In all these days of bundles and steam sales and DLC and blah blah, people are happy to shout loudly about what they think about any particular pricing model or experiment, but I don’t come across much discussion about pricing models in theory, from first principles.

So I’m going to ask, in theory, given magical powers to make anything work (like workable DRM, or perfectly rational customers etc), how would we sell and price PC games?

Thinking about that makes us consider what the theoretical demands should be of a perfect system. What do we even mean by perfect? I would humbly suggest the following basic principles:

  1. The financial success of a game is strongly correlated to the amount of fun and enjoyment that it has provided, as a whole to the gaming population
  2. The financial success of a developer is independent of any personal relationships or circumstances. Games should not be hits because the developer plays tennis with the owner of another company etc.
  3. Gamers should feel that they are receiving a fair deal for the money they pay
  4. There should be a strong system of market signals. Good games should make piles of cash. Poor games should fail, thus encouraging future promotion of good games.
  5. There should be a level playing field. It should not be possible to purchase success, through sheer weight of advertising
  6. It should be financially viable to produce niche games, not just blockbusters.

Do these principles seem sound? Any I’ve missed? Given that we accept these (for the sake of further typing…) what sort of system would exist, or what changes need making to the current industry to move us closer to it? I feel that the existence of a few major distributors and publishers that have gatekeeper status seriously undermines 2) and to some extent 5). I think that piracy of games seriously undermines 1) and can cause problems for 6).

My main concern is with 1). If 2 games cost $10 and one provides an average of 22 hours of play time per purchaser and the other provides 3 hours, we really should be finding a way to get more money for game 1’s developers. The solution to that could be DLC, where the 22 hour players are happy to pay more because they are still into the game. Does that seem fair? It certainly seems more viable that game setting it’s price at 7 times that of game 2. Of course, it could be said that game 1’s better quality will lead to great word of mouth and 7X the sales, but I’m not sure that works in practice.

More widespread use of demos would help with item 3) surely? or could we make an argument that DLC helps here too, because with DLC as an option, players are spending more closely what they choose to buy? Maybe we should go so far as to say that F2P and microtransactions solve all of these problems? except that kills of 6), because the many players + few whales strategy doesn’t scale down easily to niche.

No wonder game pricing is such a mess.

18 Responses to “The perfect games industry pricing model”

  1. T says:

    Spotify model? I pay £X month and can play any game I like, developers get a share of X according to proportion of time spent playing their game(s). Requires all games to accesible in a single portal and time tracking to happen in some way, but, it would be fair?

  2. D. Moonfire says:

    I think those are pretty reasonable and I think the writing industry is going through the same thing. Amazon has some pretty interesting ways to address some of those. The sales rank is based on what is being bought, and while it can be gamed, it does seem to have an idea of what is popular. The sheer quantity of Kindle books out there pretty much levels the playing field simply by volume. It also seems to have the effect of Darwinism in that overpriced books are driven down and the “good stuff” gets more popular.

    If you added the “if you like this, you might like” recommendations, you start building up a network of games that gets people to know about things they didn’t see before and encourage them to keep spending. The reviews, not just from shills, but people of the community will also add to the market that I think you are talking about. I suspect Steam (and I hope Desura) will start to get some of those same features.

    I think the main part is volume (a ton of games, even small ones, coming out), relatively low prices (looking at the i*/droid games coming out < $1), and making it as easy/fast as humanly possible to buy a game and get playing. Time from decision to killing/scoring is going to get shorter, which will help with the seething boil of entertainment Darwinism. :)

    Outside of that, I think the trouble is the gatekeeper. Amazon is effectively a gatekeeper, as is Humble and others. For me, I buy games less on what price they are, or what bundle they are in, but who wrote it. I like supporting people who enjoy the community and encourage it. I also buy books from people who support their communities for the same reason.

  3. Someguise says:

    At least for ‘AAA’ studios, the incentives are entirely wrong, and consumers are to blame – studios ‘expect’ to make excessive amounts off launch day sales, and therefore the quality of the product that ships, to some extent, comes second.

    I disagree with piracy undermining 1, at least – I do not think there is substantial overlap between ‘people who buy games’ and ‘people who pirate games’ – especially with the popularity and ease of use of steam and similar, it has become genuinely more convenient to just buy a game you want rather than pirate it. Therefore, the people who pirate either simply don’t have the money to spend, or are unwilling to spend the money on a game – either way, this means a pirated copy is not a lost sale, since there was no sale there to begin with. Unless there isa very strong community (multiplayer, really) or good continuing support/updates/content for the game, i doubt many pirates are ‘converted’ to paying customers. The only reason it possibly does not undermine 6) is that the proportion of pirates is probably about the same, just the total number of units that will move is so low that it ‘feels’ like a bigger deal. This is, however, purely speculation.

