• 08.07.09

Why Games Are So Expensive, and Staying That Way

Recent earnings reports from Sony and Nintendo prove that the video game industry is not recession proof. So why do games still cost so much money?

The gaming industry is no longer recession proof. Sony’s sales for the quarter are down 37% from the year before, Nintendo’s sales are down 40%. Overall, game sales are down 41% compared to June of last year. “The impact of the economy is clearly reflected in the sales numbers,” said NPD analyst Anita Frazier. But if game companies are having trouble selling the volume of titles they’d like, then why aren’t they adjusting prices to increase sales? Lets take a look at the who, and why.

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Who: Nintendo

What: Nintendo is also hitting up the public with plastic peripherals, pushing Wii Fit Plus ($90 with the Balance Board) and the Wii Motion Plus unit for more accurate controls in certain games–$20 each, which adds up with 4-player games.

Why: The mainstream public, not just gamers, have gone gaga over the Wii and its motion controls–and are willing to pay to keep that love affair going, migrating from the Wii, to Wii Fit, to now the Wii Motion Plus and the coming Wii Fit Plus. Wii Sports Resort, sequel to the original Wii Sports that was packed with the console, was recently released with a single Motion Plus unit included. This package sold over 500,000 copies in the first eight days of release.

Who: Microsoft

What: Gaming-news site Kotaku showed that the average price of Xbox Live Arcade Games had increased 31% since October 2006, from 550 points ($6.87) to 725 points ($9.06).

Why: As Shane Kim, the VP of Strategy for Microsoft’s Interactive Entertainment division told me, “Subscriptions from Xbox Live are an important part of our business model. We are also driving a very significant volume of digital transactions.” Since digital downloads do not have packaging or physical media, the cost from them is much less, thus increasing profit margins.

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And so, perhaps counter intuitively, game companies price high to help them survive the recession, and not to making the dilemma of spending less money on a choice of the many holiday games any easier for the gaming public. “Operating profits in this industry are very thin, with companies like EA eking out a 10% profit on sales. They simply cannot afford to discount drastically in order to drive sales higher, as their profit margin would evaporate,” said Pachter. With unemployment expected to hit double digits by the end of the year, further encouraging frugality, we’ll have to see if the game companies’ use of high prices to offset depressed sales ultimately pays off.

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About the author

His work has also been published by Kill Screen, Tom's Guide, Tech Times, MTV Geek, GameSpot, Gamasutra, Laptop Mag, Co.Create, and Co.Labs. Focusing on the creativity and business of gaming, he is always up for a good interview or an intriguing feature.