Sunday, January 1, 2012

Where do prices of video-games come from, and why are they important?

It seems as though the price tag of video-games has always been criticized as being too high. Now that we live in a world where iPhone Apps are available for $1 or even $FREE, a $40 video-game seems outrageous in comparison to many people. Perhaps $40 for a 3DS game is outrageous, but what surprises me is when people scoff at the cost of $5 and $10 Nintendo eShop games. Really? Now even $5 or $10 is too much for a game?

Where do prices of video-games come from, and why are they important? From my perspective as a developer, and now a publisher on the Nintendo eShop – aw yeah! – the price that my games are being sold at have a distinct importance to me and my business. Take Mutant Mudds, for example. Let’s say the development of Mutant Mudds cost a grand total $100,000 for all of the expenses involved with the creation of the game, such as team salaries, equipment, etc. This number is not real, but $100,000 is a nice round number that is not outside the realm of reality. Games can easily cost much more or less than this. Beyond our goal of entertaining people with our games, we also have the simple goal of making enough money to continue operating as a business so we can make more games.

If Mutant Mudds cost $100,000 to make, we need to make $100,000 back to break-even, right? That at least puts us in a good place where we don’t owe anyone any money. However, we must also make money beyond that if we are going to be able to move beyond Mutant Mudds and make more games. Let’s imagine we sell Mutant Mudds for $40 and our cut of that is 50% (that percentage is fabricated, but it works nicely for this example). So, we make $20 for each game sold. Nice! That means we have to sell 5000 copies of the game to make our initial investment of $100,000 back. That is a very manageable goal…

… however, the reality is that we can’t sell Mutant Mudds for $40, for many reasons. OK, so let’s go to the other end of the spectrum and price it at $1 with our cut still being 50%. Oh wow, we would need to sell 200,000 copies to make our $100,000 back. Hm, that might be a tricky goal to achieve. Time for some perspective: our best selling DS game has sold around 100,000 copies worldwide. Based on how the average original non-licensed game sells on the DS market, 100,000 copies is a big success. On a side note, we saw no profits from this title due to the broken business model of retail – but that’s a different story. OK, back on topic. Based on historical sales data, it’s probably best to assume the game will sell around 30,000 copies – tops – in its lifetime. It could certainly be a lot less, or a lot more. That’s the roll the dice.

OK, so our expectations are 30,000 copies sold in its lifetime. Alright, let’s work from that number then instead. To break even we will need to receive basically $3.34 per copy sold (30,000 x $3.34 = $100,200). That would mean that we need to sell the game for $6.68 to make our initial investment back, with our cut at 50%. OK, let’s go crazy and sell it for a whopping $10 now, with our cut still at 50%. Here’s the math: 30,000 x $5 = $150,000. Hm, not bad at all! We make our initial investment of $100,000 back and have $50,000 towards the next game. Considering Mutant Mudds cost a fictional $100,000 to make, having $50,000 to make the next game means we either need to make a game that requires less team members, less time, less features, or we need to get some more money from somewhere else to make something that is the same scope as Mutant Mudds.

And there lies the chaos of game development. In my opinion, iPhone games have a greater chance of selling closer to 200,000 copies due to the nature of the platform and the audience using it (they also have the same chance of selling zero copies due to how flooded the market is). But, they have to be the right types of experiences for the iPhone audience. I think it is safe to assume that there are more people in the world walking around with a phone in their pocket than there are people with a DS or 3DS in their pocket. The phone audience is massive. However, this does not mean that this is an audience of gamers.

The typical iPhone user wants to play a simple game to waste some time, which cost them very little money to buy. Their investment is equal to their perceived value of the experience they want from the game. There is nothing wrong with this. I too want these types of experiences on my phone. I think the part of me that wants this is not my gamer side. It is my casual kicking-a-stone-on-the-street side. It is the side of me that finds it entertaining to flick a crumb off a table. Is this / should this be what the typical 3DS user wants from games? I think not. I think the 3DS audience wants games that do more than just mindlessly waste some time. I think the 3DS audience wants something different. I think they want games that entertain them. Challenge them. Inspire them, perhaps!