    To me, and the people I generally associate with, proper DLC is the answer. A good game can have a very solid lifespan, and get tons of cash out of people like me, if the DLC is regular, interesting, and priced appropriately. A good example, to me, is Slitherine’s Panzer Corps – releasing ‘grand campaigns’ one year at a time at a fairly low unit price feels like good value for the player, and if they are interested in the game, it will keep them playing. Bad examples include most major publishers – Horse armour, $15 unrelated small plotlines, and similar – they are simply not priced appropriately, nor are they very good pieces of content – but at the same time, DLC is clearly more appropriate for games that are not plot-focused, since fitting them into a plot-focused game makes no sense, and forces them to be either irrelevant or largely self-contained, neither making useful content.

    As to your point with 1) about pricing:hour, I would argue that that is a poor metric – Again, games with a plot and large amounts of time/effort spent writing or similar will likely generate less playtime than a more sandboxy strategy game, but not necessarily feel of better or worse quality. If DLC or some form of continuing content were ‘the norm’, players would simply be able to put their money where their mouths are.

    3) is the biggest issue for me with ‘blockbuster’ titles, but i solve this by not buying them at release price unless I am fairly certain. The problem for smaller developers is likely to do with reputation, or lack thereof. I will buy GTB because I got so much play and enjoyment from GSB, but were it not for your previous games, it would be substantially less likely that I would be willing to buy something, at least at release. While it sort of relates to 2) and 4) and 5) as well, it is difficult, at some level, to differentiate ‘marketing’ from ‘established reputation’.

    Excuse the rambling nonsense, I can boil my opinion down to a few points –

    1 – If lower base prices (for AAA) and continuing content were the norm, people would be much more willing to take a punt, and developers might be willing to take more risks.
    2 – Following on from that, games are too much of a risk for developers at their current development costs, therefore no risks are taken and sub-par products are launched, preventing players from feeling like they are getting a ‘good deal’ – launch day profits are largely to blame, in my estimation.
    3 – AAA games have ‘standard’ prices, at least mostly. Indie games do not. With the proliferation of bundles and ‘app store’ prices, this won’t change – In my estimation, indie devs just need to grow a pair, price their product at what they actually want, and deliver a product to suit that price. As much as I love games like Dungeons of Dredmor, it is woefully underpriced for what it has delivered me. Fine as a consumer, but this has, basically, destroyed our expectations – you (devs) think we act entitled sometimes, but that is because we get such fantastic games for pennies.
    4 – It is economically viable to produce niche games. There are still ‘old school’ wargames and turn based strategy games, esoteric RPGs, and ridiculous flight sims being made. They are not the standard in the mainstream industry because they are a risk, and development costs are simply too high to justify a risk. People who want the niche games are willing to pay for them if they are good – which is back to developers growing a pair.

    Excuse the length.

  4. radio_babylon says:

    im just one guy, and probably not representative of the gaming market as a whole, but for me, game pricing breaks down into 4 bands:

    at $5 or less ill buy pretty much any damn thing, without even hardly thinking about it. i buy so much stuff at $5, there is a reasonably good chance ill never even play it (its a sickness, i know) but the dev still has my five bucks either way. i probably buy 100 or more of these little games a year. no shit.

    at $5.01 – $15 theres a very reasonable chance ill buy it. if the game falls into one of my favorite genres or types, its guaranteed bought, and even if it doesnt, if it looks like its got something kind of cool going for it, and i havent already blown my fun-money budget for the month, ill prolly still buy it. at a guess, i buy 10-15 of these a year.

    at $15.01 – $30 there is very little chance ill buy it, regardless of the game type, the developer, what innovations it might have, whatever… its going to have to be a real standout game for me to plunk down $30 bucks. i have to really seriously BELIEVE im going to get as much fun out of that purchase as i would out of 4-6 smaller games. i probably buy about 2 of these a year.

    $30+ there is virtually NO CHANCE you will ever get my money. its not nil, but as close to nil as you could probably get. i can go years (plural) without paying more than $30 for a game. the only games in this category ill buy are sure-fire GUARANTEED long-time multiple-play entertainment generators. as it turns out, this year was a weird year, because i actually bought TWO “full-price” games, skyrim and battlefield 3.

    so… considering all that, the way to pry the most money out of me is to manipulate my poor impulse control by make a smallish game you can price at $5-$10, that isnt terrible (or rather, good enough to make it stick in my mind in the sea of other games at that price point), then produce a ton of DLC priced at no more than $5. if i enjoy the game a little bit, then just like $5 games there is almost no DLC i wont buy at a sub-$5 price point (exception being purely cosmetic crap. im not paying any damn thing for DLC that doesnt add something gameplay related.)

