High production values = Greater cost

[Use Your Illusion 0]

Wallets are set to take a beating for the new consoles.

by Ed Lewis

March 9, 2005 - With intense new graphics being played out on HDTVs for the next generation there is also a cost. All those pretty graphics and textures and worlds will require more work which means more people and that leads us to, yup, more money. To help attendees at the GDC get a grasp of what this will all mean for them, Kathy Schobeck, IGDA Chair Emeritus and GDC Advisory Board member gave a talk entitled "Economics of a Next-Gen Game" that was enlightening and a little bit frightening all at the same time. Start saving your pennies now.

 

 

 

We've already been hearing reports of $70 games on the horizon and with the figures that Schobeck was putting forth this didn't sound too far fetched. But before we were able to delve into all that, Schobeck put forth her own assumptions and methodology that helped her get to her own conclusions. Many of the numbers for the talk came from a combination of TRSTS math, many talks with developers and publishers, as well as agents who could talk about ancillary revenue.

 

To set a standard, the games that Schobeck was talking about were the AAA titles, the million sellers. With these sequels would sell 70% as much as the original, international sales would be 40% as big as North American sales, and digital distribution would be about 5% of hard copy sales. She also put forth that Greatest Hits versions of a game would be 25% of the total even though she admitted that the reality of Greatest Hits percentages were all over the board.

 

Along with these figures, Schobeck put out her ideal situation for the release of titles into the calculations as well. In this way the game would ship across all platforms, including PC and handheld, and all SKUs would ship simultaneously. Finally, to streamline the calculations, the overhead wasn't calcualted in her databse.

 

The most important figure in Schobeck's talk was $20 million. From her talks to others in the industry that's the average figure for the upcoming AAA titles on the next generation consoles, four times as much as the previous fiure of $5 million. Schobeck also doubled the cost of marketing the next-generation games. When later asked about why this would be the case she simply said that that's what her sources told her and asked if anyone in the crowd would know why. Nobody raised their hand.

 

Now, assuming all of these assumptions and taking in this information a next-generation game would then have to sell about 650,000 copies on consoles, 165,000 on PC, and 325,000 on handheld systems to break even. If the game is a sequel, then the numbers are a little more favorable with the requirements dropping down to 285,00 console, 71,000 PC, and 142,000 for handheld to break even. To strike gold in the next-generation economy companies with big-budget titles will need to clear the one million mark.

 

With bigger budgets come bigger risks for losing everything. A disaster of a game at this scale could easily put a $25 million loss on the books for a publisher. But then there is still the possibility of hitting it out of the park with a Madden, a Tony Hawk or even (don't laugh) The Simpsons: Hit & Run. Go up to the two million mark and the profits could nearly quadruple. This is the promised land.

 

So with this in mind Schobeck's advice to publishers was to "go big or go home" with their games. There will be higher expectations of quality for the newer titles and when a company only puts in $10 million in development costs into the game gamers will recognize this and it will keep the title from reaching the upper echelons. If a company is going to go at all, they might as well go all the way. And they better be doing this with more than one game since one big success can help to bolster the impact of two or three flops.

 

The exceptions to this scenario are the budget titles. The games that can be produced for one million dollars or less and sold for $19.99 or even $9.99. These games can be fit in as impulse purchases at the store when a consumer wants a simple poker game, for example. As for everything in the middle? Apparently we can forget about them because the gap is widening.

 

 

 

There weren't too many kind words for lincensed titles either, despite that Simpsons title that was already mentioned. Since licensing fees will be a burden on companies just as in the past and that will mean less money being put into development, Schobeck recommended avoiding that route. Unless a company is not planning to sell a ton of copies (ie. less than a million) there's no reason to pay for a name and an image. And since the development times and movie schedules can easily get out of synch the ability of a game to piggyback its sales on the marketing and popularity of the movie could very well not appear.

 

Another bit of advice for those in the publishing world is to not make so many games. This sounds counter-intuitive, but console games are sold with a markdown resrve of 10% and it's creeping even higher. That is how much the games can drop in price if they're not selling well at the stores. If the game doesn't catch fire right away, have a sale. With this happening on a regular basis, many gamers even depend on this to happen and the markdown could become a self-fulfilling prophecy. Plan for it and it will come.

 

Schobeck's solution here is to look to the wisdom of Namco. Namco is known for undershipping its titles to stores by as much as 15% of its sales estimates. This tactic may short the market and leave a few gamers out in the cold, or at least hunting on eBay, but it also allows for ridiculously low market reserve percentages. Sometimes this can be as low as 2%. By ensuring that the copies will be sold there's much lower risk of having product stagnate on the shelves and become a reduced rate title in a matter of weeks.

