in response to the video's message - I get that $60 in 2006 inflated to $80 today. And that development costs have gone up rapidly (so have sales IIRC but I know that's not evenly-distributed).

Might the move to digital distribution, even if not complete yet, already be giving publishers substantially increased profits per unit sold?

A decade ago, an article suggested publishers made $27 on a $60 physical game, and the platform holder a $7 royalty[1]. With digital, retailers lose out and no longer get a cut, cost of goods is reduced, and returns go away.

With a $60 digital game, don't Sony/Microsoft/Nintendo/Steam all charge a 30% platform fee for infrastructure/store costs and their profit? They'd take $18 (+157%) and leave $42 for the publisher (+55%) (edit:math). Is that the extent of the pie or is it divided more?

Multiplayer still requires a $60/year fee on console systems too, correct? And all the extra and ongoing costs mentioned in the parent post are unlikely to go away with increased base price, right? I don't mean to be skeptical but feel we're going to see some price increases (beyond gaming too) just because businesses can.

[1] https://latimesblogs.latimes.com/entertainmentnewsbuzz/2010/...

Most of what used to go to the retailer apparently goes to the console maker now ($7/60 vs $18/60), so the studio hasn't really gotten much of a benefit from digital.

Multiplayer fee does not go to the game maker either.

And costs are astronomically higher. A mid-market AA game with a studio of 80-100 people will cost in the order of 15-20 million USD a year to produce. Art is enormously expensive in 3D, even outsourced. My numbers are a few years old, so it's probably worse now.

It's ludicrous to assume that in the cut-throat gaming market (unless it's the 1000th iteration of a franchise) game developers are looking to increase the price "just because they can". They actually can't because gamers have shown themselves to be incredibly hostile to price increases.

The main reason there are no more mid-market games (i.e. between AAA franchises and indie small-scales) is that it is absolutely not profitable or sustainable. You can put all your money and energy into a game, but unless it's a huge hit, you will never recover the cost. It is just not worth it to most of us these days to even try.

> Most of what used to go to the retailer apparently goes to the console maker now ($7/60 vs $18/60), so the studio hasn't really gotten much of a benefit from digital.

There isn't any less microtransactions and loot boxes on PC, even with PC-only games, where you can sell directly to customers without any store or platform cut - and most big publishers do just that. All these additional money grabs have one reason only: because they can get away with it and make more profit. If selling games for more than $60 was more profitable they would do that too.

> And costs are astronomically higher.

Only because AAA publishers choose to chase photorealistic graphics. Why? So that they can appeal to more customers, making them more money. Yet again and again there are games (mostly from independent studios) that proove that graphics are not the most important thing to many players.

> It's ludicrous to assume that in the cut-throat gaming market (unless it's the 1000th iteration of a franchise) game developers are looking to increase the price "just because they can".

It's ludicrous to believe AAA publishers' claims that games are not profitable when their CEOs can pull in $150 mil [0]

> The main reason there are no more mid-market games (i.e. between AAA franchises and indie small-scales) is that it is absolutely not profitable or sustainable.

There are mid-market games, they are just not as profitable as AAA franchises so most big pusblishers avoid them.

[0] https://www.marketwatch.com/story/activision-blizzard-pulls-...

Meanwhile, $20M is peanuts for movie that only charges $10/ticket

I think the economics of this are radically different. The movies that get released in theatres have already gone through A Great Filter - they’ve either been selected or made from the get go to movie theaters. When you have a film going to theatres you already have a lot of spend behind it, a marketing campaign etc. Sadly the most reliable correlation for whether a movie makes profit is how much you spent on marketing (and no I am not kidding).

Lots of movies, in fact the vast majority of them don’t get to go to theaters. It used to be that this meant VHS or dvd release, now it means streaming, sometimes even just YouTube or Vimeo release. If you go to any film festival circuit I no your life you will see upwards of 1000+ films in a year. But not that many of them will go to theaters anywhere in the world.

Basically the 20$M films you talk about have some reasonable chance of sucess. Gaming is a bit more of a free for all, having steam, early access, GOG. You have a Wild West capitalism type of ultra competitive env. When you launch a film in theatres, that is not what’s happening at all - you’ve already gotten a booking at the natural moated monopoly of Very Large Screens, a limited amount of which you have in the world.

Basically I would estimate that the chance to launch a game and have VERY slim returns is far higher than a film.

In fact, you see the same problem in movies where you either have big tentpole blockbusters or smaller low-budget movies ( like Blumhouse or A24 releases) or indies. There aren't many mid-budget (I guess that's around 50-75 million USD ??) movies made any more.

Yes, you do have breakout hits in that space once in a while, but not enough for studios to risk them without big name stars. Or more commonly actors who fund their own productions.

In both industries the case can be made that the market has made the choice and whiners should STFU. But then we should also make peace with what's lost in return.

As much as people say that there is no organic way to find films at this point in time. There is nothing like Early Access for films or TV. You need the backing of a large organisation to make a film - they’re just too expensive. So interestingly games have both a lower start cost, a better alt-funding infrastructure and more opportunities for competition through an open storefront like Steam.