Games that go beyond literal simple pleasures take time and money to create. This will never change. If people are unwilling to pay higher prices for richer experiences, then these types of games will cease to exist. You know supply and demand and all that. We will then be left with a market full of simple gaming experiences that offer the same value as what you paid for it.

29 comments:

  1. And that is why I am happy to pay more for my games.

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  2. Frightening, but it wont happen

    People will always want deep experiences

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  3. I can say games like Mutant Mudds and Mighty Switch Force are worth way more than the iPhone games you can buy. 5-10 dollars is a steal.

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  4. That would be like the recent influx of children's CG movies being the only movies ever made for the rest of time. Won't happen.

    We may shift away from dedicated consoles and actually have buttons on mobiles (or get used to not having them), but experiences the traditional crowd enjoys will always be here. No frets!

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  5. The problem is the app store games are so cheap,varying, plentiful and generally much better playing and looking, they offer things like doom,beneath a steel sky,dead space,pac-man,rogue-likes all for less than eshop games. Even worse is when games are both services but the eshop version is several times more expensive. The eshop has good things on it but they tend to be less ambitious, very rare and more like something that wouldn't have stood out on the snes.

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  6. Jools, you raised a lot of interesting points. I agree that fundamentally, the $1 app model (with a 30% cut to apple) requires massive volumes just to pay the bills (lights, rent, salary etc)

    Now it is a great avenue for publishers to dump old content and get extra cash for almost no effort, and you see that happening with games like GTA3 ending up on the iphone but not on the 3DS. I think that's the bigger challenge for developers and for Nintendo specifically. When the market is literally flooded and consumers expect older games to end up on their phone for a pittance, I worry that 1) it will significantly weaken the 'games' oriented companies like Nintendo as they bleed 2nd and 3rd tier games to the appstore and 2) weaken the games industry as a whole as consumers simply refuse to purchase 1st run games and wait for price collapses at retail to justify their $15 (formerly $30 3DS game) because they know in another year that $15 game would be on the app store for $5 or $1.

    The publishers are also a big problem right now in that they are opportunistic and doing things with consequences down the road.

    I don't mean to pry, but you mentioned 50% is your cut. Is this Nintendo's eshop payback model? If so, isn't this significantly higher than apple's 30% cut/ meaning you keep 70%?

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  7. I am not permitted to reveal the publisher/Nintendo split on eShop games.

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  8. Nice read, although this may not have anything to do with this article per say. I do want to say that no matter what your charging for MM I will be paying. It is something that I have been amped about since I heard about it (around the time it switched from 3d to 2d.. smart move :P). As someone who is trying to learn how to make video games and one day sell them this type of article is pretty insightful. So thank you.

    Also, you can count on at least one sell from this guy.. keep up the good work.

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  9. OH ok, sorry to ask. But I can assume the 50% figure was just for illustration purposes.

    In anycase, looking forward to mutant mudds on the eshop =]

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  10. Wow, you certainly come off as way more reasonable than nearly every other western developer
    well you can count on me contributing to your bottom line on Mutant Mudds.
    Also if you did the doctor's voice in Dementium 2 I really hope to hear from you again
    anyway best of luck with Mutant Mudds hope you sell enough to turn a profit, I think your other games have deserved to.

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  11. Very interesting article.

    I admire your support of the 3DS. It must be hard not to jump ship to IOS/Android.

    I think there is a market for indie/small games on the e-shop IF Nintendo pull their finger out and add the following features to the US/EU markets pronto.

    1. All games must have a demo. (people love free things and small games need exposure)
    2. DLC/Updates must be supported in order to give games "long tail" sales
    3. Restrictions regarding game sizes/content must be relaxed.

    The current retail market is in flux. How many $40 3rd party games on the 3DS will be profitable this year? Nintendo has done their part by unleashing Two big Mario titles in order to bolster the userbase, but they need to continue this momentum solidly thru 2012. Otherwise they will bleed dev support to Mobile/XBLA/Steam.

    I enjoy/prefer games on 3DS and therefore MM is a day one purchase. I hope the likes of Way forward and your good selves prosper on the E-shop during these turbulent times.

