doesn't make sense is dropping prices at retail - you have a lot more costs than Steam incurs when you sell something in a brick & mortar store - the store overhead, the retail & distributor discounts, and even things like the packaging of the title all suck up potential profit.
Of course you can drop the price at retail. Sony's Platinum range for example.
Games are too expensive, i was one of those who bought L4D over the weekend. Games just aren't worth £40/50. I won't go any higher than £25 for my games. It's no wonder the second hand market is so popular too.
And lowering the prices of games will curb piracy dramatically, maybe eliminate it substantially.
I doubt it would eliminate it. There is always going to be a proportion of people who pirate games whatever the cost. Cheaper games would likely lead to a reduction in the numbers doing it though.
It could be the fact that people know the full price and the 50% discount makes it seem like a great deal (especially if you know the price will return to the normal price in a short time). Retailers already drop new full price games temporarily to boost sales.
If prices were fixed lower however, sales would decline to current levels and piracy would return to current levels. I think it's the price volatility that is boosting sales NOT the lower price on its own.
I totally agree with that statement. What better way to motivate people to buy something than to make them think they're saving money? Food retailers adopt this approach all the time e.g. 3 for 2, money off coupons, etc.
Personally, I doubt reducing prices would have any serious impact on piracy levels. I remember in the days of 'Crash' we would happily copy the free cassette on the front for a mate, and that cost next to nothing!
possibly, but I think that it's more likely that people would buy more games. No one is saying cut prices in hald, but £30 would see a lot more impulse purchases. How many times have you looked at a game and gone 'Looks good, but I'm not sure at £40."
People would definitely buy more games. They would be far more willing to sacrifice £15-20 and save themselves the hassle of Bitlording it, finding it doesn't work, BitLording it again, searching for a crack, effing around with a virtual drive etc etc. I've never experienced these things myself of course, it's what I hear and it sounds well worth a bit of money to avoid. And of course you get the familiar, excited feeling while opening your brand new game...
I agree with this. Of course some people are so "dedicated" to piracy that anything over free isn't going to stop them. But I think a lot of people are casual pirates, downloading some titles because they're not sure they want to buy it, or can only afford some of the games on the radar, feel it's more convienient, too impatient to wait for the official release date, etc.. But at some point it becomes a value proposition, where if the game is only $20 to $35 instead of $50, it seems like a better choice, and more affordable. Less hassle with downloading a poorly seeded rar file only to find out it's not the real thing or a virus or a rar file is corrupted, dealing with convulted cracks, and sometimes further issues, like how most pirated versions of Valve games don't get access to dedicated servers and can't play most mods.
In Portugal a game costs 70 Euros (that's more then $90 ouch).
I order all my games from the Internet and I pay half the price.
For me the magic price would be around 30 Euros. That's a resonable price for a computer game.
70 Euros?! Are you kidding me?
Yeah, Italy prices are shocking too. 429 euros for a PS3! 69 euros for one game. Even Wii games come in at around 49 euros! No wonder gaming hasn't taken off in Italy.
Mirrors Edge was one to recently benifit from a huge price cut, however I've no idea what this translated to in actual cash value for EA.
I've thought for a long time that lower price points would result in higher revenues, but it's difficult to prove - you need someone to do it, and then tell everyone.
Not the most flattering picture I've seen of Gabe.
Well, they did crop the picture to not show the huge pile of money Gabe sleeps on!
l'm so glad that some one's finally speaking truth it's time big organisation stopped ripping off!
There's nothing noble about it. They're doing it to try and maximise their own profits by finding a price/sales sweetspot. Though if the end result is cheaper games, who's to argue?
Thank goodness for Valve. Unfortunately, most game execs remind me of the old-school music industry execs who seem hell-bent on messing everything up to the best of their abilities.
There are a few promising signs and competing pressures though, primarily in the PC space, with the huge increase in free (ad or premium item based) games to drive down costs which prove that the exisiting economic model for the game industry is not helping anyone.
In the console space, I'm surprised developers/publishers haven't banded together to set up specs/SDK's/Standard features for an industry-standard console which any third-party hardware manufacture can build and have certified - thus cutting out the royalties from the big three and driving down game prices by at least $10 per game - and establishing upfront the lifecycle of each console to allow for better planning.
Sounds like a good idea, but wouldn't it kill hardware innovation eventually affect software innovation?
Of course, this is all pie-in-the-sky type stuff, but I'd envision they would have a subsidized group that would have people not just from the software, but also the hardware side of the business, providing input for future product releases so it would incorporate the best and most cost effective alternatives out there (thus encouraging innovation from competing hardware firms to have their solution selected). There would also be nothing stopping companies from still releasing their own closed console system as we have today. I know this will likely never happen, but it's fun to think about sometimes.
meanwhile from the other side, development costs are too much as well it seems;
http://www.slate.com/id/2210732/
The industry has been pricing its products incorrectly for a long time. The majority of game players are children, students and young adults and £30 approx for a single game is a major purchase; the result is that games are either loaned or pirated. I think a cheaper price would stimulate sales; even if the profit remains the same for charging more for the same game, they would win out with offering DLC. Now, I also think most DLC is overpriced. There are some games out there (mentioning no names) where buying the DLC can add up to more than the retail cost of the game in the first place. Treat players fairly and they will (mostly) play fairly.
Gabe just might be right. Consider that films ship on blu-ray at about half the price of games and dvds sell at around a quarter or less. Fair enough, games have no box office revenue but they do have a much longer lasting appeal. This might just be the flaming torch that the games industry need to burn second-hand games market down dead. If games come down to a similar price range to films then it's not going to be worth trading things in for a discount. Imagine Gears of War 3 released at £10/$15?
Could it actually be that the games industry may realise that the key to stopping illegal downloads is to make games cheaper? $25 for Left 4 Dead is an amazing price (and only makes me wish that I have a PC good enough to run it), It would be really intesting to see if the amount of leechers on Left 4 Dead torrents decreased during the sale week. If a direct corrolation could be made then this could be the beginnings of the end for the piracy saga.
Games are overpriced? Well that's a surprise! Discounted games shift more units; wow another surprise!
Note heavy sarcasm!!
Good article though to back up what most of us already knew.
But an industry which runs on numbers needs numbers to prove things that the people on the ground can already see. This is something the industry may have known, but figures like this don't come around all that often.
of course, it could be just the 'on-sale' psychology. people would buy piss in a bucket if they sold it half off.
Well let's hope it's not - then we can see a fall in games prices across the board. Would be nice.
Very interesting.