People often complain that games are getting too expensive, arguing that $60 is a lot to pay for a game. But are such complaints justified? If you think about how many hours of entertainment you get out of video games, that 60 dollar price tag doesn’t seem too bad. For example, you pay 10 dollars to watch a 1.5hr movie. Any decent $60 AAA game provides you with at least 15 to 20 hours of gameplay. That’s way more value for your dollar compared to other mediums of entertainment, and we aren’t even talking about multiplayer which opens a whole new world of possibilities. If you look back at game prices during the 90s, things were actually a lot more expensive. Back then, an NES game would cost you $50 on average. Accounting for inflation, that amounts to over 90 dollars in today’s money! Back in 1998, people were buying $70 Nintendo 64 game cartridges. Things settled down a bit with 6th gen consoles, and $50 was the standard price for a PS2 game. When 7th generation consoles came around (starting with the Xbox 360), game prices rose to $60 on average for a AAA title. This was accepted at the time, because of the huge jump in graphics technology from 6th to 7th gen consoles. But since then, that $60 pricing model has remained in the industry. Even today, a AAA game will cost you $60 (before deluxe editions and DLCs).
So, why do new AAA games have a baseline price of $60? This price is set by the publisher, as a starting point to keep the playing ground even with other competitors. Not only is 60 dollars a nice sweet spot that guarantees a substantial cut for the publisher, but charging anymore will discourage customers from purchasing your game. Retailers who try to undercut other stores by selling at a cheaper price on launch day will fall out of favor with the publisher, and not receive future games.
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How Is The 60 Dollars Split?
It’s quite hard to release accurate numbers on this one since every publisher and studio typically keeps its mouth shut and doesn’t reveal detailed revenue data to the public. But there’s this article published in the Los Angeles Times, using data from Steve Perlman of OnLive (now defunct on-demand video game service). And even though it’s all the way back from 2010, it would be safe to assume that margins haven’t changed drastically. So, where do the 60 dollars go? The largest chunk is delivered to the publisher- $27. These publishers are companies like EA, Activision, and 2K. They cover development, PR, and marketing costs for game studios such as Infinity Ward, Sledgehammer Games, Treyarch, DICE, Bioware, Rockstar, etc.
Next up, are the retailers like GameStop and Target who get $15 out of the $60 pie. These days, a lot of the game sales are done digitally via online storefronts such as Steam and Origin. But if you’re selling on a 3rd party store like Steam, they will take a percentage of the cut. Steam has a tiered system- 30% of sales revenue by default, but if your game brings in over 10 million dollars you get to keep an additional 5%. EPIC is a little more developer friendly in that regard since it lets you keep 88% of sales revenue (they even cover engine royalty if you use Unreal). Moving on, we have licensing fees for console manufacturers such as Nintendo, Sony, and Microsoft- that’s $7 out of $60. Making the disks, packaging, and shipping takes up $4. And finally, $7 is reserved for returns on unsold inventory. You might have noticed that we didn’t mention game developer fees anywhere in this segment, which sounds weird because they are the ones who develop the games. Well, game developers are paid by publishers, so their costs are covered. And remember that these are average estimates, publishers will often negotiate with stores and console manufacturers to lower licensing fees, retail costs, etc.
Should AAA Games Cost $60 Anymore | Why Production Costs Are Skyrocketing
Video games these days aren’t just interactive experiences, but spectacles similar in scale to blockbuster Hollywood movies like Avengers. And in terms of revenue, video games are beating both the movie and the music industry. GTA V released in 2013 and collected a whopping $800 million within the first 14 hours. It took Avengers Endgame 5 days to cross the $1 billion dollar line in the global box office, GTA V did it in 3 days. As of November 2019, it had sold 115 million copies worldwide and earned the title of “most profitable entertainment product of all time”. Not just in the video game industry, but in entertainment as a whole. No book, movie, or music album has made as much money as GTA V alone- over $6 billion in revenue. But all this comes at a cost. A VERY BIG cost as you’re about to see. Estimates for GTA V’s development costs put it around $137 million. And marketing alone cost $128 million, taking net production cost up to $265 million. Clearly, it costs a ton of money to make a AAA game. Companies are always pushing the limits of technology by making each game more realistic and immersive than the last. More detailed textures, better lighting, accurate models, giant interactive worlds- all that stuff takes time, and a lot of hard-working developers. Hundreds of developers work for years to make something that people across the world will love.
But did we even ask for any of this? Most gamers prefer solid gameplay and fun over pretty visuals. It is evident when you look at the most played games in the world- League of Legends, CS GO, Dota 2, Fortnite. None of these are graphically demanding and will run on a PC from over 5 years ago without much trouble. There’s a reason mobile games are so popular- they are easy to pick up, addictive, and super convenient. But AAA games these days are trying too hard to be like movies, and that shows in the way they push graphics and hire celebrities for marketing. Creating new engines from scratch for each game, animating each individual strand of hair, creating expensive cloth and water physics- all this stuff eats into development time. This time could instead be used on designing better gameplay and social features. Besides, do you really want to see late-night talk show hosts and movie stars promoting your game? It costs millions of dollars to hire someone like Brad Pitt or Mark Hamill to do voice acting for your single-player campaign. Do we really need rappers, Instagram stars, and actors trying to sell us games through live-action commercials? The publishers choose to incur these massive marketing costs upon themselves. For instance, Call of Duty: Modern Warfare 2 cost $50 million to develop. That’s a lot of money. But wait, it cost even more to market- 150 million spent on marketing alone. Destiny is rumored to have cost nearly $500 million, out of which development costs are supposed to be “only” $140 million. The rest is spent on marketing, PR, royalties, etc.
