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Commentary > Game Over
Inflation finally wins
After 20 stable years, the gaming industry prepares to hike prices.
September 30, 2004: 9:35 AM EDT
Game Over is a weekly column written by Chris Morris

NEW YORK (CNN/Money) For the past 20 years, the gaming world has had one universal truth: AAA games cost roughly $50. As we close in on the next generation of game machines, though, change is in the air.

Publishers have quietly been testing how consumers might react to higher priced games for a while now, bumping the price of sure-bet titles above the $50 line. Sales of "collector's edition" titles, which offer small perks for anywhere from $10 to $25 more, are also being watched closely.

Consumers haven't exactly cheered the price increases, but sales haven't been affected. "Doom 3," for example, has topped the charts since its release in August. And 2002's "Warcraft III" sold over 1 million copies within three weeks of its release.

To date, Activision (ATVI: Research, Estimates) has given the clearest signal of impending price increases. Speaking at a Bank of America Securities investment conference last week, chairman and CEO Robert Kotick said Activision would raise wholesale prices on all titles released for next generation systems by $3 to $5.

Other publishers, such as Electronic Arts (ERTS: Research, Estimates), haven't been quite as specific with their plans, but have hinted of next generation price bumps in interviews and conference calls.

"There's been a lot of hand wringing going on because of what the cost outlook is for game development for the next set of platforms," said John Taylor, an analyst with Arcadia. " I think there's a growing feeling that in order to build and launch a game you're going to have to start at the $20 million mark - $10 million to build the game and $10 to launch it with a big splash. In order to be able to make any money on that kind of investment, you either have to assume some substantial unit numbers, which are hard to do in the first year or two of a platform's existence, or you've got to raise prices."

Taylor said he expects AAA game prices to jump $10 to $59.95.

Banc of America Securities' Gary Cooper isn't expecting quite as high an increase, but he'd like to see one sooner. In an August analyst note, Cooper called on publishers to raise prices on top-line games to $54.99 or higher by as early as this fall.

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"Higher price points for the blockbuster titles in 2004 and 2005 can condition the video game consumer for the acceptance of broader price increases during the next video game cycle and beyond," Cooper wrote. "We encourage the industry to look longer-term at the potential necessity to raise prices to maintain growth."

So far, publishers aren't responding to Cooper's call. Take Two Interactive (TTWO: Research, Estimates) made it clear on its latest quarterly earnings call that the highly anticipated "Grand Theft Auto: San Andreas" will have a launch price of $49.95. Likewise, Microsoft's (MSFT: Research, Estimates) "Halo 2" will not break the $50 barrier, though the company will offer a "collector's edition," which will offer art galleries, commentaries and additional features for $5 more.

There are some legitimate arguments to raising prices. As Taylor mentioned, development costs continue to rise throughout the industry. (Cooper predicts it will cost 25-30 percent more to create a game in the next generation.)

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Perhaps more importantly, video games are the only form of mass media entertainment that have resisted inflation. The average cost of a movie ticket in 1980, for example, was less than $3, according to FastCompany magazine. A hardcover book cost just $12.95 in 1984. And, since 1983, cable prices have gone from less than $10 per month to more than $35.

But by keeping costs steady for as long as they have, game publishers have created a consumer base that's resistant to change.

Raising prices will be a challenge, but hardly an impossible one. Gamers as a group are getting older with each new generation of hardware. (Today's average player is 29, according to the Entertainment Software Association.) That means more disposable income.

Additionally, as more and more titles offer online support, they extend their playable life. In other words, in addition to the 20 hours or so of gameplay you can enjoy by yourself, there's an unlimited amount of additional hours that can be found when playing online. (Obviously, this extends more to console games than PC games, which have had online support for years.)

Granted, no one likes to pay more for something especially when they've gotten used to a certain price. But if it comes down to paying an extra ten bucks or seeing tomorrow's AAA titles not exceeding today's, I think I can dig a little deeper.  Top of page

Morris is Director of Content Development for CNN/Money. Click here to send him an email.

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