Analyst Jesse Divnich said in a new report the number of Xbox 360 and PS3 games with initial MSRPs equaling less than $59.99 has increased 66 percent over last year, although the entire quantity of games increased by only 44 percent. The median price for Wii games dropped to $39.99 in 2008 compared to $49.99 in 2007.
"In other words, pricing is beginning to come down," said Divnich.
There are a few reasons for the increasing presence of lower-priced game software, according to Divnich: For one, development costs are beginning to come down as game companies have become more comfortable with current hardware, and game engines are able to be repurposed instead of created from scratch. Companies then find themselves with a bit more breathing room in terms of pricing.
Also, there is increasingly fierce competition within very limited retail space. "This fixed amount of space is well below the quantity of new games released in the market. Every new release has to compete with all previously released titles," Divnich stated. Along the same lines, big "triple-A" titles like Halo and Grand Theft Auto have a long shelf life, making the shelf-grab even more competitive.
So how have some game makers coped with competition? They've lowered their prices.
Earlier this week, analyst Todd Greenwald with Signal Hill declared that the $59.99 price point will hold in 2009. But he also said the demise of that price point is "the biggest risk facing all publishers" and that an across-the-board slashing of the current pricing would be "devastating for margins."
Divnich assures he is not "suggesting that the standard or premium price points ($59.99/$49.99) will dissolve anytime soon--premium games will always warrant a premium price. In fact, we recommend that publishers continue to experiment with game title pricing, as a clear lesson from the seventh generation of games has been that consumers are willing to pay just about any price for a game that can provide value equal or greater than its purchase cost."
The willingness for a value-conscious consumer to spend more than standard price points can be seen in the popularity of collectors editions and software/peripheral bundles such as Rock Band and Guitar Hero which can cost considerably more than $49.99 or $59.99.
Divnich continues to say that the weight of declining prices "is not heavy enough to reflect on the current trend in pricing." However, he adds, "We believe this will likely change. As the Xbox 360 and the PS3 hardware continue to decline in price, more non-traditional, casual, family, and price sensitive gamers (noting these demographics sometimes overlap) will likely adopt these systems which will increase the demand for cheaper titles.
"In fact, if we look at upcoming releases in February and March, the average initial MSRP for games on the Xbox 360 is $53, much lower than the average initial MSRP."
Divnich says publishers will have to be particularly careful about communicating value their their games. "One of the many lessons learned from the 2008 holiday season is that large marketing budgets and/or large development costs do not necessarily equate in the customer’s mind to premium price points on retail shelves."