Can Console Games Compete with 'Free'?

Time to Spend ...

The Nielsen Company released a report showing that the average person in America watches almost five hours of TV a day.  As a game developer and a family man who is active in my community, I barely get five free minutes a day, so that number is pretty stunning.  My first reaction was, "With five hours a day, I could really crank through some of the games I've been meaning to play!" 

People with hours of free time are potential game buyers.  Imagine: millions of people, finishing a console game a week!  How would that affect our sales as an industry?  It would be an incredible boost

 ... But Not the Cash

My second reaction was, "Wait... I can't afford multiple games a month!"

We won't convert millions of people into video game buyers when new games are $60 a pop.  The average person just doesn't have a budget for games: they are one-time expenditures, and disposable ones at that.  Cable TV, however, is practically a given in many homes, a line item in their household budget.  And when a cost is "hidden and assumed", it becomes a commodity.  It no longer factors into day-to-day purchasing decisions.

If someone is trying to decide whether to spend all their free time watching TV shows, or spending some of that playing a new game, they are also doing a price comparison.  We've established that watching new TV shows is effectively "free."  But playing a new game costs money.  Guess which option is going to lose much of the time?  (yes, even in a good economy)

Now, I hear you in the back, shouting about "entertainment value for the dollar".  Sit down.  For one thing,  I don't know of a single person who evaluates a game purchase decision with that criteria.  They might justify it later, as with an MMO fee, but -- then again -- that's a service.  Most folks don't even finish single player games, so it's clear they are not always getting the same "time per dollar" ratio that's spinning in your head.

For another thing, new console games are also competing with:

Many alternatives have a cost basis of close to zero.  All of them are cheaper.  And don't forget the future: video games coming to you straight from the cloud.  If you think about the history of entertainment, elaborate physical mechanisms eventually dissolve and leave nothing but the data.  Kind of makes you stop and think, doesn't it?

Sometimes It Works

So, numbers from the phenomenal launch of Modern Warfare 2 are out, and they are huge.  What does that tell us?  Sometimes, people are happy to pay full price.  It's the same with many sports games.  But why is that the case?

The games that sell well at a high price point are gateways to a shared experience, to a community.  That is critical.  If it's in the mainstream, then everyone is talking about it.  If it's online, everybody is playing it.  And that really only happens if the game is a sequel (Halo 3, Grand Theft Auto 4, Resident Evil 5, Call of Duty 6 (Modern Warfare 2!)) or a game with "heritage" (Mario, Gears of War, BioShock).
 
Usually It Fails

The sales gulf between those AAA titles and new IPs that match their production quality (AA?) is enormous.  It's measured in the millions, when selling a million copies is itself a milestone.  I believe the reason is simple: new IP is a risk for consumers.  Why would they spend $60 on a game they may not like?  It's better for them to rent it or buy it used, at a lower price.

See for yourself: go find a list of Xbox 360 games.  How many games make you want to immediately open your wallet and take that gamble?  Not every console game gets the time and budget that true AAA titles receive, and yet they are priced the same way.  This overcomes the purchase impulse.  Soon the title has more life in the cheaper second-hand market, and stops making money for the publisher.

Some games escape this vortex.  Assassin's Creed hit out of the gate.  Then again, God of War didn't even break into the top 10 the year it was released, and it came out in March.  But it established a brand, and met with long-term success.  Now, it's almost unthinkable that its second sequel won't be a major hit.

The bottom line is, there are still far more failures that success stories.  As an industry, we have to be more agile than that.

Micro Economics: Still Useful

When supply and demand are out of alignment, the next step is to change the price.  This fundamental (and still true!) concept continues to elude publishers, as a rule.  However, there are two important, well-documented exceptions.

Left 4 Dead achieved modest sales success when it was released.  Then it went on sale for 50% of its regular price on Steam, and sales increased 3000%.  (that is not a typo)  Now, it's a given that digital games on the PC have little to no cost compared to packaged console games.  But that's invisible to the consumer.  What's tangible is the sensation of purchase resistance crumbling to the onslaught of demand.

Altering the price can work the other way, too.  When Bobby Kotick announced the $5 premium on Modern Warfare 2, he and Activision got a lot of negative press, but it reflected an understanding of the market.  Demand far exceeded supply.  Months later, it is clear: millions of people didn't mind the extra "tax" on buying into the franchise.

So why isn't this tested in reverse?  Why don't new IPs start with a lower price point to attract more sales?  I know there are fixed costs involved, including paying the platform holder, but perhaps that needs to be adjustable as well.  If anticipated titles get a tax, original titles need a discount.  Activision is rightly crowing about Modern Warfare 2, but how's that DJ Hero coming along?

We Need More Data On Sales

More pricing experiments are needed to fully explore the possibilities.  Looking forward, I see Darksiders and Bayonetta as excellent samples: both are targeted towards a traditional demographic, have large amounts of polish, and are not competing with any franchises in that space.  But at full price, are they going to do well?

I hope so. I'd like to buy both.  But at $60 a pop, it's not going to happen.  I just don't know if it's worth the risk.

"We believe these declines represent a current video game economy that is driven by promotions, discounts, or temporary sales." [ Casual Bubble Deflating Game Industry ]

That's Jesse Divnich, of Electronic Entertainment Design and Research, discussing how sales are trending downwards in the current economy.

"Celine Dion is beating every game we've ever made." 

That's Chris Hecker, speaking about the Mass Market Myth.  His point is that, by metrics other than revenue, only a handful of games -- ever -- have achieved true mainstream success.

Apart, they are damning comments about the challenge our industry faces.  Together, they should form a new idea: the key to our continued financial viability is lowering prices to increase sales, and further penetrate the broader market.

I dare not speak of the alternative.