Mass Effect 3 has obviously been a very, very controversial release. Some very aggressive DLC on EA’s behalf has turned what should have been a game of the year event into a game tainted by a massive community uproar.
But what I’ve observed through all this is an overriding sense of community entitlement, and very little understanding of the real reason that has led to these aggressive DLC models that publishers – beyond just EA and Mass Effect 3 – have adopted.
Contrary to popular belief, games are not “expensive” on the publisher’s side of things. The margins involved in game development are actually very, very low. The reason a lot of developers have gone out of business, and the reason that retailers such as GAME are on death’s door, is that no one is actually making much money from these things. Development costs are very high, and developers are competing against themselves, effectively, when a second hand game is cheaper than a new game. Publishers and developers don’t get money from second hand games.
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Retailers, meanwhile, are really, really lucky if they get 25 per cent margin on the sale of games at full RRP. Because retailers are under immense pressure on price, and because a game rarely lasts longer than a week at full RRP, retailers don’t get much margin on those sales at all. Unfortunately they have to drop the prices, because a) the competition has, and b) consumers have been taught to believe that sales are good. This creates a self-fulfilling downward spiral that sucks a whole lot of money out of the industry. People who buy a second hand game and then a couple of Cokes, rather than a full priced game, are taking money out of the gaming industry and giving it to Coca-Cola instead.
So, once you dig under the surface, this is actually a very risky industry to be involved in; low margin, little room for differentiation (one FPS franchise goes south, ten rise up to fill the void). Ask any business consultant or financial analyst what they think of that kind of business model. Couple that with the fact that those game publishers and developers with shareholders are ethically and legally required to turn profits, and then couple that with the fact that fans expect each new game in a popular series to be “bigger and better” (and therefore cost more to make) then you’ve got an industry looking for ways to actually make money.
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Enter DLC – it’s a relatively cheap thing for a developer to create, thereby guaranteeing the publisher and developer a better margin for the overall product. But why do they do this? Because (and I know there are people that are going to react bitterly when they read this) consumers, as a general group of people, object to supporting the games they like.
The reason the second hand market is such a problem, and the reason that prices on retail games get slashed so quickly, is because gamers, as a broad demographic, simply do not like spending full retail price for games. In a sense, this makes them rather irresponsible, as a core tenant of the very idea of capitalism is that consumers exchange a fair payment for goods or services provided. I would argue it is not “fair payment” to put companies on the brink of bankruptcy when they provide some very popular games (THQ is a good example there).
Am I defending the idea of aggressive DLC policies? No. I believe that Mass Effect 3 has a very poor DLC policy. As a consumer I am not going to buy that game, as is my right. I, however, do believe that we all need to better understand why publishers do what they do. It’s not “greed,” as I often see people accuse game companies of. I can’t think of a single gaming company out there turning over profits that justify the label of “greedy.” It’s not that they really want to milk their faithful gamers. It’s simply that they have few other options, since blockbuster games are massively expensive projects, and if they don’t make a fair return for the investment from somewhere (and the people that buy second hand, on discount, or even pirate the game aren’t going to provide that), then we will get no more games.
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In a utopia, there would be no second hand market, and prices for games would remain at the RRP for a longer period of time. Believe it or not, it would also be better if fewer people bought games, but they bought them at the proper price, because that would give developers and publishers a more accurate prediction for game sales when preparing for a big release.
Oh and, when we have a healthy industry with more publishers making fair profits for their investments? We’ll get more new IP investment, and more risky, innovative games. That sounds good to me, for sure!
So now I’ll open up the comments to everyone – what do you think on this issue? Do you believe that consumers have a responsibility in the capitalist ecosystem we call the gaming industry? Sound out below!
I'll be the first to admit that I rarely buy games as full MSRP. I buy a lot online and I wait for sales. I can afford to do that, and I do that because I can buy more games for the same price I'd pay for less. Is this irresponsible? Perhaps that could be argued, but I do not have a full-time job yet, and often I discover these games are NOT worth $60, so I do not feel guilt. Games that successfully hype me WILL be bought at that price and right away, but this is rare for me.
