Renegade Kid: Where do prices of video-games come from, and why are they important?
It seems as though the price tag of video-games has always been criticized as being too high. Now that we live in a world where iPhone Apps are available for $1 or even $FREE, a $40 video-game seems outrageous in comparison to many people. Perhaps $40 for a 3DS game is outrageous, but what surprises me is when people scoff at the cost of $5 and $10 Nintendo eShop games. Really? Now even $5 or $10 is too much for a game?
Where do prices of video-games come from, and why are they important? From my perspective as a developer, and now a publisher on the Nintendo eShop – aw yeah! – the price that my games are being sold at have a distinct importance to me and my business. Take Mutant Mudds, for example. Let’s say the development of Mutant Mudds cost a grand total $100,000 for all of the expenses involved with the creation of the game, such as team salaries, equipment, etc. This number is not real, but $100,000 is a nice round number that is not outside the realm of reality. Games can easily cost much more or less than this. Beyond our goal of entertaining people with our games, we also have the simple goal of making enough money to continue operating as a business so we can make more games.
If Mutant Mudds cost $100,000 to make, we need to make $100,000 back to break-even, right? That at least puts us in a good place where we don’t owe anyone any money. However, we must also make money beyond that if we are going to be able to move beyond Mutant Mudds and make more games. Let’s imagine we sell Mutant Mudds for $40 and our cut of that is 50% (that percentage is fabricated, but it works nicely for this example). So, we make $20 for each game sold. Nice! That means we have to sell 5000 copies of the game to make our initial investment of $100,000 back. That is a very manageable goal…
… however, the reality is that we can’t sell Mutant Mudds for $40, for many reasons. OK, so let’s go to the other end of the spectrum and price it at $1 with our cut still being 50%. Oh wow, we would need to sell 200,000 copies to make our $100,000 back. Hm, that might be a tricky goal to achieve. Time for some perspective: our best selling DS game has sold around 100,000 copies worldwide. Based on how the average original non-licensed game sells on the DS market, 100,000 copies is a big success. On a side note, we saw no profits from this title due to the broken business model of retail – but that’s a different story. OK, back on topic. Based on historical sales data, it’s probably best to assume the game will sell around 30,000 copies – tops – in its lifetime. It could certainly be a lot less, or a lot more. That’s the roll the dice.