The Video Game Industry and its Economics

I kept thinking it's time we made something like this. Many folks tend to have these discussions in their relevent threads or make new ones, but I figures it might be best to attempt to condense it a little.

As such, we have a few to talk about:

One with highlights from an actual Nintendo investor

An article summarizing Activision-Blizzard's call

EA's official press release for their financials

Anymore I'm missing?

My bad.

edited 21st Aug '14 4:07:06 PM by VeryMelon

Despite the non-economics necro (seriously, a show lineup has almost nothing to do with this subject), I'll be happy to talk economics of the industry with anyone who wants to.

edited 21st Aug '14 4:05:10 PM by TotemicHero

I don't know economics at all, and certainly not of this industry, so . . .

Are companies justified in charging sixty bucks for a brand new game or are they gouging us? You see it on the game browsers like Steam as well as the physical stores, which is odd because the physical copies ought to cost more, what with the C Ds (though those only cost 3 cents give or take) and the packaging, plus the shelf space that has to be paid for. And yet, the nonphysical copies of a lot of games still cost that sixty unless they're on sale.

If I recall, the actual cost of the physical disc and the packaging it comes in is pretty cheap, as in a few dollars. So while physical copies ought to be slighly more expensive than their digital counterparts, the difference isn't that big, so they can get away with charging the same price for both.

On a side note, this is also why many indie games are digital only. For example, $3 is only 5% of $60 (typical price of a AAA title these days), it's 30% of $10. Really hurts the profit margins there.

As for whether charging that much is gouging, it's yes and no. Development costs of AAA game titles have indeed skyrocketed. A AAA game title usually involves several hundred developers/programmers/testers/managers/etc., and all of them have to get paid. Then factor in software costs (many games involve licensing a game engine from another company, which is typically expensive), and you've got a recipe for high prices.

That said, there is always pressure from stockholders of the big companies to maximize profit margins above all else. How much so varies from company to company, and these things tend to come in cycles as the companies succeed or fail relative to each other. I really don't have the info to chart all that, but it does happen.

So if you want to know if a company is gouging you, look at the game in question and their recent business history. I think you'll find the results of that research interesting, to say the least.

Another thing that causes the price of games to skyrocket is the shipping costs. Here in Guam they tend to typically add a few dollars extra to the price tag of a game unless it's gonna be one of those sure-fire smash hit which'll make up for the slightly smaller profit margin. In other cases such as Australia, you'll see games priced at over $80 USD all because of a dumb sin tax or odd legal issue.