What a crappy cheerleading article. It's all our fault for not wanting to pay 120$ to game companies so we deserve this "100 ways to ripoff and alienate our clients" BS?! Why is it only 100% profit companies like EA do it, and not companies like valve? This kind of blind propaganda discredits game journalism, not that it's very hard to do.
I appreciate the opinion here, and in a way it's correct – basic supply and demand. But there are two things that are unique to this specific industry, that differ from all other entertainment:
1) Insistence that every single retail release start at $59.99, regardless of budget, quality, length of game, or reputation. Medal of Honor, a 5 hour single player with mediocre multiplayer ships at the same price as Skyrim, hundreds of hours of play. I'm sure people would have been happy to pay $70 for Mass Effect 3, since the quality and length warrant the price, IF they would be able to get smaller games or unproven IP's for cheaper upon release to make up for it. Maybe you are unsure of Binary Domain, but would like to try it. Since it is less of a blockbuster, the price should reflect as such.2) Gaming is inherently more social, and some interaction depends on a certain number of participants. If you watch a movie with 3 friends today, it will be the same movie and same experience if you watch it by yourself 5 years from now. Games get cheaper over time not just because of economic principles, but if it has multiplayer, the experience is cheapened as time goes on. A 5 year old game that has no one playing multiplayer anymore is worth much less now than the day it came out. Ironically, by shoehorning multi into everything these days, publishers have accidentally cheapened their products. Some companies like valve have extended game-life well beyond what it naturally should be. You can see evidence of this by looking at the player counts in Team Fortress 2. A 6 year old game, still going strong, and in fact, a BETTER experience than it was when it came out. ME 3's multi is very fun for now, but I will definitely tire of it soon if it is not updated with some frequency, and for free. If game experiences GREW over time dynamically for free, you would see sales throughout its cycle at the same price point, since the experience down the road would be better than the current one. Everyone wins – early adopters got to experience the game for extra time. new customers don't worry about a price drop, since they know that the experience will only get better.I just really hope we can avoid the awful piece-mealing of content that ME 2 saw. This would be a way to let everyone have all the content and keep devs making money continuously, rather than in chunks.
First, in response to the article title, don't buy it (money talks). If you think a company or specific game title is trying to take advantage of you in a way you feel is unethical, don't buy it and don't play it. EA is infamous for grinding consumer confidence to dust, and this latest controversy with Mass Effect 3 is just one more footnote in a long list of what i feel is unethical business practices. There's a right and a wrong way to do DLC, and Mass Effect did it wrong in my opinion, which is why I will not be purchasing or playing this game.
Blaming gamers for failing game developers is just asinine. Game developers fail for lots of reasons, few of them having to do with those 'evil stingy gamers' waiting for sales or pre-owned games, as this article suggests. If the game is fun and innovative, it usually fails because of bad marketing. Huge titles releasing sequel after sequel often suffer from lack of character depth, failure to implement fun and innovative game mechanics, or are just unfit for purpose (bugs, glitches, lack of support). I often purchased new games on release at full price, and end up feeling cheated because the game was either so bugged it was barely playable, or it just got boring and repetitive after a couple hours of gameplay.
Maybe in our sluggish economy, $60 is not a suitable release price. Maybe they'd be better off selling the games at $40 and making it up in volume because people can actually afford it. Games are a luxury expense, of course it's a gamble making them. If game developers are failing, they're doing something wrong.
Hi Rio,
Thanks for dropping by – great input!
To address your first point (the second is a good one, well said!), though: quality and length isn't necessarily a reflection of development cost and time. Call of Duty might not last as long as Skyrim (in the single player, anyway), but it was at least as expensive to produce. Price is set based on the cost to make a game, not to play it.
And that's how it works with plenty of other industries: for the most part, publishing runs across a few standard price points. A trip to the cinema is set, whether it's an 80 minute comedy or a 3 hour epic. Music tracks are set prices on iTunes, whether it's Britney Spears or a quality artist.
