Why are console games more expensive than movie DVDs?

By Hitesh Uchil on May 30, 2010

One man’s argument for why video games should not cost more than Dhs75.

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First Impressions

My reaction is

I’ve been on a quest of late to try and find out why video games cost as much as they do. The average price for a new PS3 or 360 game in Dubai these days is Dhs279 (approximately $76). That’s a lot of money and I’d like to know why a video game costs me four times as much as it takes to fill up a full tank of petrol. Let’s take a look at some of the arguments:

1. High production costs — Yes, I’ll agree that it takes millions to make and distribute a big budget game. However, it also takes as much or even more to make a big budget movie and I only have to pay Dhs30 ($8) to watch it at the cinema or Dhs75 ($20) to buy it on DVD.

2. Piracy — Yes, piracy hurts video game sales and increases prices which in turn leads to more piracy. It’s a vicious cycle, I know. However, you can find as many pirated movies on the Internet (no, I won’t send you links if you email me) or as a bootleg DVDs at shady corners of the street as you do video games. So, why can’t I pay Dhs75 for a video game, the same as I do for a movie?

3. Marketing Costs — Again, I’d argue that the movie industry spends more on marketing than the gaming industry – particularly in this part of the world.

4. The Cost of Shipping Games — Perhaps the video game industry needs to take cue from the movies industry and just print the game on DVDs/Blu Ray locally rather than spending a small fortune shipping in the games from Europe.

5. The Blu Ray Factor — Yes, Blu Rays are more expensive than DVDs and Sony’s probably a little more justified than Microsoft for their prices but even still, an average Blu Ray DVD movie costs $25 to $40 — almost half the price of a video game.

6. The Console Factor — Consoles are sold cheaper than the cost of production, in the hope that the video game sales offsets the difference in cost. Marketing gurus call it the Razors and Blades strategy — sell the razor for cheap and charge a small fortune for the blades (made even more effective by giving it a name corresponding to a multiple of the speed of the light). Honestly, I’d be happy to pay a little more for the consoles as long as I don’t have to pay Dhs279 for every new game.

Microsoft’s been spending its time raiding pirated games stores and we say kudos for the effort but if you really want to try and sell more games — start taking a better look at your prices. Until you do, you’ll find me at the bargain bin section of the store delving through old classics that deserve my Dhs75.

About Hitesh Uchil

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

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Comments

ibrahim

DUDE IM 100000000000% WITH U
Tareq

That is mathematically impossible
http://faiz_ali86.at.hotmail.com Mohammed Faiz Ali

comparing the number of people that watch movies vs. the audience of the gaming medium, it is not possible unless gaming was as widespread an interest as movies were.
when games start going titanic or avatar level, you may see cheaper games. but for now youll have to count on digital content like steam for cheap gaming needs.
comparing the movie industry is also not fair since movies are initially released in theaters first. months later movie dvds are released. this brings down the rate of piracy since many people have already watched it in theaters and the reward for watching a lame pirated videocam footage of the same movie just isn't worth it. the bottom line is movie makers still make good amount of money with piracy around while gamemakers dont.
games are like straight to dvd releases which makes them much more easier to pirate. additionally, gaming is a personal 1 to 1 experience unlike movies which are played to a mass audience (theaters).
thanks to devs, publishers, and console makers, gaming software is reaching unprecedented levels while hardware mfgs. are pushing consoles as an entertainment hub. this serves as an entry point for non gamers into this growing interactive entertainment medium.
http://faiz_ali86.at.hotmail.com Mohammed Faiz Ali

as a direct response to your concerns:
CLAIM 1. high production costs (like movies) at this point in time are unjustifiable for the simple reason that the gaming audience is comparitively a lot smaller
CLAIM 2. piracy is a bigger threat for the gaming industry than the movie industry + the gaming industry is not as widespread
CLAIM 3. yes, movies makers spend more on ads than game makers. but gamers get their marketing info from the net; casual gamers get their gaming news through game geeks and licensed games. hardcore games are always marketed online and that is their marketing medium. the only games that need the traditional marketing method are casual games.
http://faiz_ali86.at.hotmail.com Mohammed Faiz Ali

CLAIM 4. sending out digitalcopies of your games to local publishers is suicidal (such as those outside of the gaming dev countries – US, Japan, Europe). publishers are already having trust issues with pirated copies leaking out weeks before the original release date
CLAIM 5. yes, blu ray just adds to the cost essentially eating up a sizeable chunk of the growing gaming 'pie'
CLAIM 6. the last point is unjustified since a big price tag essentially kills a potential entry point for non gamers and gamers on a budget. its all about consumer psychology; bait and hook.
deerhunter

I think the standard retail price should revolve around 170 to 200 dhs. the cost of a new game including all fees except for logistics is around 100 to 130 dirhams (for PS3 & XBOX360 games), thats why if you see a game in carrefour selling at 49 bucks each in a bin grab it, they are selling those at a loss (though its probably a consignment, and most of the games sucks), I think they are overcharging new games in order for them to recoup the losses from the other sucky games that they have hanging out in their warehouses for like…. forever. I know its wrong but hey thats the only way to keep the ball rolling
http://twitter.com/uglee @uglee

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.
http://twitter.com/uglee @uglee

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.
http://twitter.com/uglee @uglee

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.