  5. eRacer says:

    My game purchase preferences are very similar to that of radio_babylon. If I am at least moderately interested in the game and the price falls under $10 there is a good chance I’ll buy it. This despite the fact I have bought close to 200 games that haven’t even been installed yet. Considering I only finish about 15 games a year, this is already enough entertainment for the next decade or two.

    I am not looking for games that last 50, 100 or 200 hours although I won’t begrudge companies making such games. I’d rather have a 5 hour game that is truly entertaining for 5 hours vs. a 25 hour game with 5 hours of quality game play and 20 hours of filler, grinding, repetition, or pointless side quests. I may play both to completion, but I will not be one bit more entertained by the 25 hour game.

  6. bkd69 says:

    I’m with eracer and radio_babylon. Paying release day prices is a mug’s game.

    I’ve long thought that A correct answer, particularly for strategy games, is episodic pricing, where you get a smaller upfront package, say a $15 game, but with beefier addons, at say, $10 for a map pack. I think the Dawn of War games did that right, though on a AAA scale, and Blizzard’s plan for Starcraft II, having each of the three factions as a standalone game, though that too is at the AAA scale.

  7. Kalle says:

    In a Steam model the electronic distributor sees the amount of hours a game is played per customer. A way to promote quality is to somehow link payment to developer to hours played per average customer.

    This is of course counterproductive to the distributor, whose interest is to sell many games and that means less time possible to spend per game for a consumer. As a consumer I would be very much against paying single-player games on hours played. But picture changes if the distributor would have in place some sort of advertising scheme or equivalent giving them revenue indirectly based on playing time.

  8. Alstein says:

    a) That’s a rational law of economics, and I do believe this already happens for the most part, though generally you may not see that money until the next game. Many devs who I’ll buy a game from at sale price, if I really enjoy, I’ll pick up their next title at a higher price. There’s always a lag on success.

    b) It’s a customer’s right to support or not support a dev for personal reasons. There are folks who shun you, and shun folks like Brad Wardell for their political beliefs. I disagree with many of those beliefs, but I believe you treat your employees/customers ethically, which is important to me. I do shun companies that I think fail to do that.

    c) That’s a law of rational economics, but I think you’ve got it wrong slightly. Instead of receiving a fair deal, it’s more taking a fair risk. I’ve got 150 hours on $5 games and 150 seconds on full-price games before, but each of those purchases were worth the risk. This is largely why I’ve shunned AAA titles on PC the last couple of years and non-fighting games on consoles: both of those areas are too risky for the high costs, especially when you factor in DLC.

    The one AAA PC title I bought this year, Shogun Total War 2, I got a $15 credit when getting it from Gamersgate (which is why I got it) The game I bought with that $15 I ended up playing more hours.

    d) That’s also a law of rational economics. That said, individual actors can be irrational, which throws this out of whack. Economics has no real answer for insanity.

    e) That will never happen, though DD, the internet, and general gaming sites like QTT (And other, bigger ones) have helped the little guy out plenty the past few years. The big worries here for the little guys are twofold:

    – Steam could become evil, and with their market share, they could really do damage

    – Broadband caps in the US could destroy the DD market, especially if they become draconian in some area. My local ISP in 2009, which is currently unlimited, tried to put in a 5GB monthly cap. Laws and politicians prevented it. In 2010 , they bought enough state legislators to prevent that from happening again. I’ve heard in 2012 they’ll try again

    f) It is. See games like Hyperdimension Neptunia and Arcana Heart 3. You just have to appeal to an audience that is willing to spend tons. Also look at Matrix games for a Western example. That’s the only way they can be staying in business at the prices they charge for what they put out.

    Kalle: that model would guarantee I’d shun that game. I shun MMO’s and FTP’s for the same reason. It would kill any “economic rent” I’d receive from a purchase, and throw all the risk onto my end. I’d also be conscious of such a play limit, and it would affect how I play to my negative benefit. Also, what’s to keep a dev from gaming the system in this case. You could get a few comps and idle them, or switch between accounts, or pay folks a few pennies to keep a game running (like some Chinese WOW gold farmers) to get around this system. It’s ripe for abuse.

    bkd69: It isn’t for some genres, such as fighting games.

    radio_babylon: I’ve found those attitudes are often correlated to income (with some outliers, many of which are found in forums ^_^) Also, piracy is heavily tied into income levels. Most of my friends who were big pirates in college now buy games legit since they have a job. Friends who have lost jobs have reverted back to piracy. This is why Brad Wardell has said these two things which may be of interest: that he makes TBS games because the players tend to be more affluent and more likely to purchase, and if he was making a FPS, he would use DRM. I see the logic in his statements.