There are lower price points for budget and indie games out there, both on digital distribution and on retail shelves. Those prices are budget because the production costs were lower.
physical content sales are an outmoded concept, digital copies are a vastly superior service and lower production costs. Gamestop and GAME are dinosaurs and they have no one to blame but themselves for not jumping on the digital distribution bandwagon when they had a chance.
Hi Sensible Gamer,
Not sure how much of the article you read, but there's a couple of points I need to address: 1) for games to be fun an innovative, developers and publishers need to be in healthy financial states. That is, in part, a responsibility of the consumer. Capitalism, or business in general doesn't work when it's a one-way producer to consumer give-and-take mentality. It only works when the consumers also understand that they have a responsibility to hand over fair compensation in return. Otherwise it's an unsustainable business model and there can be no investment in R & D, new IPs and the like.
Now, it may be that that means the gaming industry simply doesn't deserve to be sustainable. That's fine, but consumers then need to readjust their expectations from the industry accordingly. You can't have your cake and eat it too, to use the old saying.
2) Half my article was explaining just why that $40 price point, rather than the $60, is a bad idea. But to explain it using a bit of number crunching:
Let's assume for a minute that there's a 25 per cent margin involved in a game sale for the publisher and developer, at full RRP. That's a very generous margin, but this is a hypothetical. That means, on a $60 price point, a publisher and developer makes $15 per sale. Drop the price to $40 and they LOSE $5 per sale. See the problem? That's oversimplifying the model, but when you're losing money, it really doesn't matter if you sell an additional million copies of a game.
There is of course a way around this: if developers and publishers slash their budgets and focus on making cheaper games, then it will become possible to sell games at $40. If they focus on the digital distribution market, then they can sell games at $40. But you sure as heck won't be getting games like Skyrim, Mass Effect 3 and Call of Duty if that happens.
Thanks for taking the time out to comment! I hope this clarifies some things for you 🙂
Squiggy. No need to be nasty. I think you'll find a much more pleasant discussion if you can discuss things pleasantly.
To answer your question – Valve is not as reliant on sales of its own games through retail. Valve has Steam, and Steam is a major service. When a product type becomes overly commoditised (and gaming is now commoditised), the companies that are able to find ways to offer services around that product are the ones that feel the pinch less hard. Steam being a service provides Valve with the kinds of revenue that mean it doesn't need the margin on its game sales so much.
It's the same reason hardware is sold at a loss: Sony, Microsoft and Nintendo don't necessarily need to turn a profit on hardware sales because the licensing to third parties and their own software sales more than make up that negative margin.
Should Origin take off, and should Call of Duty Elite remain popular, I think you'll find, longer term, a far less aggressive approach to DLC by both EA and Activision.
Hi Objection,
Heck, everyone does that. This is a theoretical thought piece, and it's not going to happen, naturally. I've bought games on sale. I'll never buy second hand games, but I have paid for DLC.
Ideally we would all only buy the games we thought were worth buying at full RRP, and nothing else. That would result in the perfect balance between developers and publishers understanding what to provide (because otherwise no one would buy their content), and consumers getting innovative games from highly liquid providers.
But that's a little like saying Communism is better than Capitalism. It's an ideal, nothing more. 🙂
Preaching to the choir on that point, Caboose – that's why you're at Digitally Downloaded 😉
Should Origin take off, and should Call of Duty Elite remain popular,
I think you'll find, longer term, a far less aggressive approach to DLC
by both EA and Activision.
Wow nice assumption there. Great journalism. 10/10.
This vendetta against buying used games is really starting to piss me off, developers had their opportunity to have part of this pie and they were caught napping for years. Meanwhile Game, GameStop and several other companies have capitalised on this open market (as much as I disliked their behaviour it was ripe for the taking).
Second-hand games are a great thing, it allows increasingly cash strapped consumers to play some games they'd otherwise not get the chance to play. Is this a bad thing for the developers? Hell no, I personally picked up Final Fantasy VII from a car-boot sale. I enjoyed it so much that I went and bought Final Fantasy 8, 9 and 10 when they were released, essentially giving Square money that they may not have received otherwise.
