Why are console games more expensive than movie DVDs? – Redux

By on July 20, 2010

Rebuttal from an industry expert.

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First Impressions
My reaction is

A few weeks ago, I posted a blog article on why I think video games should not cost any more than movie DVDs. It sparked a lot of debate and a rather interesting rebuttal came from Nitin Mathew, Marketing Manager at Red Entertainment Distribution. I thought it warranted it’s own blog article. Here are his comments:

A few thoughts from somebody with a bit of experience in the industry:

1. High production costs — The price of the game that you pay attempts to cover the following elements in the process of getting that game to you: development, publishing, production, marketing, distribution and retail.

In the case of movies, my understanding is that once the movie is released in the cinema, theoretically you only need one physical print to show the movie to millions of people. Depending on the geographical reach, it may require thousands of prints. However, for games you need to get the game physically into the hands of millions of people.

Digital downloads are going to help with this, but we’re still some way away from the mass market downloading a Blu-ray worth of data off the internet, given the penetration of broadband and the speed levels that we experience.

2. Piracy — Part of the cost of the game goes towards paying royalties to the format holders (Sony, Microsoft or Nintendo). This is why PC games are up to AED 100 cheaper than console games. Pirates do not pay royalties, or spend money marketing the game to you. They don’t develop the game either. So, pirated content actually steals from the people who have put years into making the game.

3. Marketing Costs — If you compare the number of people who watch a blockbuster action movie like an Iron Man 2 versus the number of people who buy the video game, the video game buyers are a fraction. However, assuming you use the same media channels, the cost of marketing to these people is the same. It is not commercially viable for video game companies to spend the same amount of money.

4. The Cost of Shipping Games — For various reasons, the physical production of console games is actually done by the console manufacturer. Again it is not commercially viable for Sony, Microsoft and Nintendo to set up production plants in each country/region to do this. In fact if they did this, then the cost of production in each region would vary and you will find that games are more expensive than in other markets. There are many factors that contribute to this including local labour costs, material costs, taxes and geopolitical issues as well.

5. The Blu Ray Factor — It goes back to production costs again. You would not achieve the economies of scale by having regional production plants.

Another thing to note here is that in most cases, by the time a DVD or a Blu-ray of a movie has released, the movie has already generated a certain amount of revenue. For a commercially successful movie, the DVD and Blu-ray sales are just icing on the cake.

6. The Console Factor — The original 20GB PlayStation 3′s production cost was estimated to be around US$ 805 whereas the launch price to the consumer was about US$ 499. If Sony charged you what it cost them plus costs for shipping, distribution margin and retail margin it would have crossed the US$ 1000 mark when it got into your hands.

Another thing that most people don’t remember is that all of the companies involved in this industry are there to make money – developers, publishers, distributors, marketers and retailers. All of them have business objectives, revenue and profit targets and commitments to stakeholders.
Avatar crossed US$ 500 at the box office, at an average ticket price of US$ 8, when 62.5 million people watched the movie in the cinema.
Call of Duty Modern Warfare crossed that mark, when only 10 million people bought the original game at an average retail price of US$ 50.
Do you think 62 million people will buy a new copy of Modern Warfare 2? Very unlikely as the game is not mass market enough for that, which i think an earlier comment referred to.

I’m assuming that the average action movie can be scripted, casted, filmed, produced and distributed in the space of 6 months turning it into about 90 minutes of passive entertainment.

At this rate, with more or less the same “crew” a movie production company can wrap up at least 2 movies in a year

On the other hand, a blockbuster game requires at least 2 years of concerted effort to do this and the team would not really be able to work on anything else.
So, the video game company needs to make more money to cover the cost than the movie company.

This is purely theoretical and i am in no way claiming to know the nuances of either.

At the same time, please note that not all games make money or even recover their cost. There is a theory that only 20% of movies are profitable. I think this loosely applies to the games industry as well.

If people in any region want prices to come down, they need to contribute back to the industry by way of buying original product and encouraging local talent.
And finally about retail pricing, most video game fans will be aware that over time the price of a game actually drops. The price conscious player is welcome to wait out the initial rush and get the game when it becomes cheaper. However, if he/she wants to play the game on day 1 when it launches, there is a price to pay.
In some respects this is similar to the launch of a much awaited movie. You may pay the same ticket price as everybody else, but it doesn’t guarantee you the best seat in the house. So you may want to wait a few days in order to get a good seat at the cinema. In this case, although the ticket price is the same, you pay the price of not watching the movie on day 1.

About

Hitesh is a tech/games journalist and Business Development Manager for the Tbreak Network.

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  • http://www.brandwebdesigns.com/ BWD

    Its a great post by you Hitesh. The points Nitin Mathew about the rise in cost are really good. Games also require very high graphic quality to start properly. So its ok that the price is higher than movie dvds. I also love playing games but no complains for rise in prices.

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