Game cost by inflation

About on average of once a year someone gets it in their head that it’s time to talk about the costs of games. This year Arstechnica decided to take up that particular fight on behalf of games retailers everywhere.

Sometimes they come in the form of blog posts with an attitude reminiscent of a story about ‘walking two miles up hill, both ways, in the snow only to find the destination closed’. Others they’re well reasoned and suprisingly well documented discussions on the actual cost of gaming (worth the read, some of the graphs came from here). More often than not though they’re simply put out as a way to try and appease the very real frustration of overly priced games with increasingly less content and significantly less variety with a hypocrisy nod to the fact that consumer’s frustration on the issue might have other contributing factors.

Frequently they’ll innundate these with interesting but factually incomplete graphs and datasets, much like Arstechnica does with this google spreadsheet from it’s recent article. Occasionally they’ll even stumble onto the plot and reference some wise thinker actually discussing the economic issue cauing some publishers to have financial woes.

This year, however, arstechnica did take the time to mention that the cost of games distribution has significantly decreased due to innovations in digital distribution, they covered the truth of low cost product raised by third party costs inflating the cost of sales in physical product.

They didn’t mention that product costs have gone down and budgets have been overinflated essentially negating the technological impact that we should be seeing on cost of games. Nor did they mention that a very significant portion of the costs are unnecessary ones, things like paying a publisher to distribute instead of direct distribution to the retailer or the publishers significant core charge to distribute which inflates their return on invested capital for each deal while decreasing the studios’ significantly.

These particular items are keeping core price stable and fixed with gentlemen’s agreement on standard pricing practices for physical product by both console companies and publishers. If it weren’t for this many games would likely actually be at least a third cheaper (you can actually see the direct impact of this on price in Ars’ spreadsheet). Economically static pricing is not a natural thing, particularly when it’s independant of documented hits in that sector.

Even with all of that there’s at least one major part of the discussion not being mentioned. That being that cost of secondary content and the removal of game content.

Games aren’t actually cheaper as when you include average cost needed to get the game’s content. In 2011 54% of console gamers also purchased DLC, on average that year they spent $49 on DLC totalling, at the time 12% of all money spent on gaming. Digital content sales have been increasing year over year while core game sales have declined. Even with 2 year old numbers that’s a significant difference to the charted data.

Fortunately because the data set they provide is broken down by year we can actually show the difference in real numbers, or at least we could if they actually documented 2011, they don’t. That’s ok though, we can use 2010 nominal numbers for that, the inflation rate for 2011 is almost half what it is from 2010, so 3.6%, which gives us $60.83 for the average. Ignoring other issues with the data — like the fact that the 2010 averages come from a singular source, a black friday advertisement with the associated sale pricing and not any of the various actual reports they could have gotten that would have accurate datasets.

The 2011 average then from those numbers, when calculated correctly, should also include the 12% of total gaming sales that were purely tack on content, or DLC that is essnetial or essentially a core part of the game. This would raise the 2011 average from these numbers to right around $67. That number means as of 2011 we lost 11 years of pricing progress due to secondary costs.

Unfortunately that’s not the end of it, see digital content sales have been on an astronomical upswing in the last few years. As of last year it is now a multi billion dollar industry in and of itself with EA earning over 1.66 billion in digital content alone, a 45% increase over the previous year. The most telling part of their prospects for 2014?

Based on this segmentation, digital revenue will be approximately 43% of our total revenue.
The anticipated heavier mix of packaged goods revenue does impact the gross margin growth,
and we are therefore forecasting gross margins to be approximately 66%.

 

That’s a very significant portion of the pricing market not being accounted for in a very signficant player when it comes to the ‘discussion’ about the price of games vs the historical average based on whatever advertisements whoever’s discussing it now decideds to use without paying attention to the release pricing of the games in it.