You don't see book publishers bitching and whining about libraries or the film industry moaning about second hand dvds/blurays. Why are game developers so special that they must be protected from the evil that is second hand stuff? To me it points to some serious problems within the industry, not the consumer base. I fail to see how the companies pumping out 'AAA' titles that sell in the millions, aren't turning over a reasonable amount of profit already. Perhaps some fat needs trimming, I don't know.
DLC doesn't have to be a bad thing (day 1 DLC is always going to be met with disdain), take Fallout 3 or Borderlands for example. They added new levels, textures, models, the whole nine yards. Allowing the consumer to extend their experience if they wish to do so, whilst simultaneously re-invigorating the sales of the initial game. A new character for $10 doesn't really cut it, it's just not good value for money.
Consumers are NEVER under any obligation to support any industry. Especially one where there are many substitute and inferior goods they can use as replacements. Entertainment has always been this way. There are many, many competing goods in the entertainment industry.
There is a very big difference between publishers and developers. You have been referring to them as one group. Some publishers treat the video game industry like the movie industry. That is a big problem for the industry.
You're economics are a bit off. You're asking consumers to buy at any price point. THEY WILL NOT DO THIS. If they will buy 1 video game a month at $50 and 2 video games a month at $40 they will buy 0 at $60. And while that is a very simple model, that's where the industry is right now. They will buy 0 games a month at $60. If EA lowered it's sales price quantity sold WOULD go up (all things being equal).
I'm sorry but the second hand market is not the problem. Piracy is not the problem. Every entertainment industry has to deal with these things. If they're not taking that into account when they make this stuff, they are failing at business. Look at books, you have libraries where you can just go and get the things for free. Book publishers take that into account. The gaming industry and the RIAA haven't caught on to the fact that this is the way it's going to be from now on. They are fighting tooth and nail to stop it, but it is too late, there is no going back.
The problem is people don't want what they're selling at the price they're selling at. One of the beauties of capitalism is that nothing is owed anyone. You exchange money for a service. If either side doesn't think that's a fair transaction then neither is obligated to exchange.
Guess what, it's not the consumer hurting, so the manufacturer has to adjust. There are plenty of examples of companies doing it right.
Something is out of whack at EA and Bioware, lately every time things go wrong for them they try to place the blame solely on the consumer and that is starting to hurt them, a lot. Good riddance I say, let the old die and make room for the new. Except what's going to happen is Bioware is going to pay the lions share of the price, not EA. But that's what happens when you sell your soul.
Thanks for the input! I don't necessarily agree, but very well said 🙂
I'd just like to make a clarification for you: Book publishers do get paid royalties for books in libraries (in Australia, at least, and I doubt we're exclusive in that).
Much of the problem in the games industry is that the second hand games are often literally placed side by side with the new copy of the game, and games retailers are incentivised to sell the second hand copy over the new copy. I've never seen a music shop sell new and used music/ movies side by side, or a bookstore have half the shelf space dedicated to second hand books.
There's a tension there that is unique to the games industry, and believe it or not, what isn't good for the game developers isn't good for the game players.
Hi APacifici,
Thanks for your input!
A couple of things in response to you 🙂
You are correct that nothing is owed by anyone to anyone. That works both ways though; a company's only responsibility is not to the consumer, it's to the shareholders. Now, if a company fails to give the consumers something they want to buy, the shareholders are going to be get pretty pissed off, but that's why consumers have a lot of power; in not buying something, they are literally voting against a company.
As I said in my article; I don't support EA's DLC policy in this case, so I'm not buying Mass Effect 3.
As for my economics, they are not off. You're making the mistaken assumption that quantity sold is the only measure of success for a product. That's incorrect. Profitabilty is what's important. Ten consumers buying a game at $40 at a margin of $1 is not preferable to one consumer buying a game at $60 for a margin of $15. The former is a profit of $10. The latter is a profit of $15.