 

By combining this supply strategy with some increased wholesale prices, a doubling of estimates to two million, and lowering the cost of goods there is a chance of reaching a more ideal situation. The goal in this new scenario would to hit 450,000 console sales, 112,000 PC sales, and 225,000 handheld sales. With everything completely falling into place in the next-generation the publishers could do well if they followed all of these rules, at leat in theory.

 

It's still impossible to ignore the fact that the predictions that we saw today for the wholesale prices of the games will go up by $6-$10. Schobeck put forth the idea that prices could go to $54.99 for new AAA titles. If the rest of her numbers are correct, they could easily go past that and hit the $59.99 mark. And that would be coupled with her idea of shorting the market so that gamers wouldn't have the luxury of trying to wait out the stores and get the prices to drop like they did before.

 

With higher prices consumers will likely become even pickier about the games that they choose to buy. Whether consumers will go along with this or reduce the number of purchases is still anyone's guess. It will likely enforce even further the idea that a game is either a hit or it's nothing. When asked what the future will hold in this regard, Schobeck simply laughed and said that they would have to ask her again in five years.

 

Credit: IGN.com

[NoCalMike 0]

ANother question though will be which games actually make use of the systems peak capabilities. I mean if you look at Metal Gear Solid 2 & 3, and then compare it with graphics of other games, it is obvious some companies go half-assed on graphics to curb costs, so they better not expect me to pay $70 on a game where the game makers aren't doing everything possible to use the system's capabilities.

[Guest MikeSC]

Well, we'll see how long the videogame industry can grow if the prices keep going up. They'll be hitting the price point where it can't continue growing if they continue the price hikes.

-=Mike

[Use Your Illusion 0]

ANother question though will be which games actually make use of the systems peak capabilities. I mean if you look at Metal Gear Solid 2 & 3, and then compare it with graphics of other games, it is obvious some companies go half-assed on graphics to curb costs, so they better not expect me to pay $70 on a game where the game makers aren't doing everything possible to use the system's capabilities.

 

Very good point. One might think that if there is, in fact, a universal price rise in the retail prices of games, then game companies will ensure their products are to a certain standard.

 

However, all companies have different interpretations of what an acceptable 'standard' actually is.

 

I have no problem paying a little extra for your Metal Gears, Devil May Crys and the like, but won't look at average titles twice if they are retailing for the same price. Some sort of pricing system will need to be implemented in this case to combat this situation, otherwise some gaming companies are going to be massacred in sales.

[Ripper 0]

It doesn't take any more work really. Creating a low res model takes just as much work as making a high res model honestly, seeing as it is a task to keep poly count low. The textures, basically they just won't have to be at such a low resololution so there actually isn't anymore time being invested there. So basically the changes that will take more time is lighting.

 

 

Yeah...thats about it....lighting....

 

 

That shouldn't really be that much of a difference. Unless of course these next gen systems have really complicated programing, but to say that because the games will be prettier will take more time is ridiculous. The difficulty in makeing video games is making crappy models look good. With the next gen, you don't have to use crappy models.

[Guest TheDon]

To curb costs, Videogame companies should stop making crap. And if they really think that people are going to pay 70-80 dollars for a videogame they have another thing coming. To me one of the reasons why the N64 failed was because games were usually 70 dollars when on the psx games were 50.

[2GOLD 0]

The only way I'll pay 70 bucks for a video game is if the video game will wake me up every morning and clean my room. And do my laundry. And wash my truck.

 

So now they will want you to pay 70 for the game and you can bet they will then boast subscription costs for online play soon after because "the technology is so advanced".

 

I don't like paying 50 bucks for video games. Hell, I don't think I've paid 50 bucks for a video game in a year. I wait till the price is reduced to 30 or 20 and then I buy the game.

[AndrewTS 0]

I smell a crash in the next 10 years.

[Skywarp! 0]

The industry better realize that video gaming is a hobby. After you pay rent, utilities and buy groceries, if there isn't enough left over to support my gaming fix, it just might not be worth getting a next-gen console.

[LaParkaMarka 0]

People are willing to pay that much for games. Xenon and PS3 aren't targeting teenagers with little disposable income, they're after those older 20-30 something gamers who can easily shell out 400-500 for a system or 70 bucks for a game. If it's the standard price across all platforms, people will up and pay for it. Look at the iPod, that thing is ridiculously overpriced and every other moron has one.

[Ripper 0]

People have to be able to justify making purchases like that. I mean, people can justify getting a I-Pod because they convince them selves its more economical than a CD player.

 

I don't know how anyone could justify spending 70 bucks a game.

[USC Wuz Robbed! 0]

I smell a crash in the next 10 years.

Well yes, the oil crash is beginning.

[razazteca 0]

I don't know how anyone could justify spending 70 bucks a game.

Free online play? Its Final Fantasy XIXIMC? MSG 5? Mega Man Z9? Castlevania Anniversary?

