Pandarbock
09-07-2005, 12:57 PM
I know this has been covered here before but here is a nice read from many of the developers themselves on the pricing of next gen software.
http://www.next-gen.biz/index.php?option=com_content&task=view&id=970&Itemid=2
While consumers have become used to paying $50 or less for CD-based and DVD-based games, Microsoft?s Xbox 360 games are being listed for $60 at online retail outlets.
Recent years have seen publishers like Midway Games, Microsoft, Atari and Electronic Arts succeed with $55 and $60 special collector?s editions of console games like Mortal Kombat: Deception, Halo 2, Dragon Ball 3: Budokai and Madden NFL 2005; but those were limited runs. Consumers still had the option of purchasing $50 games.
Coupled with the higher entry cost of the Xbox 360 hardware, those early adopters who delve into next generation consoling this fall will have to spend more money on games. We talked to leaders in the game business about what impact these higher software prices might have on game sales and on the price of PlayStation 3 and Revolution games in 2006.
PUBLISHERS
Scott A. Steinberg
Vice President of Marketing
Sega of America
The $60 price point will highlight to every gamer that Xbox360 games are much more sophisticated and different when compared with titles from the existing generations. The consumer value found in Sega's titles, Condemned: Criminal Origins and Full Auto, will be there - visually and from the standpoint of building experiences that are beyond anything seen on today's systems.
The next gen world is considerably more complex - and prices for titles that deliver on pushing this complexity will definitely reflect that. We couldn't deliver the type of consumer experiences we're delivering in Full Auto as an example, on an existing machine.
Hardcore gamers probably remember that $59 retail price points are not that unusual. Going back to N64 and as far back as the 16-bit generation - there were cartridge based games, some with battery back up that routinely cost $59. Those price points were to cover the larger cost of goods - in the next gen world it's to afford better artificial intelligence and technology, which I believe delivers better value to the consumer.
Miguel Iribarren
Vice President, Publishing
Midway Games
We believe demand for Xbox 360 products will be very strong and a $60 price point will not have a material impact on demand for these games. Early demand for new videogame systems was exceptionally robust in the last two console cycles and hardware manufacturers during these launch periods struggled to create enough product for early adopters. The better question is probably not whether a $60 price point will be accepted by early adopters (it will) but rather when does the price point need to come down from $60 to $50; this will happen at some point in the next cycle as mass-market consumers become the dominant market force.
We believe videogame consumers will view the new consoles and their software products as a separate market from the existing videogame systems and their products. We expect consumers to see the increased functionality, graphics and overall gaming experience of the new systems as an upgrade to current systems and be willing to pay more for this improved experience. Average pricing for games on the current hardware systems will continue to decline as more budget titles are introduced and sales of greatest hits and platinum hits games become a larger percentage of the overall market.
Actually, there is a history of gamers paying $60 for games ? if you go back to the Nintendo 64 days, many of those frontline titles retailed for $60 and consumers were more than willing to buy them, when they were good games. It all comes down to the quality of the experience and whether or not the specific game priced at $60 is considered an incrementally ?better? experience than what the consumer is currently getting on today?s systems. From what we have planned for our games for the next generation of consoles, we believe consumers will recognize this added value and be willing to pay for it.
Bill Gardner
President
Eidos
At first I think we will see that gamers will pay to play, but this will be for those games that provide an advanced experience in graphics, features and design. Remember, we will be selling to the early adopters who want to have the latest and greatest. However, if the games fail to deliver, the consumers will speak with their pocketbooks.
I would suspect that other next generation software will also try for this higher price point. Costs are escalating everywhere and we have tried to maintain that $50 cap for quite a long time. The cost of building new games is going up.
We depend on our consumers to buy the games, in order for us to create new experiences. If they balk, and do not purchase, everyone will get hurt in some way.
Lorne Lanning
President and Creative Director
Oddworld Inhabitants
The first million?ish early adaptors will begrudgingly pay the price, but it will be a challenge to convince the larger audience to start paying more for games. Which will be fine for the rental business, but bad for publishers and developers.
The hardware prices proposed for launch are already high and if compounded with higher priced games? they had better knock the socks off people, or else market penetration will be slow.