The real problem is that games are so expensive to make now that they need those ten consumers to be handing over a margin of $15 to see the kinds of returns that the game needs to be judged a commercial success.
Don't get me wrong I dislike the Game/Gamespot model, no one likes getting £5 for their used games to see the shop sell it for £25. I understand that they have to make a profit, but such margins are hard to swallow. I also don't like the way they shove the second hand copies in your face when you try to buy the new copy, simply because they stand to make more money out of the transaction.
However, this has been going on for years. If it was such a big deal to developers why didn't they do something about it? Steam is one solution, I'm surprised there aren't more platforms like this. Origin is far too late to the foray and rife with controversy.
Things like multi-player passes, limiting installs and day 1 dlc/pre-order bonuses are another solution, not ideal ones though as they actively punish the consumer for doing nothing wrong. It's a shame that the industry has chosen this latter path.
PS most libraries do this, however compared to the money made from selling books it's usually trivial.
I agree with you there; I don't think the response from the developers or publishers has been appropriate. Doing things that consumers who are willing to pay full retail price consider to be "punishing" them is not appropriate.
The problem the publishers have faced is, until really recently, they've needed those retailers to hit their numbers. Now that digital download platforms are more prevalent, publishers seem to be less and less interested in working with retailers.
It would have been as simple as the publishers and retailers worked out an arrangement where the publishers would receieve a small stipend for every second hand game they own the rights to that was sold. It's rather tragic that never happened, but retailers would never give up the kinds of margins they get on second hand sales to create a more harmonious industry.
A company's responsibility is to its stakeholders.
"As for my economics …"
You are correct here, but that is not what you implied in your article. You are upset because people are buying for less elsewhere. That is a quantity sold problem. If the publisher charged less they would get that sale instead of losing it to someone who IS charging less (competing/inferior good). Again, it is not the consumers responsibility, it is the manufacturer/distributor's responsibility to take that into consideration when producing/distributing a good.
Ask Zynga or Popcap how expensive commercially successful games are to make. You are wrong when you say that is the issue.
I apologise if I didn't make my point clear enough. I'm not upset at all, for one thing; this was meant to be a piece that generated discussion, that's all.
Zynga and PopCap are not good examples in the context of this discussion. Those guys make cheap games cheaply. It's stating the obvious, but Farmville does not have the production values of Call of Duty or Mass Effect 3. I'm talking about the big blockbuster games with this piece, which is a different world to what the innovative little guys are doing.
And in that world, once again, the margins are too thin to simply drop the price and compete against the used copies. To drop the price of a blockbuster game by the amount you suggest would be utterly unsustainable to blockbuster games. Perhaps there isn't the market for those, but that would be, in some ways, a pity.
I go to a lot of retailer conventions, and it's a common thread; "how do we move people away from the "sale" mentality?" Sales are not healthy. They're necessary because people have been trained over the years to expect them, but sales by very definition squeeze margins. When the initial RRP is set at a point where the margin is healthy, squeezing margins by default becomes unhealthy.
The margin issue is a tricky one, and simply dropping prices and upping sales won't fix that at all.
I'm not sure you could even enforce such a sharing of profits made on second hand copies. Whilst many games are 'licensed' for use by the consumers, most courts will take the view that the game has been sold to the consumer. (At least in the UK, US and probably by extension the EU).
The difference is key as a licensed product gives little to no recourse for reselling, whilst a sold product entitles the purchaser to resell his or her product. Hence when resold to a retailer it lawfully becomes theirs, meaning legally the developers/publishers would have no right to such a slice of the profit'.
>They've needed those retailers to hit their numbers. Never a good position to be in, but it provokes the same question. Why did they not do more about it? Being reliant on another business, especially one that eats so much into your profits is bad business.
Retailers are definitely on the way out, a failure to keep up with the industry as it moved to digital distribution. Hopefully this signals the end of the player punishing measures to stifle the second hand market.
Yeah, the licensing vs product side of the debate is an interesting one.
