Video Games and the Recession

Numerous mass media outlets have reported that the video game industry is supposedly “recession-proof.” To that regard, I would point them to the large amount of layoffs, studio closures, and sub-par performance on many game titles. GameStop’s continually recording breaking profit margins aside, the gaming industry is feeling the recession, and the wallets of gamers are beginning to get tighter.

GameStop’s huge profits bring another debate, used versus new games. Any college student can attest that a used book is cheaper than a new textbook, but also the profit margin for anything used is higher than when bought new from a book publisher. Consider this: LittleBigPlanet has a trade in value of $24.50 on Gamestop.com. A used copy of the game is $54.99, so the potential base profit is $30.49, not pending any operational or system costs.

The recession should prove to be beneficial for GameStop, arguably the biggest video game retail chain in the nation, because more gamers will not want to pay the standard price for games. Waiting the few weeks to pick up a used copy or just purchasing a random title based on its “used” price is more tempting than buying every new release on the first day.

The oft-discussed negative side to this is that game developers and publishers will never see a cut of these profits. Their numbers come from new copies sold through various retail environments. There will also always be an argument if the developers and publishers should get a cut of the used game market. One possible solution would be to lower the standard price point of new releases, but with the developmental costs of PlayStation 3 and Xbox 360 titles ranging in the double digit millions, that solution isn’t plausible.

Digital distribution is the next possibility; the PlayStation Network and Xbox Live are home to many smaller, independently developed titles. At lower price points for smaller, but larger replay value, titles are much more easily consumed and devoured by the gamer and the wallet. Though attempting to download a Blu-ray title to the PlayStation 3 appears to be a daunting task. Xbox 360’s hard drive also appears to have similar space constraints, depending on which version of the system the gamer chose.

Digital distribution has proven to work with smaller titles, and should prove to be the ideal way to promote these titles. The lack of a physical disc, game box, and instructions immediately lowers the production costs. Though Criterion released Burnout Paradise as a downloadable title, most gamers will not want an entire game stored primarily on a hard drive.

Whether or not readers frequent the mass of video game news sites or read the dwindling supply of newsstand magazines, the news of studio closures occurs at least once a week. The bigger publishing companies are taking hits, but their size and amount of titles being released under their banners are slowing the effects of the lack of spending. Smaller development studios are quickly disappearing.

One of the best ways companies are keeping their heads above water is the sequel plan. Using established titles and continually releasing new titles under those banners can almost always guarantee sales. Looking at sports franchise series is the perfect example. Or take the Rock Band/Guitar Hero approach, release games with different bands at the helm. Also with Rock Band and Guitar Hero, the weekly release of new DLC tracks keeps gamers interested and spending their money.

DLC is an interesting idea for studios to generate new revenue after a game releases. The one question I have is - Is most DLC created during the original development schedule for a title or is it mainly developed after the game is released?

For Rocket Punch

Street Fighter IV’s costume packs are one travesty of DLC pricing. For one new costume per four characters with color options, a gamer has to spend $3.99. Now the argument is one doesn’t have to spend the money on these packs. But let’s look at it from a business perspective, one hundred people buy the costume pack, $3.99 multiplied by 100 equals $399.00. That’s a nice small chunk of change right there.

Obviously more people are going to buy the costume packs and the potential profit increases. For the work done on the costumes, the work per hour per profit has to be incredibly huge. The physics engine is already in place, so the costume should react appropriately. The backgrounds are already completed and have nothing to interact with the character. A new skin was created and placed on the character.

DLC alone cannot keep a company floating in the black. During this recession, gamers should see companies taking broad strokes to persevere through this period and plan for the time beyond. Square Enix’s proposed buyout of Eidos is the perfect example of this. As Square Enix is mainly known for two series now, Final Fantasy and Dragon Quest, the Eidos acquisition opens the doors for a proper Western marketing plan. Bringing the experience of the West back into the East will assist in the plans to create and market games for the rest of the world.

Electronic Arts, for the moment, appears to have stopped outright buying companies. Their failed Take-Two take-over was very important for gamers. It stopped EA from controlling one of the most important franchises of video games: Grand Theft Auto. Having GTA fall into EA’s hands would only lead to sub-par sequels coming on bi-yearly, over saturating gamers on the GTA brand. Like all monopolies, when one group owns the best, the overall standard falls to nothing short of shit.

The recession is affecting the economies of the world and will continue for some time to come. Gamers are still the demographic with the largest disposable income, and the price per play for video games is among the best return on investment of any entertainment. Movies range from an hour and a half to two hours and cost at least $10.00. Video games are base $59.99, but should at least offer six to eight hours of entertainment. At six hours, that costs you $10.00 / hour. Consider a RPG, one hundred hours of playtime? That’s sixty cents an hour. In the end, gamers need to support the industry in any way they can to help the industry survive this otherwise dark time.