If publishers want to stay in it for the long haul, the answer is to lower game prices, not raise them.
When EA CEO John Riccitiello said that the $60 video game won't work in the games industry of the future, it reminded me about something Nintendo President Satoru Iwata said at an investors' briefing last year:
"The real value of the software must be judged with its contents, not with the medium on which the software is stored. Our business has been based upon the fact that we are asking consumers to appreciate the value of the contents, not the material cost of the optical discs, which are much cheaper. ... Once the suggested retail price is announced, we should stick to it. Of course, we should be flexible. If the software was first introduced five or ten years ago, we don't need to stick to the original price. However, if the suggested retail price of any and all software is marked down in six months or nine months, the customers will learn the cycle and wait for the discounting, which will simply aggravate the decreasing sales of new software."
Those words made me think about the current price of console games today, and the threat that downloadable games present to their future viability at retail. Just looking at my own game buying habits, I can see that in the past year, I've spent around $100 on Virtual Console and Xbox Live Arcade titles. Five years ago, $100 was enough for only two good games. Now, I'm enjoying about a dozen games on VC and XBLA games with the same amount of money. As digital distribution of games becomes more and more common in the next few years, the worth of traditional boxed games will become jeopardized unless publishers get with the act and start charging prices that are more in line with the content of the game.
Third party games have traditionally not sold very well on Nintendo platforms when compared to Nintendo's own titles. This is understandable to a point, especially considering that Nintendo makes some of the best games around. Yet, when third parties bring their okay-but-still-not-as-good games to a platform like the Wii, they charge the same $50 that Nintendo does. If you've only got $50 spend on a video game and you want to spend that money wisely, of course you're going to buy the Nintendo game. It just makes sense.
The reason why it does is because Nintendo has equated itself with quality game releases. It's built up a reputation over the last 20-plus years that lets the consumer know that all of its games are worth the money you put in to them. When it releases games from the The Legend of Zelda, Super Mario, or Super Smash Bros. series, there is little doubt in your mind that the $50 you spend on one of them will go a very, very long way. You also know that the price of Nintendo-published games won't drop for a very, very long time, so you might as well buy that $50 game now instead of buying it next year when it's still $50.
This is the sticking point in which Iwata referred to. The quality and content level of games across the third party spectrum varies wildly, yet the prices for third party games hold steady at $50 (or $60). For heaven's sake, why? Even if there are third party games that you'd be interested in, people usually don't buy them until the publishers drop the price to a level that people would be more willing to pay ... if they still have the interest or free time to play it at that point. Why not avoid that problem altogether by making the initial retail price a price that people would be willing to pay for it in the first place?
Capcom may be the first publisher to have figured this out. Resident Evil 4 on the GameCube was well worth the $50, and in my opinion, it would have been well worth it had that been the price it charged for RE4: Wii Edition. But instead, Capcom undercut all games on the Wii at the time by only charging a consumer-friendly $30. Not only did Wii owners looking for new software snatch it up, people who had already played it on another platform bought it as well. As a result of this well-placed price point, Capcom has gone on to ship a million copies of the game on the Wii, generating significant revenue.
It's not just with remakes within already well-established franchises that a low introductory price is the smart choice. Zack & Wiki: Quest for Barbaros' Treasure is something of a risk for Capcom, since it's a new, untested, unfamiliar franchise. Yet, it's making the game instantly attractive because of how the $40 MSRP stands out from the rest of the $50 games on the shelf. I can relate to this because I'm going to be buying it before a lot of other full-priced games that are in my queue, which includes Nintendo's own Battalion Wars 2.
Instead of worrying about recouping the money invested into the game by gouging early adopters, Capcom is trying to establish a new franchise by undercutting the competition, thereby getting its new property into the hands of more people. If this tactic is a successful one, the prospect of a multi-game series will become a reality, and the franchise can turn into a big money-maker in the long run.
This has been proven with some game series. When it first came out, Katamari Damacy cost $20. After it became a surprise hit, Namco set the price of the sequel, We Love Katamari, at $30. People bought it, despite the price increase. Red Octane took a risk with the original Guitar Hero, selling the original game/guitar bundle for as little as $70. After being bought out by Activision, Red Octane is now selling Guitar Hero III bundles for as much as $100, a significant increase made even more significant when you consider how many more games and bundles GHIII will sell over the original Guitar Hero.
By taking a risk and releasing new IPs like these at a low, competitive price, publishers can use a game's initial success to get away with pricing the obligatory sequels at higher prices, prices which people have shown have no trouble paying for established franchises. Publishers can make more money by using fewer development resources in sequels, pushing profit margins higher.
However, given that the games publishing business is very high risk, companies won't be able to make such drastic changes to their financial plans overnight. Introducing lower-priced games into retail is a risk in and of itself, seeing as a poor-selling game at a budget price will bring in far less revenue than a poor-selling game a premium price. The current business model is reliant on the quick cash grab (publishers wouldn't release the majority of its games at premium prices if it weren't), so the fear of losing revenue in the short-term is very high to many companies.
The very thing that threatens the boxed retail game is also the thing that might save it. Downloadable content is becoming a big-time revenue generator for many publishers. As points purchases and microtransactions become more mainstream, publishers may be able to use that extra income to offset possible short-term losses that introducing a retail game at a lower price point may incur. The establishment of new franchises becomes even more important in the age of content purchasing, as having a larger stable of established games will bring in a larger amount of income from downloadable content.
This brings us back to what John Riccitiello mentioned about how publishers currently generate their income. "People who benefit from the current model will need to embrace a new revenue model, or wait for others to disrupt," he said. Nintendo has thrown the word "disrupt" around a lot lately, hasn't it? Because of how it has disrupted the status quo and changed the rules about what makes a successful game console, Nintendo is enjoying its most lucrative and profitable time since the company was founded two centuries ago. Microsoft and Sony got caught with their pants down (especially Sony, the former industry leader) and now need to consider Nintendo's successes in their next iteration of hardware.
There's nothing that doesn't say a shakeup of epic proportions couldn't happen on the software side of the industry. Although the risks are high, the rewards for breaking out of the mold and charging a lower price for games are much higher. The various mergers and bankruptcies of game companies in the past few years is already a sign that the current way of going about things may not be the best. Maybe it's about time that the software houses of the world got into a little war of their own. The race to outdo each other in quality is ongoing, but companies that deliver the best product at the best possible price will usually see the greatest sales. Competitive pricing has always favored consumers in other consumer industries, and if we're lucky, pretty soon we'll start seeing it in video games, too.