Gamers are accustomed to watching prices drop quickly, so unless the games are must-have-awesome, they?ll rent first then buy later when the prices drop.
Dave Perry
President
Shiny Entertainment
The price of games is a major concern for developers. The videogame business is an impulse-buy business. You can argue it's not, because hard-core gamers plan months in advance what they want to buy, but that's just not true with the vast majority of gamers. These people just want to have fun and if it's gonna hammer their wallet, they'll end up renting instead. They buy based on what interests them, what movie or property they love, what's getting buzz. So that's my prediction... We inflate prices, we grow the 'rental' business. I can see Blockbuster and Gamefly cheering us on! "Go for $80 a game!!!"
The thing we need to remember is that our market is growing rapidly. In the old days, if hardware sold a million units, we used to gasp. In 25 years, Sony alone hasa raised that number 100 fold. So the big question is... Is it over yet? Can the growth continue? Can the videogame industry endlessly keep expanding? Is the saying true that "No Tree Ever Reaches the Sky?" The answer is, "We're not even close yet!"... For many, many reasons.
When games have reached into all major massively populated countries, when they are everywhere (in your cell phone, hotel room, airplane seat, PDA, desktop, console, media devices), when the mass media treats the passion of gamers with the same respect as the passion of music lovers / movie watchers / book readers, when we have reached our life cycle (in 20 more years) when all key decision makers will likely have grown up playing videogames, when games get true global acceptance as a form of entertainment, then I think we finally stand a chance of reaching the true potential of the gaming market.
With larger audiences, the costs of games can come down. So if our industry balances this equation, hopefully we will grow our market faster than we need to grow our prices.
Otherwise, Blockbuster will be expanding their videogame shelves even more, as they enjoy our negligent miscalculation.
So watch our industry closely, you will see interesting partnerships form in the coming months that's sole intention is to grow our audience. You can bet the console manufactures will support this initiative as they chart their course to 200 million units of a single gaming console. It's truly an exciting time.
Brian Dreyer
Vice President Business Development
Climax Group
At this point I think all gamers understand that the next-gen consoles will be a leap-forward experience, since we haven't seen new hardware for four plus years. Most gamers understand the razor-and-blade business model, and by now expect that the high profile hardware has to be paid for by the games.
Publishers and developers are also blazing into new territory, from a technology perspective. That is, there are new tools, more code, more people, more development time that all add up to higher cost to the end product. I believe that one of the impacts to this will be that the rental business, such as GameFly, Blockbuster, etc. will go through the roof, and that's great for publishers and developers such as Climax Group.
Early adoptors gladly pay a premium to be the first kid on the block and so what's another 10 bucks? If the hardware launch numbers are soft, I see some bundling of titles with a console purchase in late winter/spring, but that depends on the numbers vs. Microsoft's manufacturing capabilities. Same situation with Sony. Both will be touting capabilities of the PS3, while positioning the extra $10 as a bargain.
There is no such thing as a market cap but certainly gamers are accustom to the $50 price tag. I think that lower and modest/middle income households will struggle with this one and likely wait for the first or second price decrease. We've seen what this next-generation hardware can deliver and there's clearly a solid argument for an additional $10. The real issue here is game title pipeline. How many 360 titles will truly be available at launch and what's the next eight-month release schedule look like? I see no pricing issues at launch.
Mark Long
CEO
Zombie Studios
I think players will buy less games, but not just because of a price hike. The general trend of the industry is less games, but with higher production values.
Sony will almost certainly follow Microsoft's pricing strategy. Sony needs the revenue - Sony's net profits fell 98% from the same period last year. PS2 sales are off 42%. But that could all change if the PS3 is a hit. And I'm sure it will be.
Some players will balk. But console games don't all cost $50. Prices drop below $40 pretty quickly. There's a whole value segment priced at $19 to $9 now. And used games regularly knock 50% to 75% off the retail price. The same will be true for the next gen titles.
Craig Allen
CEO
Spark Unlimited
I think the price is going to be supported by our core consumers.
Historically we have had higher pricing back in the cartridge days (remember the $70 SNES games?) and pricing dropped as a part of the money saved by using CD pressing instead of memory chips.
