Activision and the Rising Price of Retail Games

September 1, 2009 by Alex Beech  
Filed under Articles

Bobby Kotick is an interesting chap isn’t he? CEO of arguable the most software publisher in the world overseeing games like Modern Warfare, Guitar Hero and now even World of Warcraft. It is no wonder the guy pulled in fifteen million dollars last year, doing is doing a simply fantastic job looking after his investor’s interests. It seems that his is a virtuoso of gaming business, but perhaps someone needs help him with his PR now and then.

During recent question and answers session between analyst Tony Gikas and Activition Blizzard’s executives holiday releases Kotick chipped in with a single glib comment. It was this one sentence that caught the Internets collective eye. On a question regarded the pricing of their festive line-up in light of the premium being placed on Modern Warfare 2 and the bump associated with all their other plastic paraphernalia based games Kotick felt the need to contribute to Publishing head Michael Griffith’s response, with this little nugget “…you know if it was left to me, I would raise the prices even further.” You have to wonder if he knew someone was recording the session, right?

Everyone went crazy. Part of their reaction was tied to the fact that it would hit their wallets directly. At a time when many are struggling to make ends meet and trying to manage their holiday budget to include a new piece of over-priced plastic gaming paraphernalia Kotick`s responses seems at best seems naïve, at worst exploitative.

The strange thing is in a way Kotick is right. Development costs continue to increase as the technology improves. High definition gaming increasing art overheads, online requiring extra production time and QA costs and of course the increasing complexity companies need a way to ensure they are going to recuperate their investment. If any company is concerned their title will not make its money back unless the price point is higher then they absolutely have every reason to alter their financial model.

Unfortunately for publishers who would like to try this during the first generation of Playstation and the inception of optical media storage game prices have become more or less standardized. Gone are the days of magic SFX chips hidden in cartridges that enabled developers to charge for the physical edition to the games storage medium. Consumers seemingly only acknowledge the delivery method of their entertainment and not the development cost or quality. With the standardization of price companies could no longer form a business model that could accommodate niche games for a smaller audience by altering the price accordingly.

This system though, of standardized price regardless of quality, rewards rehashing ideas and recycling assets. Some companies of course strive for innovation, but many have failed, as their game either didn’t have the brand recognition of their franchised brethren or the advertising budget of a big company.

The EAs and Activisions churned out sequel after iterative sequel, it was only recently that more involved gamers started to beg for innovation. But any innovation is a gamble, especially for a publicly traded company. Kodick even spoke to this fact saying ‘A small segment of very vocal gamers say everything has to be new and different every year. Actually, people are happy with existing franchises, provided you innovate within them.’ While this is the response of a CEO concerned only with the money and not the art of gaming, it does hold a grain of truth. Small new intellectual properties frequently struggle to be noticed, even if they are of a comparable quality to an established product. Thus if you remove all of Kodick’s comment from him and instead impose them on a smaller struggling developer, or even a publisher that is willing to back innovative projects they seem more reasonable.

Look to a game like Mirror’s Edge. While it was a game which was admired for what it attempted it was undeniably flawed and failed to capture the attention of many other titles in the same period, limiting sales and profit for EA. Many players of the original though would like to see a sequel to see if developers Dice could reach the potential the game displayed. In the current market with new top tier titles unable to break from the established pricing structure their hands are seemingly tied. Without the ability to form a price model that could accommodate the games development by increasing the price for early adopters, but supporting them later in the games life cycle with promises of free additional content where late comers would have to pay.

Some of Activision`s current Holiday season line up do actually appear to be experimenting with this model. Though much of the increased pricing is hidden in the plastic extras required to play the games. Tony Hawk: Ride and the new skateboard peripheral will retail at $120 in America. While some of that $60 represents the cost of the board and its development, much of it also represents the risk they see in it. With the weight of advertising and the Tony Hawk brand behind it the chances of it failing are slim, but the increased price of the bundle means that they are going to have to sell far fewer units to start turning a profit.

Profit is of course the sticking point. The cry goes up that it is about making back the money for development but it doesn’t seem like something Activision really has to worry about. Their titles are franchised, they have savvy marketing teams and the budget to ensure that their titles will be recognized by every mother entering a store come October. Even in the unlikely event of one of their products selling absolutely zero units, the rest of their releases would at least ensure that they don’t loose money. But they are a business and they want to make as much money as the market will bear. Many regions have to suffer a price bump in Modern Warfare 2. The stated reason for this is the cost of development, but is that a fair explanation when you know sales are going to be enough to completely cover the development? I don’t feel so.

There is a case of course for developers using the big budget titles to support smaller niche products. While no company is going to make a game they know is going to fail, they are more likely to take risks or invest in a lower profit venture if they have their metaphorical backs covered by a sure fire hit. When companies state this as a reason for their pricing however they become accountable. They have to produce something original and inventive if they don’t want to lose their public support. Unfortunately few companies seem likely to make this promise to their customers in the current market on products which are so expensive and time consuming to create.

We need to realize as consumers that with the current technology we play on in the present financial climate we may have to start buying things for more than we are currently comfortable with if we want the quality to be maintained. But not everything, companies should be free to price as they see fit according to their projected sales to development cost. Of course some degree of profit should be built in but when a company is seen to be deliberately price-gouging products they know will be a financial success that is when it is time to put your foot down.

Perhaps the only real problem with Kotick`s statement is that it is unpalatable coming from a man who can afford to buy 116,667 copies of Tony Hawk: Ride, and still have a million dollars pocket money and from the richest company in the industry. You have a right to be mad at the man especially if you are buying `his` games this Christmas, but you also have to accept that the essence of what he says is true.

Written by: Alex Beech