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FLEXIBILITY ADDS VALUE

06 Jul 2009

[This week, I take a look at a couple of recent stories of game pricing flexibility adding value for consumers and resulting in big wins for publishers.]

Exhibit A - Left 4 Dead

Analysis firm DFC Intelligence recently released a study, covered by Gamasutra, which shows user activity for the PC version of Left 4 Dead outpacing user activity for the Xbox 360 version over time, with the greatest divergence happening directly after each of three key marketing events: the game's 50% off sale on Steam in February, the release of the Survival Pack in April, and the subsequent free-play weekend on Steam, also in April. From the article:

DFC's main takeaway from the study is that the flexible, quickly-adaptable nature of online distribution services like Steam allow for developers to use a broad variety of promotions and incentives to keep their game communities fresh; individual promotions like the Survival Pack had a positive effect on both platforms, but it was the one-two punch of that DLC plus the followup free weekend through Steam that had the most meaningful impact on the game at any point on either platform.

Perhaps obviously, the study bears out that lower prices attract players in waves. But more importantly in this case, the flexibility of Steam allowed Valve to make the most of temporary price drops as a means of generating interest precisely when it's most needed, as indicated by sales and activity trends.

Exhibit B - Peggle

A few weeks ago, Peggle on the iPhone was selling for just $1. Kotaku carried a story explaining the sale, and its dramatic results:

As any iPhone owner will know, the device's App Store charts are skewed heavily towards cheap, disposable apps; you'll often see $1 games clogging them up while better, more expensive games (with lower sales) languish unseen.

Case in point: before the sale, Peggle was sitting at around #60 on the App Store game charts. And after the sale? Peggle was sitting pretty at #1, having sold "nearly as many units in those four days as they had in the 3 weeks afters [sic] the game's launch".

Here we have a similar situation, with the added wrinkle of gaming the App Store's ranking system. Again, the combination of a lower price, and the flexibility to reduce that price at a time when it most makes sense to do so, resulted in a significant uptick in sales.

The Argument, Once Again

If you read Third Helix regularly, you'll be sick of hearing about this by now, because I harp on the ridiculous cost of games on a regular basis. I did it back in February, in response to the aforementioned 50% off sale for Left 4 Dead:

The argument that game pricing has gone up to keep up with the increased cost of development is, in my opinion, arguing for the wrong solution. As Valve’s numbers clearly demonstrate, lowering the price increases the revenue dramatically, making it far easier to offset development costs than the standard price jump from $49.99 to $59.99 back at the start of this console generation.

Last August, I touched on the issue in response to Cliff Harris's article, Talking to Pirates:

At $50-$60, games are currently an investment, and too often you’re not provided enough information to make an educated purchasing decision. (Ironically, the market with the best-developed demo program, Xbox Live Arcade, also hosts many of the industry’s lowest-priced titles.)

I was on this issue as far back as November of 2006:

So… I’m an advocate of lowering the core price-point of video games from the current $60 to something more DVD-like: $20-$25. If games were closer to $20-$25 apiece, more people would be willing to buy games. The way things are going now, games are becoming an investment. At a $20 price point, they could become impulse buys, just like movies. Then, not only would people buy [and play] more games, they would also be willing to take the [lower] financial risk on more obscure games. That would make the marketplace more friendly to those niche titles, those true works of art that stay with you forever, and would (should?) be the first step to combating the rampant sequelitis tearing through this industry.

...and as recently as May of this year:

However, even if such a ubiquity came to pass, games are still seen as a *financial *investment, due to the unconscionable $59.99 standard price point. The most common argument given by publishers at the beginning of the 360/PS3 generation for the price increase was that “next-generation” games were more difficult and, critically, more expensive to develop. While it is true that game development budgets increased significantly from the PS2/Xbox generation to the 360/PS3 generation, they are still, with the exception of a very few outliers, far below the average budget of a feature film. The key difference, as I have argued previously, is the difference in audience size. $10 DVDs sell to tens of millions of consumers and make a handy profit on $100 million dollar films. If a game sold to tens of millions of consumers, it wouldn’t need to be priced at $60 to make a profit on its measly (by comparison) $20 million development budget. And if you’re wondering where we find those extra customers, all you have to do is lower your price point.

But for the sake of argument, let’s indulge these publishers’ assertion that higher prices are necessitated specifically by higher development costs. Short-form games have dramatically lower development costs than long-form ones; notable short-form indie titles like Braid and World of Goo were done in their entirety for under $200,000. Such lower development costs should make reduced game pricing a non-issue, and as Valve’s data shows, reduced game pricing is highly likely to result in dramatic increases in net revenue… and that’s before we even factor in the short-form game’s superior focus, consistency, and ludo-narrative coherence, and the subsequent word-of-mouth and goodwill boost it’s all but guaranteed to receive!

As you can see, my past arguments have focused pretty much exclusively on the game's price point. Today, I'm adding pricing flexibility to the mix. The DFC study and the Peggle experiment, while supporting the value of lower-priced games, also show that the ability to strategically reduce a game's price -- even temporarily -- in rapid response to market conditions is an incredibly powerful driver of sales and long-term growth. This in turn seems to support the movement toward "games as services", whether it's via portals like Steam, Xbox Live, or the App Store, or other arrangements yet to be unveiled. Arrangements like syndication... but I'll leave that topic for next week's post. ;)

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