Why the Online Pass is a Good Thing For the Video Game Industry - Demon Ragnarok Blog - www.GameInformer.com
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Why the Online Pass is a Good Thing For the Video Game Industry

In May 1980 Pacman was released to the world. The original arcade version would go on to sell 350,000 units, which by today's sales standards is fairly weak. However, this game had a development  cost of only $100,000.  This means that depending upon how much the actually production cost was, in relation with the retail price point, this game made an absolute killing.

Today, however, there is no way to develop a major game for that same price tag. In fact the average video game cost $15 million in development. This is not surprising, considering in Pacman's day, you could have a very small development team of programmers and artists and create a game for $100,000 in a couple of months.. But today, You need a much larger development team, with an average of 2 years to create a playable experience.

Now keep in mind, that the $15 million is merely the average. It doesn't truly convey how much a game can cost these days. For example, in 1997, Squaresoft released Final Fantasy 7. The years of development on the game brought the production costs up to $45 million dollars, 3 times the average of today's games. Then you have Grand Theft Auto 4. This game had a reported $100 million production cost. Who would have thought that in 28 years (GTA IV was released in 2008), we would see the production cost of the best selling titles go from $100,000 to $100,000,000? That is an increase of %100,000.

Just think about that for a second.

Now think about this: in order to make their money back, they had to sell approximately 2 million copies at the initial retail value of $60. That is more than Mass Effect 2, Heavy Rain, Red Faction: Guerrilla, Splinter Cell: Double Agent (across multiple platforms) have sold. All of these games received a 9+ from GI. Pretty amazing to think about what it takes to cover that cost.

Think about the fact that they have to try to market a game (unless if it is the shovelware on the Wii). This can cost quite a bit depending upon the marketing plan. Now consider the online networks, which must be maintained in order for the online portion of the game to be successful. Not to mention, when a company has several different servers available for online play, they must expand their infrastructure, or kill off the online play of some of their titles. You soon realize that the video game industry is growing into a problem.

For instance take into account that for the average production cost, a game would need to sell a minimum of 250,000 copies. If anyone looked at my spreadsheet under my strictly by the numbers blog, you would know there are several games that never manage to sell that many. Or even if they do manage to, they barely make a enough of a profit to expand their operations to try something greater.

At $15 million, you figure they need to make $30 million (500,000 copies) to be financially safe with a title. This allows them to pay their debts from the initial game, while also being able to afford to work on a new title, but of course they would like to make more to be able to work on a AAA title.

Now think about this: Alan Wake, for as much buzz as it had created hasn't managed to sell 400,000 worldwide in 3 weeks, and it was well over 4 years in development. This just goes to show that no game is a safe bet.

In the past few years, there have been developers and publishers going under more than I can remember. And let's face it, no company out there wants to be next. So, you can expect to see companies start to scratch for more money. But where do they get it from?

There seems to be 2 options at this point, the used game market, or the DLC market. The DLC market is only an option for extremely successful titles such as Modern Warfare 2. They know there is a diehard fanbase that will buy whatever they're selling, so they can raise the price on their DLC, because they may complain about it, but in the end fans will fork over the money. But like I said, a lesser title is not going to be able to use this as a strategy because people don't like to pay more when something bigger (not necessarily better) is out there.

So, we come to the used game market. Plenty of people have complaints with how Gamestop does business; whether it be because of poor service or because they don't provide store credit near what a game is worth. I would like to focus on the second reason, because I think it is a key factor in why the video game industry seems to want to move in on the used game market.

I have seen where new titles have been traded in to Gamestop for anywhere from 50%-66% of the games worth, only to be sold again at near retail price.  The amount of profit that stores like Gamestop is incredible, but not a dime of it is shared with the industry that provides the product it sells. Keep in mind that Gamestop manages nearly $200 million in pure profit per year while there are some developers and publishers (the ones that provide Gamestop its products) closing their doors due to lack of funds.

I am with everyone when I say that it sucks that the video game industry is pretty much having to strong arms their way into taking some money way from that market, but all Gamestop would needed to do was set aside a percentage of what they make off their used games and send it back to the companies that made the game. Instead of $200 million, you now only make $150 million in profit.

Instead, it has come to this. Two major industries battling it out for money, while we are caught in the middle. One fighting for profit, while the other is fighting for life and expansion in what is becoming an increasingly expensive industry to operate within.

So which side are you on?

 

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