Further, in a blockbuster world, the value is going to be there and there's not going to be as many titles to choose from, so why not charge more for the more limited supply of purchasing options?
Don Daglow
CEO
Stormfront Studios
I believe early adopters will pay premium prices, but as a consumer I wonder if mass market consumers will.
There's a long history of the major platform makers mimicking each others' price points unless the market is not responding to the first mover.
The only history I can turn to is back in the 80's, when big games with lots of disks sold for over $50... more like $80 or $90, allowing for inflation. But they acknowledged they were niche products selling scope. Of course, adjusted for inflation the $35 Atari and Intellivision carts of 1982 cost almost $80 each in today's dollars.
Michael Pachter
Director of Equity Research
Wedbush Morgan
Consumers won't care. They understand that the games cost more to develop, and inflation is inevitable. It is actually surprising that game prices haven't risen in the last ten years.
All next gen software will be $60 for front line, $50 for more mass market (think cars).
The extra $10 is necessary. R&D costs are going up by $7 to $10 per unit, and someone has to pay for it. The publishers aren't charities, and consumers will recognize that. They won't balk.
John Taylor
Videogame analyst
Arcadia Research
Remember a Zelda game that retailed for $74.99 for SNES years ago? That is still the high-water mark in my mind. You can't talk about price in a vacuum. The discussion has to include quality or desirability. In the first month of launch, the premium Madden SKU made up more than 25% of total Madden PS2 units sold. Other premium SKUs have done well, particularly at launch. So, in the current gen with PS2 dominant, there is a healthy list of successful games at $59.99. If there is a time when gamers are price insensitive it is early in a cycle, especially if the games are differentiated and the hardware difficult to acquire because of supply constraints.
Leading publishers, especially Activision and EA, are anxious to keep pricing high for as long as possible to recoup escalating development costs against a small early cycle installed base. How would have thought that premium priced games would be most popular in year 5 of the PS2 generation? I would expect AAA games to command a premium for several years.
Keith Boesky
President
Boesky & Company
I understand the price rise, but believe it is a mistake. Look how many $75 video tape films sold compared to $20 DVDs. Rather than looking at ways to extract additional revenue from our most important consumers, we should look at ways to expand the market.
http://www.next-gen.biz/index.php?option=com_content&task=view&id=970&Itemid=2
While consumers have become used to paying $50 or less for CD-based and DVD-based games, Microsoft?s Xbox 360 games are being listed for $60 at online retail outlets.
Recent years have seen publishers like Midway Games, Microsoft, Atari and Electronic Arts succeed with $55 and $60 special collector?s editions of console games like Mortal Kombat: Deception, Halo 2, Dragon Ball 3: Budokai and Madden NFL 2005; but those were limited runs. Consumers still had the option of purchasing $50 games.
Coupled with the higher entry cost of the Xbox 360 hardware, those early adopters who delve into next generation consoling this fall will have to spend more money on games. We talked to leaders in the game business about what impact these higher software prices might have on game sales and on the price of PlayStation 3 and Revolution games in 2006.
PUBLISHERS
Scott A. Steinberg
Vice President of Marketing
Sega of America
The $60 price point will highlight to every gamer that Xbox360 games are much more sophisticated and different when compared with titles from the existing generations. The consumer value found in Sega's titles, Condemned: Criminal Origins and Full Auto, will be there - visually and from the standpoint of building experiences that are beyond anything seen on today's systems.
The next gen world is considerably more complex - and prices for titles that deliver on pushing this complexity will definitely reflect that. We couldn't deliver the type of consumer experiences we're delivering in Full Auto as an example, on an existing machine.
Hardcore gamers probably remember that $59 retail price points are not that unusual. Going back to N64 and as far back as the 16-bit generation - there were cartridge based games, some with battery back up that routinely cost $59. Those price points were to cover the larger cost of goods - in the next gen world it's to afford better artificial intelligence and technology, which I believe delivers better value to the consumer.
Miguel Iribarren
Vice President, Publishing
Midway Games
We believe demand for Xbox 360 products will be very strong and a $60 price point will not have a material impact on demand for these games. Early demand for new videogame systems was exceptionally robust in the last two console cycles and hardware manufacturers during these launch periods struggled to create enough product for early adopters. The better question is probably not whether a $60 price point will be accepted by early adopters (it will) but rather when does the price point need to come down from $60 to $50; this will happen at some point in the next cycle as mass-market consumers become the dominant market force.
