Why are games so expensive?

4th Oct 2008 | 07:00

Why are games so expensive?

Shops are cutting the price of everything – except videogames. Are we being ripped off?

Wandering into a videogame shop can be a pretty depressing experience – and not just because it takes four hours to get to the checkout. £34.99 for Mass Effect? £49.99 for a console game?

And those price tags tend to stay the same, at least until savage reviews tell everybody the game's a duffer and the shops cut its price in panic. Still, there's always the pre-owned section, where you can get the same game with added scratches, bashes and jammy fingerprints. The savings? A few quid if you're lucky. Somebody's having a laugh, but who? And why?

Games are costly, and the obvious reason is that they're expensive to make. The days when industry-defining hits were the creations of bored teenagers hammering away on home computers are long gone. Today, a games studio is more like a film studio, with huge teams spending years on a single project. Budgets in the tens of millions aren't unusual, and that means games have to sell an awful lot of copies just to break even. The overwhelming majority simply don't.

Even many of the bigger names still coast from project to project, struggling to keep afloat. Most recently, Flagship – the creator of Hellgate: London, largely made up of Blizzard alumni – closed its doors after just one game. Ritual, a group of successful FPS developers who'd worked on licences such as Quake, Heavy Metal and Star Trek, collapsed after the launch of the first episode of its new SiN series, and met the most humiliating fate of all – being bought by a casual games company

Everyone wants a cut

There's more to it than that, though, because every other type of entertainment technology – from music formats to DVD – has become cheaper over the last couple of decades, despite ever-growing budgets. Games haven't, and one of the main reasons for this is the sheer number of people with their fingers in the money pie.

Take stores. When you buy a game from a shop, the retailer keeps around 20 per cent of the money. That isn't pure profit, though: retailers have to pay for staff, marketing, premises and all the other costs of running a business, including tax. That's why offshore, Internet-only retailers can sell games much more cheaply without immediately going out of business.

Digital distribution is even better. Bandwidth isn't a huge deal when you're buying that much of it, saving a fortune in packing, postage and other materials. Valve's Steam is the most famous of these services.

Sometimes the retailer takes even more money. If the game gets a snazzy display, the retailer will often expect a contribution towards the cost. In some cases, retailers might ask for an extra bit of cash just to stock a game, safe in the knowledge that if they don't stock it, it won't sell. As for those Top Ten racks and similar promotions, they're not always based on sales…

The munch bunch

Once the retailer has taken its cut, there are plenty of other people waiting in line. The distributor gets a share, which equates to 1-2 per cent of the retail price. The publisher takes a similar cut, and a further 5 per cent goes to pay for the manufacturing and packaging. Attention-grabbing box designs and limited editions such as a copy of Halo in a metallic space helmet will obviously cost more.

What's left of the money at this stage finally goes back to the game developer, at which point it's divided further. If the developer has used someone else's game engine – which many do because it works out much cheaper than building their own – then they'll have to pay a royalty to the owner, and if the game uses characters or content that belongs to someone else (such as comic book superheroes, characters from films or music from big-name artists) then that's another royalty payment. Engine and character licences can each account for around 5 per cent of the total price.

Some of the remaining money then goes to cover the cost of building the game, losses from less successful titles (or games that were started and then canned) and all the other costs of being in business. That doesn't leave much for kick-starting the next project, leaving most scrabbling around in search of another contract just to keep the studio alive.

Console mania

If you're creating for consoles, there's even more money involved – which is partly why console games are more expensive than PC ones. Partly? Cynics suggest that because consoles don't really suffer from piracy, they can charge prices that PC owners simply wouldn't stomach.

There may be some truth in that, but console game design really is expensive. You need development kits, which are especially pricey in the early days of new console hardware, and you need to pay the console manufacturer – whether it's Microsoft, Sony or Nintendo – a per-copy royalty, which is around $10 (£6) on each unit manufactured, irrespective of whether they're sold or end up in landfill.

This makes console games a risky bet, especially when a new machine is just getting off the ground. High-profile games that don't sell hundreds of thousands of copies may never make any money, and could be condemned to fester in the budget bin for the rest of eternity.

What about casual games? Small games such as Xbox Live Arcade releases don't have the giant budgets of their bigger brothers, but they can still cost hundreds of thousands of pounds and take forever to break even. Once again, the price you pay doesn't go straight to the creator; the publisher (in this case Microsoft) takes a cut of each sale.

Here, the amount depends on how much involvement Microsoft has, but the figures are reportedly between 35 per cent and 70 per cent, so if the game sells for 800 Microsoft Points – just short of £7 in real money – then the creator gets between £2 and £5 per sale. You need to sell a lot of copies to make any money.

Ah, you're thinking. What about pre-owned games? Everybody got paid first time round, so shops can sell them for pennies and still make money. That's true, but the sheer speed at which people buy, complete and then trade in games means that used titles can be on the shelves within a few days of release – and nobody in their right mind is going to pay full whack for a game if there's a used version going for half the price. For shops, selling used games cheaply would be commercial suicide – especially since people are willing to consider a few quid off a bargain.

Smart shopping

You don't have to pay full whack, though. Waiting until a game is no longer a hot release is always smart – you won't get discounts when demand outstrips supply – and PC versions are always cheaper than console ones. Online is cheaper than the high street, digital is cheaper than boxed, and even the most sought-after games eventually end up in the bargain bins or on eBay.

It's important to keep things in perspective, though. When you buy a CD you're spending a tenner for about an hour of music, while on DVD you're paying £15 for around three hours of amusement. With a game, you're getting hours of single player and potentially months of online multiplayer. Games are certainly expensive, but the good ones still offer exceptional value for money.

Now read 10 Xbox 360 tricks Microsoft doesn't tell you and seven more Xbox 360 secrets Microsoft doesn't tell you.

Prefer PlayStation 3 tricks? Then read 10 PS3 tricks Sony doesn't tell you and 8 more PS3 tricks Sony doesn't tell you.

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