    Ultimately though, the laws of supply and demand apply, and there is a ton of supply these days, which is bad for you.

  9. Mike says:

    Ah, but game purchases are irrational. You’ve said it yourself in the past, no?

    My typical rule of thumb is $1/hour and I’m happy. Some introspection of Terraria, Minecraft, and Skyrim follow.

    I have “spent” ~120 hours in Terraria so far, and this is pre-patch 1.1, which I’m told doubles the content. I bought the game in a four pack for myself and all my friends for like $20.

    What’s strange is, I would not have been willing to pay $120 for Terraria, even fully knowing I would get this much utility from it. If I was asked to start paying $1/hour for it after the 20 hour (or 5 hour) mark, I would have been harshly insulted and probably discontinued any further relations. I would have gladly spent another $5 for the patch 1.1 content as DLC. Because I enjoyed the experience and think giving the developer more money is a good thing. (I think it’s incredibly ludicrous of them that they didn’t.)

    I think Minecraft is shit, and that the masses are delusional. He releases a patch that adds EXP (which does nothing) and the masses go absolutely crazy. Notch rebranded/closed Infiniminer source and made some very marginal changes and suddenly there is Minecraft LARPing and Youtube memes ad nauseum. Who the hell spends 20 hours representing a song, or 3D printers, or fully functioning calculators? Perhaps the large blocks makes it more tactile for people, but the vast majority of the work is mindless stuff.

    I could shit out a moddable Minecraft clone in C++ with solid, secure multiplay without any of the limitations his Infiniminer-based Java engine is stuck with in no time at all, and pump out far more content than his whole team seems to put out (during the months and months between patches) especially if I only had to do 8×8 textures and 5 block animation models. Yet my clone would fall flat. Why do people go nuts for this?

    I know that the *goals* and overall experience of Minecraft and Terraria are very similar. But I think Notch is a douche and doesn’t deserve my money. How much of my opinion of him has colored my experience of the game?

    I’m not willing to pay $60 for Skyrim. I will probably get 80+ hours out of it eventually. I’ve only gotten about 5 hours out of Oblivion total, mostly due to mod glitches and system problems. My brother has been unable to play Skyrim on PC and has started renting it for Xbox to feel like his $60 purchase was still somehow meaningful. Anticipated difficulty with modding (PC UI I’ve heard and seen is very “consoley”), crash problems, game save issues, load times, these are first and fore-front on my concerns, not the world I can explore. I think this is attributed to the Bethesda reputation.

    Compare expectations of Bethesda code quality/program functionality to someone like Blizzard. Mammoth difference there.

  10. Alstein says:

    this means that your typical rule of thumb is, as I’d interpret it:

    That you really value an hour of game time at under $1, but given the unknown, you’ll accept a $1/hr value. I’m unsure how that can be economically modeled, but that would go under irrationality.

  11. John Lopez says:

    I’m not sure that consumers are ever economically rational unless they are John Nash.

    The calculation requires many more aspects than most economic models will allow for easily. In my case, I love Steam sales because I have so much “back catalog” and so little game time available that I feel like I can get “value” out of games purchased on the cheap, even if my actual time in any one averages out to be pretty low.

    Skyrim, for example, is an excellent game that I won’t pay for at this time. Instead, I prefer to wait for the “gold box” in some future sale. I will get, for my patience:

    * A patched game
    * All the DLC
    * A $20 price tag

    The downside: I can’t brag about the game right now. I’m OK with that, heck, I still play Morrowind. I’m not looking for “new shiny” bragging rights.

    That is a massive problem for game developers: the rate of graphics advancement is slowing (a new patch/mod for Morrowind brings it pretty close to modern standards) and the back catalog just keeps growing, and growing…

  12. Noah says:

    What is going on with low indie game pricing? I was reading a Gamasutra article the other day by a guy lamenting he charged $3 for his game when the going price was $1. This strikes me as crazy. For starters, for a $1 game the length of time you spend playing does not have to be very long at all for the cost of the time to exceed the purchase price. $1 is so cheap that this is probably true even if you are a kid on allowance. So what is going on here? Here are some possibilities, in decreasing order of likelihood

    1)It is very difficult for customers to get good information about the quality of a game before purchasing it. If you don’t know which games are good, the only thing to distinguish them is the price.