We believe videogame consumers will view the new consoles and their software products as a separate market from the existing videogame systems and their products. We expect consumers to see the increased functionality, graphics and overall gaming experience of the new systems as an upgrade to current systems and be willing to pay more for this improved experience. Average pricing for games on the current hardware systems will continue to decline as more budget titles are introduced and sales of greatest hits and platinum hits games become a larger percentage of the overall market.
Actually, there is a history of gamers paying $60 for games ? if you go back to the Nintendo 64 days, many of those frontline titles retailed for $60 and consumers were more than willing to buy them, when they were good games. It all comes down to the quality of the experience and whether or not the specific game priced at $60 is considered an incrementally ?better? experience than what the consumer is currently getting on today?s systems. From what we have planned for our games for the next generation of consoles, we believe consumers will recognize this added value and be willing to pay for it.
Bill Gardner
President
Eidos
At first I think we will see that gamers will pay to play, but this will be for those games that provide an advanced experience in graphics, features and design. Remember, we will be selling to the early adopters who want to have the latest and greatest. However, if the games fail to deliver, the consumers will speak with their pocketbooks.
I would suspect that other next generation software will also try for this higher price point. Costs are escalating everywhere and we have tried to maintain that $50 cap for quite a long time. The cost of building new games is going up.
We depend on our consumers to buy the games, in order for us to create new experiences. If they balk, and do not purchase, everyone will get hurt in some way.
Lorne Lanning
President and Creative Director
Oddworld Inhabitants
The first million?ish early adaptors will begrudgingly pay the price, but it will be a challenge to convince the larger audience to start paying more for games. Which will be fine for the rental business, but bad for publishers and developers.
The hardware prices proposed for launch are already high and if compounded with higher priced games? they had better knock the socks off people, or else market penetration will be slow.
Gamers are accustomed to watching prices drop quickly, so unless the games are must-have-awesome, they?ll rent first then buy later when the prices drop.
Dave Perry
President
Shiny Entertainment
The price of games is a major concern for developers. The videogame business is an impulse-buy business. You can argue it's not, because hard-core gamers plan months in advance what they want to buy, but that's just not true with the vast majority of gamers. These people just want to have fun and if it's gonna hammer their wallet, they'll end up renting instead. They buy based on what interests them, what movie or property they love, what's getting buzz. So that's my prediction... We inflate prices, we grow the 'rental' business. I can see Blockbuster and Gamefly cheering us on! "Go for $80 a game!!!"
The thing we need to remember is that our market is growing rapidly. In the old days, if hardware sold a million units, we used to gasp. In 25 years, Sony alone hasa raised that number 100 fold. So the big question is... Is it over yet? Can the growth continue? Can the videogame industry endlessly keep expanding? Is the saying true that "No Tree Ever Reaches the Sky?" The answer is, "We're not even close yet!"... For many, many reasons.
When games have reached into all major massively populated countries, when they are everywhere (in your cell phone, hotel room, airplane seat, PDA, desktop, console, media devices), when the mass media treats the passion of gamers with the same respect as the passion of music lovers / movie watchers / book readers, when we have reached our life cycle (in 20 more years) when all key decision makers will likely have grown up playing videogames, when games get true global acceptance as a form of entertainment, then I think we finally stand a chance of reaching the true potential of the gaming market.
With larger audiences, the costs of games can come down. So if our industry balances this equation, hopefully we will grow our market faster than we need to grow our prices.
Otherwise, Blockbuster will be expanding their videogame shelves even more, as they enjoy our negligent miscalculation.
So watch our industry closely, you will see interesting partnerships form in the coming months that's sole intention is to grow our audience. You can bet the console manufactures will support this initiative as they chart their course to 200 million units of a single gaming console. It's truly an exciting time.
Brian Dreyer
Vice President Business Development
Climax Group
At this point I think all gamers understand that the next-gen consoles will be a leap-forward experience, since we haven't seen new hardware for four plus years. Most gamers understand the razor-and-blade business model, and by now expect that the high profile hardware has to be paid for by the games.