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  12. i agree with the blog to a certain extent,i think my only issue overall with eshop and pricing in general of any dlc..is regardless of how much it costs to make..it needs to be worth the price asked for purchase.in example..the recent VVVVVV game on eshop,7.99 in NA..REALLY?..thats a bit much for this type of game..asking that much for such a simple game ( throwback to the late 70's) is ridiculous..not only would i not pay that much,but it should be more the 1.99 for what its worth..granted phone games are just waiting on the bus to come types..but so are a lot of dsiware,and should only go for 5 or less..to charge more then 5 the game should be worth it..most arent.mutant mudds i am excited for,$10 i could see paying.as long as devs continue to put out great games such as this or mighty switch force,pushmo and pyramids..im happy with paying more then 5,but when they break the 10 barrier..thats just to much..these arent full fledged carts..they 1/4th that..and should be priced 1/4 what retail is for full exp games.i fully understand the need for devs to get their cut to break even and also have the funds to continue to put out more..but with that desire should also come being responsible to not hand the consumer garbage with a price not reasonable for what its worth...especially if they want the consumers to understand where they are coming from

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  13. Well I'll start with this: My issue with $5-$10 games isn't so much that they're too expensive, it's that only a few games on Nintendo's download services seem to even be worth those prices. There are a lot of $5 games in the eShop that are hardly worth that price thanks to DSiWare being shovelware city, and for every good game released there are a dozen bad ones. A lot of the bad ones happen to be iOS ports that cost 4x or 5x more than they do on the iPhone. I have no problem paying $5-$10 (but not much more) for a GOOD downloadable game.

    If you're only counting 3DS exclusive games on the eShop, and forgetting about the DSiWare section, that is a different story. But even those games are not all quality, and only a few have any lasting replay value due to not having a way to include dlc until recently (Pushmo using QR codes for custom levels to get around that is the best idea so far).

    Also there is the lack of demos. Throwing away $10 on a game before you know if you'll even like it isn't fun. For Mutant Mudds I will be paying whatever the asking price is even if there isn't a demo, because you have kept fans updated with gameplay clips and new info through YouTube videos and Tweets. I'm already sure I'll like it.

    But the biggest problem? Unlike the Xbox Live Marketplace, Steam or PSN, Nintendo's prices are set in stone. They don't get cheaper. On those other digital distribution platforms, if a game I want is released at a price I am not so comfortable paying, I can just wait for a sale. We do not get that option on Nintendo's systems and I feel developers can often suffer because of Nintendo's stubbornness.

    Finally, the point of your Mutant Mudds game hypothetically costing $100,000 to make and your team needing to make back that amount to break even, I would hope if you guys invested that much into a single downloadable game, you would know better than to release it exclusively on the eShop while ignoring XBLA, Steam and PSN. Because that would just be silly. :)

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  14. play nintendo Wii games buying at a low price, fans should instantly visit the various types of price comparison sites. In the UK there are numerous types of price comparison sites. Choose the one that is quiet prominent and is popular for great price and quality.

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  15. (I first saw this on tinycartridge, but I'm crossposting my response here.)

    I'd like to present a counterpoint. Your article is well-written and covers a lot of good points, and I wouldn't at all say you're substantially wrong about anything (except for VVVVVV, but I'll come back to that). But there's a factor that you fail to discuss -- comparative value.

    When you buy a $0.99 game on the iOS App Store, certainly you're expecting $0.99 of value. You're absolutely right about that. And that would be no different than buying a $1 game on the 3DS eShop.

    But what happens when you buy a $10 game? Simple. You expect $10 of value. But what is $10 of value? If you look on the iOS App Store, $10 will buy you Chaos Rings. This is a far cry from kicking a stone on the street or flicking a crumb off the table; Chaos Rings is an RPG with good graphics, full voice acting, and can easily rack up 100 hours of gameplay. Infinity Blade 2 is $7.99 and outshines most of the games currently on the eShop. Batman Arkham City Lockdown is getting 4.5 stars and sells for $5.99. Heck, Puzzle Quest 2 is $4.99 on iOS while its inferior prequel is $8 on the eShop ($3.99 on iOS).

    If you can't offer the same kind of value in a 3DS game because it costs more to make it, what you're saying is that publishing a game on the 3DS inherently has added value simply because it's ON THE 3DS. That's why people are complaining about VVVVVV -- it's not that VVVVVV isn't a good enough game to spend $8 on it, but they're complaining that being able to play it on the 3DS doesn't add enough value to warrant spending more on it than you could otherwise pay. (And looking at the titles that are available both on and off the eShop it appears the premium is $2-$3, which accounts for as much as 75% of the cost of some games.)