There is nothing similar in Film today - people don’t open the Vimeo paid section daily looking for new stuff to watch, neither does Vimeo allow for “fund this project” drives. I have hopes crypto DAOs will emerge to solve this issue.

> Might the move to digital distribution, even if not complete yet, already be giving publishers substantially increased profits per unit sold?

There is also no more used market with digital only. I can’t sell a game when I’m done with it, and I can’t buy it for 1/2 or 1/6th of the price if I’m waiting long enough after release.

One additional major revenue stream not mentioned is merchandise.

Pokemon's merch revenue completely dwarfs game revenue: https://youtube.com/clip/UgxvU_ygdejMiTGyChN4AaABCQ

Merch is great because it allows "whales" to spend as much as they want without the questionable gambling aspect of loot boxes/gacha.

That’s not exactly a fair comparison since Pokemon is more of a multimedia franchise in that it has trading cards, tv shows, movies etc. It’s more like a brand than just a video game. So barring these huge franchises (along with Minecraft/Fortnite), I would assume physical merch sales for most games is low by comparison.

I think Pokemon is a brand because they started with the video game and capitalized on its merchandisable nature. I don't think there was was a Pokemon card game (or anything else) until after the video game was released.

I agree some games are less amenable to the merch model, but that is within the control of the game designers.

In fact, some games were designed explicitly to support the sale of merchandise. I think Rovio's Angry Birds and/or Seriously's Best Fiends used this strategy, but I can't find the source, now...

Apparently Garfield is a cartoon that was created solely to sell merchandise. It's quite blatant: https://youtu.be/1ei_eNTmCsU?t=33

I don't see why the merch strategy can't be applied to games, too.

Yes, the original Gameboy game was first. The other branches followed quite quickly though, so they probably fed into each others popularity and I'm not sure it would have made a huge difference if e.g. the anime had come first and a bit later then the games. EDIT: that all these channels were there was probably quite important though.

Japanese releases:

Game: early 1996, second late 1996

TCG: late 1996

TV series: 1997

movies: 1998

detaro makes some good points, and you’re right it’s totally possible for some things to be designed for selling merch. I agree that it’s really up to the game makers.

At this point, I think it’s more about IP and who your target is. If your target is general audience/kids, you could probably sell a whole variety of merch, even if it’s not directly tied to the game. But if the target is hardcore gamers (collectibles, exclusive t-shirts, memorabilia, etc), the market seems smaller.

Yes. That gets to a marketing concept that many businesses ignore at their peril:

Sell what people want to people who want it. (Vs what you want to make to who you want to sell it to.)

> sustainable

The popular AAA games have been making record breaking amounts of profit in recent years before you even include the microtransactions they've been adding. The market is bigger than ever. This is from the earning reports. This is just an excuse to try milk more money out of consumers.

Which ones?

The big yearly franchises rake in tons of cash, just as superheroes do at the movie theatre. But if you go a bit deeper, the situation is more mixed. Bioshock Infinite just about bankrupted Irrational Games, for instance, despite being very well-received.

The big publishers (EA, Activision, Ubisoft, Zenimax) have had numerous record years. Irrational Games has been a subsidiary of Take Two since before Bioshock Infinite.

That doesn't mean the individual games or studios were profitable.

https://www.polygon.com/2014/2/21/5431332/what-irrational-ga...

> Earlier this month, Irrational co-founder Ken Levine announced that less than a year after the release of BioShock Infinite, the studio would be "winding down," which meant that everyone but Levine and 15 others were being laid off.

I mean that whether or not the studio closes is at the parent companies whims.

According to Wikipedia, Bioshock Infinite sold 11 million copies. If your development is so costly that 11 million sales, vastly higher than most games sell, isn’t a success then maybe you should go out of business. That’s not a price point problem but a budgeting problem with unrealistic expectations.

If you look at the top selling games, the top 50 ever bottom out at 20 million sales so they were half way to being on the top 50. If your game has to be in or close to the top fifty selling games of all time in order to be profitable then you’ve planned something very wrong.

Isn't the other possibility, though, that the game was just too cheap at $60? And only launch, mind you—I do think another issue here is just how quickly even high-demand games get marked down in price. (This is not entirely in the manufacturer's control—but Nintendo somehow always manages to maintain the prices of their games. Nintendo is doing something smart which no one else is doing...)

I don't know about you, but I like big-budget games! I don't think Bioshock Infinite would have been as good if they had to pair back the art team that constructed that gorgeous floating city, or lowered the amount of experimental iterations which made it possible to get the gameplay feel just right!

Do you think games are piced at $60 and marketed down because publishers are being generous?? Those price points are set exactly because they are expected to extract the most profits.

> I don't know about you, but I like big-budget games!

I like some big budget games, but most of what's been released by the big publishers (EA, Activision, Ubisoft) has been, lets say, lackluster. Those are the games with the biggest budgets and quite frankly, they tend to be all flash and little substance, gameplay-wise.

Sounds like they should have put $80 price tag on the game. It was worth it.

