Bargain Or Bust
We all love a bargain, especially when it comes to cheap videogames. But more discerning punters will probably have an indefinable nagging feeling pricking their conscience. How can games – that take on average around three years and thousands of hours of manpower to make – be valued so cheaply? Are these market forces or is something seriously awry? Sure, the odd Xbox 360 title hits retail at £49.99, but this is becoming rare. The reality is that the majority of 360 games begin life at £39.99 then plummet once pre-owned copies flood the market. While this is sweet for us consumers, developers are beginning to feel the pinch, warning that the price-slashing competitiveness among retailers, combined with the burgeoning pre-owned games market is a ticking time bomb.
“From the developer and publisher’s point of view the second-hand games market is a real problem,” begins David Braben, chairman of Frontier Developments. “The shops are essentially defrauding the rest of the industry by this practice, whether they intend it or not, by taking money that would otherwise go into game development. This means that while newly released games do still sell well, it is only a matter of a month or so before pre-owned stock saturates the sales channel – with a single copy rumoured to go around the sale/return/sale loop ten or more times – amounting effectively to rental.”
And this is the real problem: while games may seem expensive upon first release, the very people who make the games recoup very little from the total sales revenue on each copy sold. But this isn’t the only negative issue for Braben. “There is another factor which is more subtle – the ‘jumble sale’ appearance of some shops with tacky bargain bins full of dog-eared second-hand games. It tarnishes the image of our industry as a whole, giving the impression of a cheap, tacky business. With books and DVDs any secondhand market is confined to market stalls, and, yes, jumble sales.”
So are retailers being greedy or is this a chicken and egg situation, with pre-owned game sales increasing because publishers are initially charging too much? Of the six major software retailers we contacted only two offered a comment. HMV said it “understands industry issues and points of view” and had no immediate plans to stock pre-owned games.
Don McCabe, joint MD of Chipsworld, was far more candid, rejecting the notion that the pre-owned market is damaging the industry. “No, this is complete bollocks and displays a lack of understanding of why people buy second-hand games. I can understand when they see a recent release with a second-hand copy available at a lower price a week or two after release date, but this is a very tiny percentage of the second-hand games market and not representative. We tend to find customers who trade in for the latest release buy more games per year than average, so if the developers look at it from this point of view they will see that second-hand helps sell games and grow the market.”
But here’s a sobering thought: reports suggest that new IP generation is at an all-time low, with most of the big budgets set aside for safer bets like big-name sequels and those ever-popular licensed games. Chris Lee, commercial director at FreeStyleGames, believes there’s a direct correlation between the rise of the pre-owned games market and risk-averse publishing. “The developer and publisher see no part of the pre-owned sales market, which means less money actually goes back into the lifeblood of the industry to finance new projects and new ideas. It has further pushed the industry to a fewer, bigger, better mentality, where only big projects, sequels and licences are seen as viable. I can understand the attraction from a consumer perspective, but it has a lasting effect on the industry with less money being recouped by the development team and the publisher.”
And according to the developers we spoke to, publishers are finding ways to reduce game budgets to compensate. As Jamie Oliver has recently pointed out, you may be able to buy a chicken for a couple of quid from Tesco, but is it tasty and can your conscience deal with the immoral farming practices that make it, pound for pound, cheaper than dog food? Are videogames heading this way with outsourced sweatshop studios in China and Korea now responsible for much of the procedural content of games?
Indeed, big publishers are increasingly looking to Eastern Europe and the Far East to generate game content, and given that many of these teams are either new start-ups or have previously only developed niche titles, you have to worry about the final product. A former business development manager for a top ten publisher,who wished to remain anonymous, told us: “Developers in Eastern Europe are often preyed upon by US publishers to churn out their sequels and old IP. They are essentially shafted because the publisher has all the power and the developer is desperate for the business. But the end product is usually rushed and lacking cohesion.” Yes, we can point to astonishing games on the 360, such as Halo 3, BioShock and Mass Effect, but this is ignoring the fact that the independent developer is an endangered species and the vast majority of titles are sequels and me-too copycats. Developers worry that the retail sector’s near-monopoly over game sales is going to hurt innovation and risk-taking in the long term. But there is hope. Digital distribution is fast becoming a viable sales channel for both publishers and developers. Indeed, Electronic Arts recently reported digital revenues of $127 million, a 47 per cent year-on-year rise, and practically every publisher is now exploring this market. Platform holders Sony, Microsoft and Nintendo are mining this area aggressively, effectively cutting out the middleman: the high street retailer. Is this sweet revenge? “While retail still has a position of strength, they should use this to secure their longerterm future and strike deals with the console manufacturers,” continues Lee. “If they refuse to include console manufacturers, publishers and developers in the revenue chain from pre-owned game sales, I can only see this encouraging the industry to more aggressively chase digital distribution and ultimately keep the extra margin for ourselves.”
So could all our games only be available via online channels such as Steam, Virtual Console and Xbox Live in the near future? “My personal opinion is that retail will die,” says Patrick Buckland, CEO of Stainless Games, the company that brought Crystal Quest and Novadrome to Xbox Live Arcade. “In 20 years time consumers will laugh at the idea of going into a shop. It is a more efficient way of getting content to consumers.”
While the notion of not owning physical product may be anathema to some (especially the retro collectors), there’s a strong argument that digital distribution is reinvigorating the industry, shifting the power structure and allowing developers greater creative reign as well as a fairer share of the profits they generate. Developers such as Stainless Games (Novadrome), Introversion (DEFCON) and Team 17 (Worms) have achieved great success publishing their titles outside the usual retail loop. Sure, if you read this magazine then you probably buy umpteen titles a year, but that’s certainly not the norm. Adrian Pilkington, commercial director of BSkyB Games, already sees a shift in attitude towards downloadable content. “One thing that always strikes me from research is just how few games the average gamer buys each year. If digital distribution can increase the range and variety of games that gamers are interested in, that’s a good thing. If we can present games in a format and at a price that suits the customer, the natural assumption will be that they’ll buy more games.”
Make no mistake, the videogame landscape is changing. While retail may have a stranglehold over your purse strings now, their aggressive attitude towards re-selling titles and keeping all the profit for themselves is going to see a sea change, not just in the way we purchase games but in the type of content we experience. Big budget titles won’t be going away any time soon but increasingly publishers and developers are looking at e-distribution to bring down their budgets and maximise profits.
So what does this mean to you, the dedicated 360 gamer? During the life span of the 360, probably very little. Over the next five years publishers will be feeling their way and trying to increase their share in the digital distribution market. Progressive companies like Electronic Arts and Ubisoft already have a head start and those falling behind may find it difficult to catch up. We’ve already seen a huge shift towards smaller, lower-budget casual games and this will continue, especially via Xbox Live Arcade. In terms of the industry’s long-term prospects, medium and small publishers are unlikely to bother with the big budget blockbuster titles, but don’t expect the big hitters like Microsoft, Rockstar, EA and Sega to hold back. Franchises such as Halo and GTA will still be around a decade from now but will likely be delivered in a very different form. Rockstar has already hinted at episodic content and MMO-style gameplay in forthcoming GTA titles.
Undoubtedly digital distribution is going to change the way we consume games, but it would be silly to predict some kind of market crash or industry implosion due to the pre-owned titles flooding the market. Quite the reverse: the market has never been so vibrant with games sales in 2007 worth £1.52 billion in the UK alone, an increase of 19 per cent from 2006. So while it’s true that publishers have begun thinking outside the box, don’t expect the bargain bins to disappear any time soon.