    Unfortunately, the Nintendo downloadable games market has a reputation for carrying overpriced crap. There are more than a few titles on the WiiWare shop that wouldn't be worth downloading even if they were free. Of course this is unavoidable in any substantial market (Sturgeon's Law says 90% of everything is crud) but the fact that Nintendo's available title selection is so narrow makes the problem far more visible. And with a reputation like this, gamers are going to consider the value of being on the 3DS to be very, very minimal.

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  16. @Coda Highland: You're absolutely right. A $10 game should provide ten dollars worth of value regardless of where or how it is purchased. My reference to crumb flicking is in regards to the $1 or $FREE apps that I beleive the typical iPhone user wants on their device. I think apps that are $5.99, $7.99, or $10 are aimed at gamers, which is not the typical/majority iPhone user.

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  17. A well put arguement. Personally? I pay for games anyway despite being in a region where piracy is so abundant. Many have said to me why bother, it's overpriced, a rip-off, etc etc. I have always thought that the developers of the games don't deserve to be bleed dry from people who play cracked copies of their games, in particular if the games are any good.

    Just so you know, I can't wait for Mutant Mudds and to see what you've managed to come up with it! Here's hoping for more future successes to you!

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  18. I think it is a big achievement that you make 30,000 copies. I really like the way you expressed your thoughts!
    buy r4i card

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  19. I have to agree with Captain Colon. The reason people complain about 3DS title prices is that the majority is overpriced first party rereleases and third party ports.

    I will gladly pay for a decent game, but how exactly am I to tell a good game from a crappy port? :T It's not like there are actual reviews listed on the eShop, just ratings and "Is this a game for gamers or 'everyone'?"

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  20. Personally from what i am seeing Mutant Mudds doesnt seem to be worth 9$. 5$ seems to be a fair price in my eyes. Granted i dont know too much of the game, but from what people are saying the game has little to no replay valve, and is only about 1-2 hours. How does that justify 9$?

    When i buy a game. i want my full enjoyment, and im just not seeing it with Mutant Mudds for 9$. This is also why Demo play a huge roll with games like these. If i could play a small portion of the game. it would tell me how overall the game will play as. Granted if it is still only about an hour or two i wold be hesitant about it. As i would play it once/complete it/and never touch it again.

    Now like i have said i dont really know too much information about this game aside from reviews, and gameplay, but from all that i still dont see how this should be priced at 9$.

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  21. I was looking for more information on this game, specifically to see if there were any easter eggs or secrets, and I came across this blog, read it and all the comments, and then felt the need to respond.

    First, I'm 35, and have been an avid Nintendo gamer since 1987. I own every NES console except the Virtual Boy. I feel like I am probably the target market for Mutant Mudds, haha.

    Anyway, I don't really follow gaming news all that much, so for me MM came out of nowhere. If it weren't for the free demo, I would have never heard of the game, let alone bought it, so kudos to whoever decided to make a demo in the first place. After playing the demo a couple of times, I decided to purchase it but was taken aback by the $9 price tag. I had never bought a downloadable game before but it seems like a steep price for a virtual game. I'm a meat & potatoes, bricks & mortar, love-to-own-the-cartridge,box-and-manual kind of guy. But, I discussed the game with a fellow 3DS owner and long time gamer, and he convinced me to buy it.

    The game itself is a lot of fun, although it is a bit short. I finished it over the span of 2 days, and in the week I've had it I have finished it 3 times over, including a "minimalist" completion where I beat the 20 levels + 4 secret levels (1-1, 1-2, 3-2, 3-3) without any of the upgrades (fun challenge!). I wish that the game were a bit longer, and that it would have included a final boss. Other than that, the platforming is extremely fun and I really love the music. I hope for a sequel or an expansion.

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    Replies
    1. Oh, and one thing that bothers me about downloadable games is that I can't share it. If my daughter wants to play MM (and she does) I have to let her use my 3DS. If it was a regular game she could just take the cartridge and play it on her own. I would not pay another $9 (actually 10 something after tax?!) just so that she could have it on hers as well.

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