I'm not entirely sure why games are still sold as products. If you buy into enterprise software (say, Microsoft Word), you're buying a license, or if you're downloading games, that's also a license. Retail games are one of the very few types of software that are still not categorically sold as licenses.
But you're right, they are sold as products and as such the publisher has no legal grounds to demand compensation for resale.
Of course. If there isn't an open exchange of ideas, then nothing would get achieved. 🙂
My philosophy (and it is philosophy. As with most other forms of philosophy, business philosophy and the realities of our world are often slightly off skew from one another) has always been that highly profitable developers and publishers = happy consumers.
I'm merely doing my big to raise awareness for how consumers can help in a positive manner an industry I am (obviously) a big fan of. I've got a business background, and yeah, I like corporations. It's not so much an anti-consumer twist, as much as recognising that EA, Activision, Square Enix and all the other corporations do actually want to provide consumers with entertainment, but at the moment they've being hampered by things that (AFAIK) are unnecessary.
'Tis cool that you don't agree with me – I do very much appreciate the civil and well-considered counter argument. This little debate has given me plenty to think about 🙂
You know, I did fail to think about other digital distribution, like iTunes. For some reason I was thinking more like physical book releases, where a proven author gets good shelf space and usually a big pricey hardcover. You're ok with taking the plunge because you know from experience it will be good, or at the very least you trust them. I shudder to say that budget=quality, because obviously that's way over generalizing it but I would say that budget tends to equate to technical quality. You may not like call of duty, but it's pretty hard to argue that it's not a "well-made" game. Britney Spears sucks, but the production of her music and stage shows are high quality, thus reflecting the large budgets behind them. Interestingly, even if games all start at $59.99, prices tend to fluctuate very quickly to what they "should" be, and IDK if that's just based on Sup&Dem, or a natural progression. For example, I remember when L4D2 came out, it started at $60 but VERY quickly dropped to $40 (like within 2-3 weeks). This reflected what it probably should have been priced at. It was an improvement over the first, but still a bit short on the amount of content it had. It's kinda hard to articulate what I'm trying to say, haha, I'm not sure if it's clear. Games should be priced according to what you can expect to get out of them, not just a catch-all number. In that case, bigger budgets usually will get bigger price points anyway because the amount of content reflects it.
Thanks for liking my second point 🙂 I also forgot to reiterate that this is the ONLY industry that is able to update it's content like that, and it's rarely taken advantage of in a meaningful way. CD's never change. Movies never change. Games are becoming less and less of a product and more of a service, and if it's going to have be to be like that, I'd want my $60 to be an entry fee for a subscription of content. It's the non-standardization and unknown nature of DLC that keeps people from buying Day 1 ("Gee, will this be boxed with all expansions a year from now? If I drop $60 now, will I be charged more down the line or should I just wait?"). I'd be more than happy paying $70 day 1 if A) I knew the price will stay relatively the same and B) I know that in one year, the game will be much better than it is now. If you can get people to trust that system, then that, my friend, is the solution for going all digital.
Even if they did sell physical copies as licenses to play, they would be torn apart in any court. Digital copies are where it gets a little more complex, they are still protected under the Sale of Goods Act i.e. the consumer is entitled to a refund if they believe the product is not as advertised or not fit for purpose (ie buggy etc).
However, with selling and buying second hand the digital model is still largely unwritten. Note that in most cases law trumps EULAs and other sale agreements, especially if they specify that the user forgoes certain laws or rights.
Notably Steam doesn't usually offer refunds, however, Consumer Protection (Distance Selling) Regulations overrule this in the UK.
We're getting further from the topic of the article and I am pleased to see that you're open to discourse. My main problem with the article was its skew towards the developers/publishers and the uncompromising anti-consumer twist. The developers/publishers are the ones that need to shoulder the burden of this responsibility not the consumers.
This article talks about the visible effects of the economic rule I was trying to talk about. As price goes down sales go up. As price goes up sales go down. It doesn't tend to be a one for one exchange.
http://penny-arcade.com/report/editorial-article/how-valve-devalued-video-games-and-why-thats-good-news-for-developers-and-p