    2)Customers are irrational. They focus overly on relative differences in price even though the absolute differences are negligible. They irrationally focus on the scenario of paying above average for a game, and then feeling like a sucker because the game turned out to not be much good. They discount the value of time.

    3)Most customers are potential pirates. They weigh the price of game against the bother and the small pang of guilt of going to TPB. Your game has to be cheap to compete.

    4)Games are a commodity, really all that matters is that they kill some time, and thus the only thing that distinguishes them is price.

  13. David Amador says:

    I was a bit surprised to see you game in the bundle, especially after you blogged about how annoyed you where with a bundle that came out a while ago, which I was part of it, which was selling for $10. Well, but I guess things change, or maybe the amount involved can make one consider, anyway congrats for getting into the humble bundle

  14. cliffski says:

    indeed, but this is as very old game now, and also its a beat the average game. Nobody is getting GSB for $0.10.

  15. Barry Brenesal says:

    Cliff, the Gaming Industry (as opposed to people who enjoy making games) isn’t going to settle for making any product that makes less than the most money possible. In this respect, the Gaming Industry takes after its Industry part a lot less than the gaming side. Independents certainly can and will put out fun titles that do some interesting, entertaining, and challenging things, but they’ll do so without the advantage of spending huge sums on PR–raking in a lot of sales from credulous kids who have actually become addicted to anticipation rather than gameplay. They’re the fanboys in the forums who suddenly vanish when all the bugs of the latest, greatest title become apparent, then popup at the next major release doing the same thing again.

    You can’t win them. You can try aiming higher, and hopefully finding as you note, a comfortable niche based on buyer expectations of a brand.

  16. Emmanuel M says:

    I think that you get 3 things, as a developper of a good game :

    – cash from sales
    – brand building from future sales : gratuitous tank battle or CoD:MW3 are 2 games which sold on the notoriety of previous titles
    – budget to make future games. An investor might give you cash and lead on a medium sized project considering the performance of your previous projects

    So this means that having a system where you can grab cash from a shit game based on its name (cough “enter the matrix”) is not much of a problem per se, and ruule 1 should be relaxed into “the financial success of a game studio is strongly correleated to it’s game quality”

    What you would need is

    * a purchase price, for a standalone game according to its “class”
    * 50% of the price expansions with at least 35% of the intial game’s lifespan, say every 6mth/1year. For this price you get all previous expansions for free
    * roughly constant price for 2 years minimum, but the full price gives you game + current expansions. You can cut up to 50% of the price, more is disrespectfull to initial customers and will encourage them to wait for a price drop

    For point 3, beware of excessive DRM or inconvenient shopping options. The last game I pirated, I pirated it cause developper used shit DRM and inconvenient proprietary store as its only venue. Like it or not, as an independant DEVELOPPER with an expertise on game DEVELOPMENT, please let game DISTRIBUTION int the hand of experts of game DISTRIBUTION.

  17. BOB says:

    One principle you have to make sure of is – make sure you know the aesthetic tastes of the market.

    Planescape torment while a good game used an aesthetic that was too far from mainstream acceptance, even though there were games EXACTLY LIKE IT (baldurs gate) where the only difference was the artistic motif (strange undead planescape universe).

    Aesthetic art style matters, it makes or breaks the THEME of a game.

  18. Ben Hymers says:

    Wow, what a lot of responses. I was expecting to come back after Christmas and add some good information to the discussion but it looks like everything I wanted to say has been said already!

    I’d just like to add though: assuming perfectly rational customers and a simple enough payment provider, surely the best pricing model is “pay what you want”? I don’t think any metric could fairly distinguish between good and bad games so leaving it up to a gateway to automatically distribute payment to developers based on e.g. hours played will be unfair. And having anyone but the customer decide what the ‘quality’ of the game is is going to be unfair to them. The only real way for customers to feel payment is fair and for developers to get what paid proportionally to the quality of the product is for the customers to choose how much to pay. And if the payment system was simple enough, that would allow people to change the amount they want to give developers based on their experiences with it (e.g. “Actually I enjoyed that a bit more than I thought I would; I’ll click this button to give an extra dollar”).

    Of course, in reality customers are greedy, payment systems are complex, and take too big a cut of small transactions to make small payments like this worthwhile to developers, but it seems to me like the optimal solution given the magical powers you’re granting us :)