On Games and Budgets

I’ve been thinking lately on an issue that’s decidedly hard to examine objectively; pricing and budgets in video games. With board games and other physical products, pricing isn’t too difficult — you cover your costs and then a little more to make a profit, and producing in volume leads to lower costs and higher profit margins.

With non-physical stuff, like software, it’s less clear. While there’s a development cost with board games, it’s much, much lower than it is with video games, and with video games, you can sell without packaging of any kind, meaning theirs no additional costs to cover. This means that to adequately price your game, you have to predict how many copies will sell, and price it according to the amount of sales you’ll need in order to make a profit. I’m sure most of you remember doing parabolic equations in high school, determining the apex of the parabola — in this case, maximizing profit by finding the ideal price that will encourage the most buyers. A higher price means less sales, and a lower price means less profit per sale.

The industry has had standard pricing for a long time, which has recently been upset by Valve, when Gabe Newell talked about discounts on Steam at the DICE conference. He asserted that gaming has got pricing all wrong, and that cheaper is better (within reason, of course). When given the option of offering a seasonal discount on products through Valve’s online content distribution service, Steam, the products with the highest reductions saw the greatest increase in profits, despite the lowered price.

This isn’t a universal effect, however, where many indie games have gotten lost in the shuffle despite being inexpensive, most likely due to being unknown, or possibly failing to provide a demo of some sort. Independent media of all kinds have problems like this, so it’s not a unique trouble, particularly when you’re trying to rise above the rest of your peers to be noticed.

The other side of this issue of price is of course cost. Video games have seen a drastic rise in cost over the last decade, as budgets get higher and higher. This is partly due to the drive to create increasingly intricate games, but primarily due to the exponential cost of keeping up with technology and media.

It has me wondering, though, how important it is to keep up with those costs. The success of the Wii and moreover with the DS is evidence to me that video game budgets have gotten unreasonably out of control. As technology has improved, it has become easier and easier to produce games. We regularly see games by indie developers with less than 10 people on staff which are as or more impressive than games produced inside the last decade produced with 50 or more people. The Gameboy Advance saw a resurgence in Super Nintendo games and games that would have felt quite at home with the SNES. But producing games of this kind of quality isn’t a mystery anymore, and takes a fraction of the effort to make.

So why is it so many studios are obsessed with HD graphics and giant budget games? Well, because of the success of the small number of games that benefit from the cutting edge. The Grand Theft Auto games are a prime example, as is the Gears of War games and God of War games — games that probably would not have done remotely as well if not for big budgets and flashy graphics. (Though with GTA, it’s really a matter of including obscene amounts of content, which I respect.)

However, the reality is that smaller, cheaper games are the ones bringing in the money right now. A popular game that people can buy for $5 that has a budget measured in the tens or hundreds of thousands of dollars and not in the millions — those are the ones that are breaking the bank. And there’s no reason why these games can’t be spectacular; in fact, many of them are just that.

Of course, this is something I’m having difficulty being objective about. I intend to do some further research on it — while I personally think small budget games with small teams are the smart move, they’re also the games I tend to enjoy the most. That might be because they’re excellent games, or because they pander to my personal preferences. It’s hard to tell — money isn’t something I claim to have expertise with.

Anyone else have thoughts or insights on the matter?

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