MediaFile

$60 video games? Do the math, says Zelnick

December 5, 2008

How do entertainment retailers come up with the prices they charge? Why is a movie theater ticket $10, a music CD $15, a rental DVD $3-$5 and a top video game $60?

We asked Strauss Zelnick, executive chairman of game publisher Take-Two. He says it’s simple math, based upon the value of that experience.

Prices are determined by the marketplace — if folks stopped buying stuff, prices would fall, etc. (Think gasoline). Balance that with cost. A game like Halo or Grand Theft Auto takes years to develop and costs as much to make as a Hollywood film.

Here’s Zelnick in his own words:

The reason the consumer is willing to pay $60 for front-line product is because they are going to get 20-plus hours of game play out of that product.

I’m a big believer that there is an equation for the pricing of front-line entertainment products, which is: The hours of expected consumption times the value per hour, plus the catalog value.

The price per hour is pretty stable across media. For example, a motion picture: You have two hours of experience in the theater, a very high-quality experience, zero catalog value. So what’s that worth? I guess about $5 an hour (on a per capita basis). If you apply that to a video rental, also zero catalog value, there’s multiple people watching typically, it’s a lower quality experience, that’s how you get a video rental of three bucks. Recorded music, you will listen to the album (up to 10 times — or hours — on average). The same equation applies.

There’s more:

What’s driving that front-line price point is the perceived quality of the experience, times the number of hours you are going to have that, so that the price per quality hour of the experience, times the hours, plus catalog value. And I understand why that number would be, for the sake of argument, $60, versus for sake of argument, $15 for an album, versus $3 for a video rental, versus 10 to see a front line movie.
They are not so far off.

So it’s not that we came up with that price point out of the blue. If we came up with it out of the blue, we wouldn’t be selling anything at that price point.

For the record, the industry walks the walk. Take-Two’s Grand Theft Auto has sold more than 10 million units in less than a year. And other huge industry sellers such as Metal Gear Solid, Fable, Halo, Madden NFL, Rock Band and Guitar Hero? Most have sold more than a million copies — at $60 a pop, or more.

I admit that I’ve bought $5 DVDs, cheered, and watched them only once. I’ve also paid $60 for games, grumbled about it, and played them for months. Now I’m thinking about buying Rock Band 2 ($189) or Guitar Hero: World Tour (also $189) for the holidays. (grumble grumble grumble)

So what do you think? Are video games fairly priced?

(Photos: Screenshot from Amazon.com; Zelnick, Reuters)

Comments
8 comments so far | RSS Comments RSS

Well by Mr. Zelnick’s calculations, GTA IV or Fallout 3 (and others) are extremely undervalued at $60. Reviews claimed that the game would take 100 hours to complete. Even at 50 hours, the game should cost $250. Or look at Fallout- my game clock is near 100 hours already and I’m not finished yet!

Posted by Arseny Lebedev | Report as abusive
 

Then tell me why same time releases (fallout 3) are 60$ on current gen consoles and (still) 50$ on PC, yet console sales have gone through the roof in the last 5 years?

There is a MUCH greater demand for console games now than PC yet the game price… goes up?

Willing to pay 60$ for a game that has 20+ hours? I have played many games that get no where near that and they all are 60$ (console), 50$ (pc).

Mr. Zelnick, you are completely out of touch with gaming and have ZERO idea whats going on in the market.

Posted by necrosis | Report as abusive
 

Necrosis… the fact that you paid 60 dollars for “many games” where you get nowhere near 20+ hours simply means that either they’re really, really good (and short) games or you have no clue how to judge games before you buy them.

Zelnick is right on the money with this article.

I was talking to a friend about Mirror’s Edge just yesterday. Many reviewers say you can beat the game in about 8 hours and there’s very little replay value in it. That’s $7.50 an hour. There’d better be some REALLY GOOD entertainment packed into each of those hours for me to even consider that to be a decent value. I know I’m giddy about games like Oblivion “only” costing $60.

There are as many games are there are movies out there that are steaming piles of yuck. I’m *STILL* angry about the 15 dollars (I count snacks) I paid for the experience of watching Battlefield Earth in theaters.

The big difference here is that, unlike cd’s and movies, videogames aren’t “impulse” buys. Impulse rentals, sure, but not purchases.

Zelnick… I’ll be showing this article off to a lot of people… well done!

Posted by yonderTheGreat | Report as abusive
 

Because Sony & Microsoft get their licensing fee right off the top – that’s where the extra $10 on console games go. How else do you think they make money when all the consoles are built at a loss?

Posted by crunchysuperman | Report as abusive
 

He is actually pretty correct. $5 per hour for something you get to keep. With most games coming in a an easy 10 hours of play.
As mentioned however, there are games that give you far more play time for that price and some that give you much less. Replayability and length of games is an odd and difficult to price factor, since some people won’t replay games at all. Others will never touch the online component and only play through single player.
There is also the way a game was made. Some are built where the game generates content as it goes, giving more and more gaming hours above what they have specifically written.
GTA4 for example has a decent amount of game play, most of which is scripted like a movie. It fits in well with the price scheme. Rockband on the other hand, has a short life if you simply play through each song once.
The Diablo games have a huge amount of gaming time, but beyond the initial simgle player campaign it’s all the same with a lot of random generated scenarios.

The issue I have with the pricing scheme is when a publisher decides that a game is a AAA title and they give it that price. It then turns out to be something completable in 2-3 hours with little to no replayability. That a rip off for sure.

Lastly, his price scale doesn’t fit properly with the price of items in Australia. Games are 30-40% above his stated prices, with the price of movies and other media being somewhat comparable. Go Figure.

Posted by Grokk | Report as abusive
 

1. I dont seem to remember having to fix a movie , for several hours to make it work as advertised .
2. Despite The Phantom edit and a few rare exceptions , movie and/or TV fans arent willing to completetly help revamp and update the media when the publisher is still reaping the profit on the original product.
3. When a movie is purchased, it doesnt install spyware that will make the device being used to view it no function properly .
4. If second hand game sales are killing the industry , why are the developers all racing to the consoles, which all have large resold games percentages,?

Posted by NadaGeek | Report as abusive
 

I basically agree with the argument that pricing should reflect entertainment per hour.

But I also think this system in which everything costs the same is killing games. At $60 I only buy very few games per year and I read several reviews before buying. I’ll never make an impulse buy. And that’s why most games are not profitable. It’s a winner takes all market. I think games should be priced more like books – lots of different price points. That would allow more niche games and shorter experiences at $20. About $20 is where I might pick something up just because the cover looks interesting.

Posted by Fiddlesticks | Report as abusive
 

I think he is full of it. I think is base on supply and demand like the rest of the universe. Think about when the games become older and they are sold for less. Is the experience worse? I do not think so (same hardware same software) The only difference is less demand.

Posted by Peter La Coste | Report as abusive
 

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