Game Devaluation and the Market Impact

GameStop recently revealed a study they did regarding consumers buying digital copies of games and the results showed that people are spending less on games and expecting pricing to drop. 

The issue of devaluing games has been a serious topic over the last few years and as pricing continues to go down, it leaves many designers and publishers wondering how this will impact the market and there are several ways things can go.

What this Means for the AAA Market:

AAA development has already shown issues with the devaluing of the Game Market. As hardware and advertising budgets have grown, it's been up to the games themselves to pick up the slack. It's no longer viable to make an AAA title that just does okay; they need to be blockbusters in order to sustain the higher cost of development.

This will impact what IPs and genres AAA publishers will support and we've already seen some series pulled because of it. For instance the reports that the last Dead Space title from EA needed to sell 5 million copies in order to remain viable.

The major brands like Nintendo, Call of Duty and Blizzard will do just fine thanks to their dedicated fan bases. But attempts at making new IPs will decline and move to the AA market which we'll talk about in a minute.

AAA developers and retail stores go hand in hand and if one suffers, so will the other.

What this Means for Retail Stores:

Stores like GameStop, Best Buy and etc have already taken hits to both people buying new games and trading them in. With the accessibility and competitive prices among online and digital stores, a retail chain with operating costs can't compete without a massive restructuring.

Outside of sales events like Black Friday/Cyber Monday, the best deals are always found online. And if game companies are going to take a hit with how much people are spending, then it follows that the stores themselves will also suffer.

Retail stores are doing everything they can to remain relevant in the video game market thanks to the online competition.

GameStop has been doing their best to increase the value of buying titles from them with special pre-order bonuses and their membership promotion, but there is only so much they can do on their front. Getting more unique deals from the developers means further negotiating and the balance of power when it comes to selling games is not on the storefront's side anymore.

And this means the stores that are going to be hit the hardest are those that rely solely on game sales like GameStop. While stores like Best Buy, Wal-Mart and Target have the rest of their merchandise to make a profit on.

What's going to be interesting to see are our next two groups, starting with the AA market.

Impact on the AA or Third Party Market:

AA developers such as Atlus, NIS Software and etc are interesting as they have developed and priced games in the $40 to $60 range. The lower budget and advertising has helped these studios make a profit on far less copies sold compared to their AAA competitors.

Indie developers today are facing a problem with trying to stand out without pricing themselves out of the market

These studios have a dedicated fan base and even if the AAA market does have to cut their prices, they shouldn't be as affected thanks to their lower profit margins. Because AA developers already avoid AAA releases to avoid competition, they should still be able to carve out their specific niches in the Game Industry.

But where there could potentially be serious problems are with the Indie developers who are trying to step up in terms of quality and pricing.

The Impact on the Indie Market:

Indie developers are already feeling the issues of devaluation -- Either those that are trying to release quick low quality titles or those that are going for larger scale projects with increased time and development.

The problem is that the cheaper games are being overshadowed by all the other titles being released and the more expensive games are sticking out like a sore thumb next to those on sale or priced cheaper.

Right now the current sweet spot for Indie pricing is on average $15 to $20. If the AAA developers are forced to lower their prices drastically, it could put them close to the higher end of the Indie scale which at the moment is $30.

The AA market is secured by the fact that the developers already have a fan base who wants their titles. But for a new Indie developer who is trying to get $25 or more for their title will not be so lucky.

Strategy games are priced higher than other titles due to the niche market and couldn't survive on mobile level prices.

The market is already so flooded that it's very hard to stick out unless you get lucky with a big hit. And it will become even harder if Indies have to compete next to devalued AAA titles.

All these problems bring us back to the mobile market and where no developer wants things to end up.

Problems with the Mobile Market:

We already talked about the issues with the mobile market on a previous post but to recap for this post-- The market is already facing issues of devaluation and problems of discoverability.

Because of the consumers being conditioned around low prices, it's near impossible to release a mobile game that is anywhere near the pricing of an Indie title. If the rest of the market ever reaches the same degree of devaluation, a large portion of the Game Industry would go under.

Cloning and discoverability are big issues for the mobile market and could be devastating for the rest of the industry

As no matter how many people would buy the next Skyrim or Grand Theft Auto, there is no way for the developers to turn a profit if they had to sell it for less than $10. The same goes for developers of niche genres like strategy who put the time and work into their titles and price them higher because of it.

This would lead to a lot of simpler and cheaper titles being put out which again leads to the problems of discoverability.

How will the Decade End?

As of this post, we're less than a month away from 2015 and halfway through this decade. Game devaluation is a serious problem that needs to be looked at or who knows where things will end up by 2020.

(Reprinted from the Xsolla.com Blog)