[kkktookmybabyaway 0]

Don't want to pay $70 for a game. Don't buy it.

 

As Rant would say, what a bunch of bitches...

[Special K 0]

It could be a good thing to have a minor price hike.

Back in the Super Nes days the Dollar was worth a lot more, and Chrono Trigger and SM World 2 cost like 70-80 bucks.

If games cost more, people may buy less, the rental market will go up, and hopefully some of the shitty shovelware flooding the market now will go by the wayside. (I can't believe the market hasn't completely gone dead for console games based on movies)

[Kahran Ramsus 0]

I would pay it for games I wanted, but it completely eliminates the impulse buy.

[teke184 0]

There have been only isolated periods of time in which a game has legitimately cost $70+...

 

In the 16-bit days, most of the first-party RPGs like the Phantasy Star series and Sword Of Vermillion cost $70 each because they were the largest cartridges, memory-wise, at that time and had battery backup.

 

These prices gradually went down over time, with some exceptions like Final Fantasy 3 and Super Mario RPG for the SNES.

 

 

In the 32-bit market, only the N64 games cost this much and those were typically only the first titles released for the system.

 

This, IMHO, helped cripple the N64 from the start because only about 1 in 4 of the early games for the system were even worth playing and probably only 1 in 12 could probably considered worth the cost. (Goldeneye is considered the only true classic out of the N64 launch titles)

 

 

If they do this on the 64-bit platforms, they'll better strictly limit it to the really high-end games like the Final Fantasy, Grand Theft Auto, and Metal Gear Solid series. Anything else will have a tremendous handicap at that price because it won't have the name-power or the track-record of excellence.

[teke184 0]

(I can't believe the market hasn't completely gone dead for console games based on movies)

The development costs on these games is so abysmally low that the name-power of the movies involved pay off the license after a very few of the copies have sold.

 

This is especially true if something uses a recycled engine from another game, such as the South Park game using the Ack!Lame Turok engine.

[Special K 0]

I guess to qualify my earlier statement, somethingI had not considered earlier is that I think companies today think that almost all of their projects are going to be revolutionary, and the second coming of console gaming. What other explanation do we have that we rarely see kick-ass 2D games? Unless they simply don't sell because gamers want to be wowed by graphics. BTW, a game Disgaea or Castlevania SOTN with nice 2D graphics and some neat 3D effects very often looks better to me than some murky 3D games with blurry textures that probably took more graphical work.

 

On the other hand, it seems to me sometimes that games are coming close to a peak in terms of graphical beauty, besides por exemplo, photorealistic sports games. It's hard to get prettier than Wanda and the Collossus.

[AndrewTS 0]

Unless they simply don't sell because gamers want to be wowed by graphics.

 

They don't sell because of that, and also in part because Sony wants gamers to be wowed by graphics.

 

Aside from the SF3s and Guilty Gear, there have been very few attempts to really push the limit of 2D graphics in ages. It's a shame, though, because 2D ages better, while even something that was cutting edge a few years ago--Soul Blade for instance--is laughably ugly today.

 

Of course, this sounds like a lot of theory with little practical evidence to base it upon. If you think there won't be plenty of ports, remakes, compilations, and budget games with lower costs, you're crazy.

 

I'm surprised by the small impact of the used game market. Back in the 16-bit days, there weren't Gamestops/EBs/Gamecrazys everywhere like there are today. You can now go out and pick up a good PS2 game for 12 bucks, PS1 games for 5 bucks, and so forth. I'd often wondered if the used game market would hurt the primary market, but so far it really hasn't, since there are plenty of people who prefer new games, and plenty of dumbasses who trade in great games for about 3-4 bucks a pop for the credit (God bless their stupidity).

 

(I can't believe the market hasn't completely gone dead for console games based on movies)

 

I'm not getting what you mean by this. Explain.

 

Don't want to pay $70 for a game. Don't buy it.

 

A lot of us are thinking just that. I think I'll pleased enough with the games I have from 16-bit to the present to pass on the next-gen platforms myself.

 

People are willing to pay that much for games. Xenon and PS3 aren't targeting teenagers with little disposable income, they're after those older 20-30 something gamers who can easily shell out 400-500 for a system or 70 bucks for a game. If it's the standard price across all platforms, people will up and pay for it.

 

"Casual gamers" can and will for Madden, however do you realize there are a lot of people who buy a PS2, the newest Madden, and little else? They may buy a handful of games a year, play them a good bit, and it's enough for them.

 

However, I'm thinking a lot of those 20-30 year olds, who are going to have less disposable income these days (gas prices, inflation) who are probably getting jaded and frankly may not get too interested in playing another generation of games that are the same as what they've played this generation. With the 3D barrier broken, most of the new games out these days are just cosmetic enhancements of older stuff. There's very little in the way of innovation. There's about a couple of innovative titles on the DS and PSP--the rest are rehashes and sequels.