Publishers and developers are also blazing into new territory, from a technology perspective. That is, there are new tools, more code, more people, more development time that all add up to higher cost to the end product. I believe that one of the impacts to this will be that the rental business, such as GameFly, Blockbuster, etc. will go through the roof, and that's great for publishers and developers such as Climax Group.
Early adoptors gladly pay a premium to be the first kid on the block and so what's another 10 bucks? If the hardware launch numbers are soft, I see some bundling of titles with a console purchase in late winter/spring, but that depends on the numbers vs. Microsoft's manufacturing capabilities. Same situation with Sony. Both will be touting capabilities of the PS3, while positioning the extra $10 as a bargain.
There is no such thing as a market cap but certainly gamers are accustom to the $50 price tag. I think that lower and modest/middle income households will struggle with this one and likely wait for the first or second price decrease. We've seen what this next-generation hardware can deliver and there's clearly a solid argument for an additional $10. The real issue here is game title pipeline. How many 360 titles will truly be available at launch and what's the next eight-month release schedule look like? I see no pricing issues at launch.
Mark Long
CEO
Zombie Studios
I think players will buy less games, but not just because of a price hike. The general trend of the industry is less games, but with higher production values.
Sony will almost certainly follow Microsoft's pricing strategy. Sony needs the revenue - Sony's net profits fell 98% from the same period last year. PS2 sales are off 42%. But that could all change if the PS3 is a hit. And I'm sure it will be.
Some players will balk. But console games don't all cost $50. Prices drop below $40 pretty quickly. There's a whole value segment priced at $19 to $9 now. And used games regularly knock 50% to 75% off the retail price. The same will be true for the next gen titles.
Craig Allen
CEO
Spark Unlimited
I think the price is going to be supported by our core consumers.
Historically we have had higher pricing back in the cartridge days (remember the $70 SNES games?) and pricing dropped as a part of the money saved by using CD pressing instead of memory chips.
Further, in a blockbuster world, the value is going to be there and there's not going to be as many titles to choose from, so why not charge more for the more limited supply of purchasing options?
Don Daglow
CEO
Stormfront Studios
I believe early adopters will pay premium prices, but as a consumer I wonder if mass market consumers will.
There's a long history of the major platform makers mimicking each others' price points unless the market is not responding to the first mover.
The only history I can turn to is back in the 80's, when big games with lots of disks sold for over $50... more like $80 or $90, allowing for inflation. But they acknowledged they were niche products selling scope. Of course, adjusted for inflation the $35 Atari and Intellivision carts of 1982 cost almost $80 each in today's dollars.
Michael Pachter
Director of Equity Research
Wedbush Morgan
Consumers won't care. They understand that the games cost more to develop, and inflation is inevitable. It is actually surprising that game prices haven't risen in the last ten years.
All next gen software will be $60 for front line, $50 for more mass market (think cars).
The extra $10 is necessary. R&D costs are going up by $7 to $10 per unit, and someone has to pay for it. The publishers aren't charities, and consumers will recognize that. They won't balk.
John Taylor
Videogame analyst
Arcadia Research
Remember a Zelda game that retailed for $74.99 for SNES years ago? That is still the high-water mark in my mind. You can't talk about price in a vacuum. The discussion has to include quality or desirability. In the first month of launch, the premium Madden SKU made up more than 25% of total Madden PS2 units sold. Other premium SKUs have done well, particularly at launch. So, in the current gen with PS2 dominant, there is a healthy list of successful games at $59.99. If there is a time when gamers are price insensitive it is early in a cycle, especially if the games are differentiated and the hardware difficult to acquire because of supply constraints.
Leading publishers, especially Activision and EA, are anxious to keep pricing high for as long as possible to recoup escalating development costs against a small early cycle installed base. How would have thought that premium priced games would be most popular in year 5 of the PS2 generation? I would expect AAA games to command a premium for several years.
Keith Boesky
President
Boesky & Company
I understand the price rise, but believe it is a mistake. Look how many $75 video tape films sold compared to $20 DVDs. Rather than looking at ways to extract additional revenue from our most important consumers, we should look at ways to expand the market.