Anecdotes are one thing, but the picture is clear when you look at inflation-adjusted trends: https://venturebeat.com/2018/01/23/the-cost-of-games/ The development cost for games, especially AAA titles, has in fact risen significantly.

Given the sacrifices that developers and especially artists have to undergo to work in the industry, I have absolutely no problem with saying that video games should monetize as much as they can, to ensure that the crew can continue to make a decent living.

Its worth keeping in mind that typically those huge budget games spend approx half of their budget on marketing.

For example, Red Dead Redemption 2's budget was US$ 70–240 million on development and a further 200–300 million on marketing: https://venturebeat.com/2018/10/31/red-dead-redemption-2-cou...

> Given the sacrifices that developers and especially artists have to undergo to work in the industry, I have absolutely no problem with saying that video games should monetize as much as they can, to ensure that the crew can continue to make a decent living.

If the money actually went to the developers, I'd agree, but largely it doesn't. It goes to the executives. Bobby Kotick got a US$200 million bonus while at the same time laying off staff. The money made by big budget AAA titles largely doesn't go to the developers who have to undergo those sacrifices, it goes to already rich executives who don't need it and make no sacrifices.

Thank God for you.

Unfortunately you're both right, and companies are making huge profits at the expense of their employees typically measured in time and mental health.

And money. Lets not forget the trend of paying their top executives big bonuses while laying off the staff.

For example: https://www.ign.com/articles/activision-blizzard-has-reporte... (yes, yes, that bonus was part of a contract from 5 years ago, but its still in rather bad taste to pay out hundreds of millions while laying off a load of staff)

I found it weird how the video doesn’t account for the massive economies of scale that AAA companies have access to. The audiences & market size are way bigger now than they were back in the day.

Our own marketing department made a good summary of this( I work for a AAA games company) - according to them as little as 10 years ago there was maybe a dozen big, AAA, 50h+ long releases each year. Now there’s 100+ a year and increasing. Yes your markets are bigger, but there’s more competition and fundamentally it’s still winner takes all - big names sell 20/30/40 million units, while if the game isn’t either a big well known franchise or an absolute 10/10 hit it struggles to pay for its own development cost.

And the length of games plays big part too - my wife took 100h to complete Assassin’s Creed Valhalla and there’s still tonnes to do, it just meant that she wasn’t ready to buy another big AAA game for like 3-4 months.

>according to them as little as 10 years ago there was maybe a dozen big, AAA, 50h+ long releases each year. Now there’s 100+ a year and increasing.

What's the criteria for "AAA"? 100+ AAA releases per year seems a bit on the high side.

There's a bit of handwaving and the the video admits $90 is just a gut estimate.

However, I think they did try to account for things like that: they started with an estimate games should cost $225-$300 before accounting for larger audience size.

Larger market size and efficiencies like reusable game engines are balanced by increased productions costs. The first versions of Final Fantasy just had text captions in 2D. Now they are in full 3D with fully acted voice actors.

Starts here: https://youtu.be/VhWGQCzAtl8?t=96

> I found it weird how the video doesn’t account for the massive economies

because it's a bad video made by someone who understands nothing about economics.

>So game developers tried various ideas to make up for this gap: DLC, perpetual experiences (map packs & expansions), loot boxes, microtransactions...

There's also "ultimate" editions, which bridge the gap at sales time.

Sure, you could buy Forza Horizon 5 for $60, but you could also buy the Deluxe Edition for $80 to get some extra cars or the Premium Edition for $100 to get the same extra cars + the DLC when it comes out and some extra goodies.

Many players complain when DLC is released at the same as the main game because they feel it should just be part of the main game.

Framing this DLC as an "ultimate" edition seems like a great idea!

To what extent does it backfire though?

"Would you like the ripoff edition or the inferior edition?"

Actually, I don't want to buy the game anymore.

The difference a tiny change in framing can make is amazing: https://www.psychologyofgames.com/2010/03/framing-and-world-...

> In World of Warcraft what they did when they first designed the game was they had an experience system that would, over time, lower the amount of experience you got because [Blizzard] wanted to encourage people to play for like two hours at a time instead of twelve hours at a time. So the longer you played you’d get this experience degradation and then it would bottom out and at that point it would be a fixed rate of experience. And people just hated it.

> And so they went back and [Blizzard’s Rob Pardo] was like all right, basically what we did was we made everything in the game take twice as much experience to achieve as before and then we flipped it. So actually what happens is you start getting 200% experience and eventually it goes back down to 100%. So that effectively now how they spin it is that if you log out for a while you get this 200% boost when you log back in! And then over time it goes away and you just get regular 100% experience. It’s EXACTLY the same as it was before, except NOW everyone is like “Fuck yeah, Blizzard, this is exactly what I want!”

A good solution would be to make these games in places like India or China where they have advantage of exchange rates. And relocate the Devs and Artists to these places or maybe they can work remotely and save on expensive office costs?

AAA games sell a more than they ever did, with digital distribution.

A lot of your examples are also attractive because you'd already have the framework set up to deliver them.