Is The AAA Business Model Sustainable?
Destiny made $500 million on release day alone. And they didn’t make all that money from box sales alone. The base game maybe $59.99, but add in deluxe editions, collectors editions, preorders, etc. and you find that the average sale brings in quite a bit more than 60 bucks on launch day. Then you have all the loot boxes and microtransactions, introduced on October 13, 2015. Before that, the game made money solely through initial purchase (box sales) and DLC. Basically, you’re paying a “shell price” with your 60 dollars when you purchase a modern AAA game that relies on the live service business model. EA’s Battlefield franchise, Activision’s Call of Duty, Bethesda’s Fallout 76- all these games drip feed you content over the period of months, gradually chipping away at your wallet. You want the full experience with every map, weapon, class, and skin the game has to offer? Be prepared to pay well over the 60 dollars introductory price tag. And then there’s the season passes, coupled with seasonal events that have exclusive cosmetic skins.
Do Microtransactions And Loot boxes Belong In $60 AAA Games?
Should game developers focus on delivering a bug- free, complete, satisfactory experience for your 60 dollars instead of relying on DLC and expansion packs? Is it even financially viable to pursue such a model if you’re not an established game studio with a well known IP? There simply is no upper limit or ceiling to how much you can make from microtransactions, which is why AAA publishers love it so much. It is sad to see a model that originated in f2p mobile games get adopted by the AAA games industry. Would they stop including loot boxes and microtransactions if you paid 80 or even 100 dollars upfront for the game? Sadly, no- it has been proven time and again that these companies make more money from microtransactions than they do from box sales. Yep, the in-game monetization actually brings in more money than people buying 60 dollar game copies. And we all know how much money f2p games like Fortnite and PUBG mobile make, despite being “free”. They actually make more money than 60 dollar AAA games!
The truth is that publicly traded giants like EA and Activision aren’t looking out for the player. Instead, their loyalty lies with the shareholders. And each year, the revenue has to be higher than last year. No matter what shady tactics they have to employ. The whole loot box fiasco with EA’s Star Wars Battlefront caused new anti-gambling laws to be passed in countries like Belgium and the Netherlands. Things got to the point where even US senators were campaigning by promising to shut down loot boxes and microtransactions in games. You see, it isn’t just about making a profit. It’s about taking ALL the money. PS4 exclusives like God of War, Spiderman, etc. have proven that you can make a very successful premium AAA game without microtransactions and loot boxes. The Witcher 3 set an example for AAA devs back in 2015, when it sold really well despite having no launch day DLC or predatory microtransactions. Consumer backlash has caused companies to backpedal on their predatory tactics. The latest Battlefield game placed a huge emphasis on “no loot boxes and map packs” during its launch event. Call of Duty Modern Warfare abandoned loot boxes, in favor of battle passes.
The Rise Of Indie Gaming
Recently, indie gaming has undergone a renaissance of sorts- a lot of the most popular games on Steam are from lesser-known studios, and they don’t focus on things like graphics or marketing. Instead, they try to deliver a unique gameplay experience with creative artwork. They do so much more with so little resources. And they are fun too, to the point that people talk about them all the time on forums and Youtube whenever the greed of AAA publishers is brought up. Stardew Valley, Cuphead, Super Meat Boy, The Binding of Isaac, and many other games have proven that you don’t need ginormous production budgets and massive publishers to create a fun experience that everybody loves. Photorealistic visuals aren’t as important as some publishers think. Unrestrained by publishers, smaller studios have the creative freedom and passion to create something truly unique.
Discounts And Waiting For Game Prices To Fall
People wait for a massive Steam Sale to purchase the 60 dollar game of last year for 20 dollars today. Often, you don’t even have to wait 12 months, since a game might go on sale within weeks after its release owing to poor initial sales numbers. Just look at Fallout 76, Battlefield V, and Wolfenstein II: The New Colossus. Is the wait worth it? How much money can you save by employing this strategy of patience? Also, most bugs and glitches within the game will have been fixed by the time it’s discounted. So not only do you pay less than launch day buyers, but you also get an objectively better experience.
Inflation and ballooning production costs should have driven up the price of games beyond 60 dollars. But most people forget to consider the fact that the number of people playing games has also risen significantly. The game-playing audience is much larger, and having a 60 dollar base price ensures a lower point of entry for people. You can actually increase profits by keeping the price steady. Game publishers place a ton of emphasis on localization and accessibility, they also spend tens of millions on marketing alone. TV ads, banners on the road, celebrity promotion campaigns, tie-ins with other franchises- all of these contribute to increased production costs. We didn’t spend this much money on marketing back in the PS3 and Xbox 360 days. And launch day DLC wasn’t as prevalent back then. Most people still purchased games on disks, and rolling out post-launch content updates was a lot harder. So while production budgets have gone up significantly, the potential for earning revenue has increased even more thanks to loot boxes, microtransactions, DLC, season passes, etc. Combine all this with the increased gamer population, and you can see why the video game industry is making more money than ever before. It has surpassed movies and music long ago and is the next big thing in entertainment. Fortnite, PUBG, etc. are shaping modern pop culture. Even non-gamers have heard names like Tomb Raider and Grand Theft Auto.