Video gaming is one of the most popular forms of interactive entertainment. There are about 3.24 billion gamers worldwide. Console gaming is a form of video gaming that comes second with a 28% market share of the total revenue of the video game industry.
A gaming console basically refers to a device that is a dedicated machine for gaming. While connected to a display, it facilitates the gamer to enjoy gaming through a controller. Since the introduction of first-generation console gaming in 1972, the gaming market has seen nine generations of consoles so far. Besides the change in design and capability, the price of the consoles has also changed by this time. Though the prices of the consoles have decreased comparatively over time, the games for the consoles have always been expensive. Recently, the standard price of video games has been hiked up by $10 after maintaining a $60 base price for over 15 years. Moreover, the price can be even higher depending on different regions and editions. But why are console games so expensive?
Overview of Console Games
The journey of gaming consoles started back in the 1960s when Ralph Henry Baer introduced “Brown Box”, the first ever gaming console. Before 1977, consoles were limited to the games that came pre-installed in it. And then came the “Atari VCS 2600” that changed the landscape of gaming forever. It was the first console to become popular among the masses, and it supported swappable cartridges, allowing people to choose between different games.
After the world’s first 8-bit console “Magnavox Odyssey”, the first swappable console “Fairchild Channel F” and one of the names behind the popularity of console gaming, “Atari 2600”, brands like Sega, Nintendo, Sony, and Microsoft has released many popular consoles of different generations featuring 16, 32, 64 and 128 bits till date. However, Sony, Nintendo, and Microsoft are the current market leaders. According to a report by financesonline, the most popular console to date is Sony’s PlayStation 2, which has sold more than 158 million units. In addition, the current generation PS5 has sold over 13.4 million units resulting in 4.6 billion hours of gameplay. In 2021, it was estimated that the value of the whole console gaming market is worth 51.3 billion USD, which is almost two times the GDP of Iceland or Zimbabwe.
With the expanding consoles market, video games have also evolved in many ways, attracting more and more new gamers towards the community. Console gaming is not only just limited to being a pass time. They are a lifestyle to some people, while others take gaming as a profession.
Third-party game publishers like Ubisoft, Take-Two Interactive, Activision, EA, Capcom, etc., have influenced the industry like never before. High resolution, open-world design, and intensive motion graphics have become standard features among today’s games, while just a few decades back, the retro games used to be much simpler and smaller. Nevertheless, despite the difference in quality, the price of video games has always been high.
As games get larger and visually more appealing, the production cost increases accordingly. Considering the budget and quality, games are divided into a few categories. The AAA titles are known to be big-budget blockbusters, whereas indie games require smaller budgets and fewer resources to develop. AAA titles typically cost anywhere between $60-$80. However, sometimes AAA titles can fail due to low sales, while indie games can sometimes suppress the AAA titles in popularity. For example, the famous sandbox game Minecraft has sold over 238 million copies since its launch, making it one of the topmost sold games of all time.
Low Console Price
Gaming consoles come with high end specifications as each gaming generation continues as long as 5-8 years before another generation. Hence, these devices are developed in a way so that they can run graphically demanding games smoothly for quite a few years. So, undoubtedly, their price should be high considering the components they pack. Besides that, the manufacturers have to pay special attention to the quality and durability of the devices to provide the users with consistent support for the foreseeable future. Considering the hardwares, technologies and components used for making the consoles, it can be expected that the price will be high.
However, popular consoles don’t really cost that much. The launching price of Sony’s new PlayStation 5 Digital Edition started from $399 and Microsoft Xbox Series X launched at a price of $499. Moreover, to build a gaming pc with equivalent specifications to PS5 would cost around $1500, which is almost triple the console’s price. Brands like Sony and Microsoft have been selling their consoles at a loss for a long time.
This business model is known as the “razor and blades model,” where a product is sold at zero profit or even at a loss just to increase the sales of its complementary items, such as consumable supplies. Here, popular brands keep their console prices very low to attract new consumers and to make them affordable for all gamers. After buying a console, the consumers purchase their games and their subscriptions which generates profit for the brands.
In this competitive market, if the price of a console is too high, then the consumers would instead opt to buy a cheaper alternative. So, to cover the loss incurred on selling the console, the platform holders charge more for their games which adds to the overall price.
Huge Development Budget
The production cost of video games can be pretty extravagant, especially when it’s a AAA blockbuster title. For instance, It was rumored that Grand Theft Auto 5 took $265M to be developed, and according to recent rumors, “Halo Infinite” had a budget of over $500M for development. High consumer expectations make the game development process more complicated with each changing generation. R&D, game engine creation, detailed game world design, uninterrupted server management, QA testing, etc., require a vast amount of time and labor, for which the game publishers have to hire a lot of employees and developers.
Publishers like Sony, Microsoft, and Nintendo, who are the primary console makers, invest a lot towards making new and more exciting games. That is because the games play a vital role in attracting buyers to their consoles. It is estimated that to develop a AAA title, a team of 50-200 people is required to work for up to 2-3 years or more, depending on the size and scope of the game. Recently, Capcom, a video game publisher, in their 2021 annual report, disclosed that their company has over 2200 employees in total. And other publishers have around the same number of developers. So, the huge budget is actually necessary for the development of quality games which makes them costly as well.
Third-party publishers like Ubisoft, EA, Capcom, etc., have to license their newly developed games in order to distribute them on the console platforms. They make an agreement with the platform holders to pay a certain amount of royalty for each of the units sold on the platforms. This is basically what Console Licensing is. For example, Microsoft takes a 30% cut from each game sale made through the Xbox Games Store under its standard developer agreement. This percentage of royalty also contributes to the cost of the games. Furthermore, the developers have to pay a licensing fee to use game engines when making a game. For instance, developers have to pay 5% royalties to Epic Games to use Unreal Engine.
Promotion and Marketing
Starting from the development phases, the promotion and marketing process continues even after the publication of the game to create hype among the gamers. According to Forbes, the market-leading game publishers usually spend almost 30% of their revenue only on advertising, while the acquisition of each new customer costs them an average of $15. Besides the advertisements on traditional media, the publishers now have to invest a large chunk of money in trending streamers and social media influencers to market their games more effectively.
After the development phase, a game reaches the buyer after passing through multiple parties in between, such as the manufacturing unit, regional distributors, wholesalers, and retailers. Some of the most popular retailers include GameStop, G2A, Amazon, eBay, etc., where you can buy console games from. Along with the manufacturing costs of physical discs, the final price includes shipping charges and a fair cut for all the different parties in the distribution channel too.