 

The big picture is looking bleak to me.

[Matt Young 0]

Goldeneye is considered the only true classic out of the N64 launch titles.

The launch titles were Super Mario 64 and Pilotwings 64. GoldenEye wasn't reelased until the system had been out in North America for a full year.

[Kahran Ramsus 0]

However, I'm thinking a lot of those 20-30 year olds, who are going to have less disposable income these days (gas prices, inflation) who are probably getting jaded and frankly may not get too interested in playing another generation of games that are the same as what they've played this generation. With the 3D barrier broken, most of the new games out these days are just cosmetic enhancements of older stuff. There's very little in the way of innovation. There's about a couple of innovative titles on the DS and PSP--the rest are rehashes and sequels.

 

This is going to be a big problem eventually. Once they hit photorealistic, where do they have to go from there? VR? If I wanted to play football I'd just call some friends and go outside.

[teke184 0]

Goldeneye is considered the only true classic out of the N64 launch titles.

The launch titles were Super Mario 64 and Pilotwings 64. GoldenEye wasn't reelased until the system had been out in North America for a full year.

OK, I misstated things a bit...

 

Goldeneye was still one of the only games worth the $70 cost within the first year or so of the system. (Wave Race, Mario Kart, and Mario 64 were closer to $50-60 because Nintendo could control their costs better)

 

Most of the other shit shoveled out around that time like Killer Instinct Gold, War Gods, and Crusin' USA aren't even worth picking up out of the N64 bargain-bin.

[MarvinisaLunatic 0]

Here is a list of the last couple of games I purchased for the Gamecube and how much I paid for them:

 

MVP Baseball 2005 $24.95

 

Resident Evil 4 : $34.95

 

Metriod Prime 2 $44.99 - $5 coupon - 10% discount = $35.49 (this was in early december right when it came out).

 

$5 Games from Circuit Citys messed up sale back on December 13th, 2004

Gamecube:

Simpsons Hit and Run

Sonic Mega Collection

FZero GX

 

PS2 (Gave as Christmas Presents..):

Jet Li Rise to Honor

Need For Speed Underground

SOCOM US Navy Seals 2

 

$5 games from the first Messed Up Circuit City Sale on July 11th, 2004

Wrestlemania 19

Viewtiful Joe

Medal of Honor Frontline

SSX 3

Soul Calibur 2

 

I got 11 games for $55 that were at least selling on the greatest hits line for $20-30 at the time. Im guessing thats why Circuit City is in the process of getting bought out.

 

But honestly, if games are $70, more people will wait to catch them when the go on sale for $50, or even later when they are selling them as the Greatest Hits titles. There are very few games I would pay $70 for.

[Use Your Illusion 0]

That's a mighty good deal for Resident Evil 4, Marvin. I've played a fraction of it on my mate's Gamecube, but will sadly have to wait a good while before it surfaces on my PS2.

[MarvinisaLunatic 0]

There are tons of places to get cheap games on the internet. Frys Outpost (outpost.com) has some really good deals on games for pre-ordering with free shipping and (as a bonus) no tax.

 

More people will buy games for full price, play them/beat them/get tired of them and sell them back on EBay or whatever to get some of their money back.

 

Also, I think game rental sites like Gamefly will get more common and more popular.

[Jingus 0]

I think the most I ever paid for a game was $50 for Final Fantasy 3 way back in the day. But I doubt that I'd pay $70 for the vast majority of the stuff that's coming out now. That's just way too much money to ask for one video game. For that amount I can buy a DVD, a CD, a book, and a pizza, and still have change left.

[Jer 0]

This annoys me, because I really don't care about graphics in games at this point. Games look great already, and improvements in graphics aren't going to mean anything in terms of gameplay. I'd rather games keep looking like they do now, and cost $50. I've already been buying fewer games recently, and this will cut my buying back even furthur.

 

I don't think this focus on graphics is sustainable. Each generation it will cost more to develop games, and each generation the difference in graphics will be less and less noticable. Eventually people will stop being willing to pay for graphics improvements they can barely notice, especially when they don't improve gameplay.

[EricMM 0]

But what about games like Katamari Damacy, that obviously don't push the graphics boundry in any way?

 

KD has soem good visuals, but they're just creative, not high-poly. I feel like the designers made do with old tech, which is why the game retails at $20.

 

Is this where games may have to go to hit one million copies?

[Special K 0]

What I mean about the movie statement is that I can think of few movies that turn into well-made games. Yet, for every single game, from Constantine, to Catwoman, they keep cranking a game out for every movie made with the slightest bit of action. I guess lately there have been some good ones (Riddick, Spider-Man) and some OK ones (some LOTR games), but by and large you'd think people would be leery of these games by now.