Blade_125 said:
This is how the market works. Mass produced items don't make their money back on an individual sale. Production costs on anything (phones, TV's, computers for example) are a small portion on the overall costs. This varys depending on the product, but engineering, development, and testing are very expensive.
Please don't insult my intelligence by presuming that my use of the term "production costs" means only the cost of imaging a disk and putting it into a box. Of
course it doesn't. The cost of production I'm talking about is the price to bring a completed game to the market, and that includes all the programming, voice acting, testing. The actual cost of putting game-on-disk and disk-in-packaging is not only negligible, but it's probably the element that has increased the least in the last twenty years- the move from floppy/cartridge to CD to DVD to Blu-Ray (and in some cases, digital distribution) is a pittance compared to the cost of increasing the programming pool for a single game twenty-, fifty-, or a hundred-fold, or hiring an entire cast of A/B-list actors to voice it.
Games are not artifically low. That isn't even a correct concept to use in this type of industry (that would be better said of most food commodeties). A company must make a profit. To do that they need to sell enough items to make more money than they invested in the product. As a small example, if something cost a milion to make then the company must make a million back to break even, then everything else is profit (I am ignoring overhead in this example). So it could be one sale at a million, 2 at $500,000, 10 at $100,000, or 16,667 at $60. Or 25000 at $40.
The key is for a company to figure out what price point will generate the most overall profit. The numbers above are just break even, but the real goal is to make as much profit as possible. So if $60 generates 100,000 saless and $40 generates 200,000 sales then it makes more sense to price at $40, as the company makes more money overall.
Game prices can't be "artificially low" in the sense of a food commodity being subsidized by the government or a company trying to flood a market with cheap product to kill competition. Yet there are a variety of reasons to suggest that game prices are indeed artificially low, and your "reason" for calling the term "incorrect" doesn't broach a single one of them.
The cost of creating a video game has increased dramatically, but the price a consumer is willing to pay for a video game has not, especially in the United States. The increase in price here has barely kept up with the cost of inflation, let alone the increased cost of development.
A company
should make a profit, but that's not a given. Part of the thrust of Jim's argument is that game companies might be able to sell more units at a lower price. But even that's not a certainty. Games like
World of Goo have done a good job of making the case that predicting around traditional market models with regard to video games isn't necessarily a good bet: even offering the a popular and well-received game for pennies wasn't proof against it being pirated.
The price of video games is artificially low from one standpoint in that a great many games are selling at a price point that won't allow them to recoup their costs and doesn't reflect the price in other markets. It's artificially
high from another standpoint in that those same games are selling at a price point that may keep potential customers from buying, cause them to buy used, or wait for the price to come down. Also from the point of view that the cost difference between offering 1,000 copies of the game and 100,000 copies of the game may be negligible, so why not sell [or try to sell] 100,000 at the lower price rather than 1,000 at the higher one?
Just to add further perversity to the mix, there's also the issue of the
perceived value of a game being partially based on its price. A $60 game may come with the
perception that it's a blockbuster in part
because it's priced like one. The same game priced at $40 may suggest to its market that it lacks the confidence that it can sell at the same price as its competition, therefore it must be an inferior offering.
Game prices are just
artificial in that they are set on the basis of clearly flawed market examinations, a pricing based on how competing companies price their own goods, and an established "maximum" price based on consumers' expectations that haven't changed in step with the rising costs of creating their product.
The issue you point to is more to do with over saturation. Too many developers all wanting our limited disposable income. With so much choice we can pick and choose, so some companies will fail because the made something that didn't have a broad enough appeal and cost them too much to make.
The market always balances out in these situations, either by adjusting their price or the company going under.
And yet there used to be
more companies making more games. When single programmers and three-person teams could make a state-of-the-art game, it could be commercially viable even if it only sold on one system, and a breakaway hit if it sold 100,000 copies. Now the risk is so high that major releases can fail selling a million copies. It's only over-saturation because rather than being able to succeed off of capturing a portion of the market, game creators nearly have to capture the majority of the market. And then go back and do it again, and again, and again.
Sometimes it isn't individual companies going under; sometimes the market
doesn't balance out. Sometimes it just collapses. Sometimes entire industries are annihilated. I have yet to see a good counter argument that, at least as far as the AAA-game market goes, we aren't nearly at that breaking point.
