Costs and Profits – The Murky Bottom Line

I’ve said much about how games cost a lot of money, because they do. Comparable to the big movie industry, games can cost tens of millions of dollars to make and often have a cast and crew that can amount to a very long credits list. Both are mediums of entertainment and both industries often fight the same kind of battles against pirates, the trends of the day and – of course – each other.

However, a recent study has shown that 54.8% of developers in Japan manage to turn a positive profit. I wouldn’t be surprised if that was echoed across the world in all honesty – not all games sell, not all games are big hitters and sometimes, even the good ones get overlooked for the big explosive action-packed blockbuster of the moment.

But here’s the thing – “Positive Profit”. What does that actually mean?

Well, it is no secret that in the movie industry, Box Office sales are the strongest indicator of profit and viability. Whilst DVD and merchandising sales can bolster the coffers, the real litmus test for a movie is how much it takes at the box office over a period of six to eight weeks.

And again, no secret here, there is the issue of profit. Movies and games need to turn a profit – many are run by very big companies and publishers who absolutely are focused not on the critical status, or the fan love, but on the overall intake. A movie is not considered a success unless it takes twice what it cost to make – so when a $40 million movie takes $60 million at box office, that is still considered a failure after all costs and expenses are taken away. When a $20 million takes $100 million, that is considered a runaway success. And so on. And so forth.

It isn’t unreasonable to apply the same reasoning and logic to video games – there are a lot of hidden costs. Tim Schafer recently admitted that patching a game on X-Box Live or the PS Network can cost $40,000. That’s a hidden cost that needs to be budgeted for. As do the machines that churn out and print the disks, sleeves and cases, the people who work there, paid advertising and a whole lot more.

Breaking even on the costs doesn’t mean breaking even on the project. There are overheads as well as hidden costs and extras that always mean that the overall cost isn’t over until the game has been out for a considerable period of time, and even then, on-going customer support and patching is expensive.

It is this reality that often dictates what sequels we get and when – for example, Beyond Good and Evil is a much beloved game by critics and gamers alike and still, not surprisingly, it failed to make any money back. Despite extremely positive press, a loyal and vocal fanbase and a surprisingly successful HD relaunch, the game isn’t financially as viable as UbiSoft would like.

Net result? The sequel, which we know is sort of being worked on and teased, isn’t their top priority. Despite the critical and fan backlash against Assassin’s Creed: Revelations (justified, I think!), the franchise is hugely successful and will see Assassin’s Creed 3 released later this year.

Just because a game is good, it doesn’t mean it will be profitable. With so many genres on offer, and often so many releases in a year, it has become harder for gamers to enjoy everything. The initial investments in gaming hardware are costly – several thousand pounds and/or dollars worth of gadgets, gizmos and other bits and pieces before you even get around to buying actual games, which can add several hundreds to a yearly budget.

So, is the gaming industry too expensive? Arguably, yes. For all concerned I’d argue. Like theatres and big-budget cineplexes, we too have to invest initially in the hardware to run games – we need a good 1080p HD screen, we need the consoles (PS3 costs £250, X-Box 360 elite £200, Wii £100 – £550 for the consoles alone) then you need the gadgets and gizmos that enhance or upgrade the experience, which can often be the same again in price. A good gaming PC will still set you back a good £750 in this day and age. And this is at the end of a generational cycle – when we get to the new consoles in the next year or two, that’s potentially £300-£500 per console. And this is ignoring the 3DS at £120 and the Vita at £250.

And it is costly for the people making it. Talent does not come cheap, and our insatiable hunger for big-budget voice actors to tread their wares in our games means budgets are increasingly inflated. Getting big name developers and producers on side can be expensive. Getting a good licence can be incredibly expensive. Budgets are going up. The cost of making games is going up.

But we must remember that the cost of actual games themselves – in real terms – has remained relatively unchanged. Games have always cost here around £30-£40 ($48-$65 in hard American!), and still cost that much. The value of money itself has dropped in recent years, so arguably you could argue that games have gone down in actual value of late.

It is all of this that often confuses the issue of what profitable is, or should be. The Wii has made over a billion dollars of profit on the Wii hardware alone – but that is to be expected, as the Wii wasn’t about power but experimentation. The budgets were lower and the profits, as a result, happened at an earlier stage. Microsoft and Sony spent a lot in R&D (Sony even spent some billions to force HD-DVD out of the market!) and their profits came in at a later date, although Microsoft now admit that their X-Box Live service is profitable (with the introduction of advertising and their own little licencing arrangements).

But when it comes to games, there is no six-year cycle. A game has a window of opportunity that is approximately three months long – sometimes more, sometimes less – and this is where the direct comparison with the movies comes in. In a short period of time, they need to recover at the very least the cost of the project. And in many cases, to be successful, twice that.

This isn’t about sales numbers, or fans professing their love or even the critics who can make or break a game. It’s about the murky bottom line. If a game isn’t at least breaking even overall, then it is unlikely it will be a priority for future installments – regardless of the positive reactions it may get.

And it is a problem for everyone. This isn’t an issue that will magically go away some fine day – it has been a slow, creeping issue over many years. As technology has advanced, so have consoles and the costs involved in just making one game. And whilst consoles have always been long-term investments, games are not. They get a short lifespan at maximum RRP, and then slowly fall in value as places try to get rid of stock for the next wave of releases.

It is because gaming prices have remained so constant that makes this tricky. Because on one hand, it is excellent news for us at the gaming end of the spectrum, who can enjoy a wide range of games and aren’t paying as much for them. But it is terrible news for an industry that approaches another new generation of tech – and even if it isn’t a huge technical leap, the budgets will still rise by a big margin to account for the new costs involved – which is trying to make more money from the same price point it has been at for the last couple of decades.

This isn’t easy. Many will argue it is impossible. I’d even agree with the latter. But the only immediate solution would be an extra tenner on the cost of each game sold – and it is unlikely we, as gamers, will tolerate it. Nor will we tolerate merchandising DLC, which BioWare are trying to do with Mass Effect 3, adding DLC codes to books, clothing ranges and Razer peripherals – to much critical backlash the last twenty-four hours. Gamers don’t like being asked to pay more. Consumers don’t. We want cheap. We thrive on cheap. We shop around until we find the cheapest place we like, and stick to it like glue.

But it isn’t doing the industry itself any good either. And it is this juxtaposition between the two extreme ends of the spectrum that exposes just how incompatible the two attitudes are. Games at the creative end are costing more and more, and the gamers at the other end are paying often less and less as stores and supermarkets clash for our business. It’s a relationship that just isn’t working.

So when you buy your next game, think about this as you play it… what is that game really worth to you? Would you have bought it at ten bucks or pounds more?

Because sooner or later, we may have to.

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