The Seriously Un-Fun Economics of Games

Posted by Rampant Coyote on June 16, 2010

This Escapist’s publisher, Alexander Macris, strikes a note that is all too familiar to many veteran gamers. He’s feeling left behind as a gamer, and explains the simple economics of why this is the case. Why they aren’t makin’ ’em like they used to anymore. While I’m not sure his numbers are entirely accurate, they do paint a pretty sobering picture of why games have adapted the way they have…

The Escapist: E for Everyone, Except Me

Bottom-line: Using educated guesswork and math, it looks like a top-tier (“Triple-A”) game in 1994 needed to sell about 16,000 copies to break even. A top-tier game today needs to sell closer to 2 million copies to break even.

That is A Lot.

Now, I suspect the numbers are a little off. I entered the mainstream games biz in 1994, at 16,000 was a pretty dismal failure back then, too. But 500,000 copies was definitely considered at least a minor hit, and a million (or more) sales was definitely hitting one out of the park (which I was proud to be a part of on multiple games. Of course, not all those sales were at full original retail price. .. )

There are a couple of elements at work here.

First of all – Macris complains that he wants games that are both state-of-the-art and in his niche. And he fully recognizes the conundrum and why this can’t be.

Except it could. If niche hobbyists were willing to fork over the big bucks for their games. This market exists in many other industries, allowing state-of-the-art product development in a small market of early adopters.

But of course, for digital products, the expectation is to pay less for a niche product than more, because the perception of quality is so tightly tied to the production values. This has been experimented with a few times, and has already caused a storm of words with none other than Matrix Games, referred to in this article. Command Ops: Battles From the Bulge has a price-point that’s significantly more than your average Triple-A mainstream games today, at $80 for a digital download and $90 for a physical copy.

It’s an obvious approach. If a game costs $X to make, generates Y sales at a price Z, then to not LOSE money Y x Z must be >=X. Now, if these numbers were completely independent of each other, it’d be just that simple, but most people realize that both price and quality have an impact on the number of sales. But within a niche market that doesn’t grow much, Y may not be too dynamic in the positive direction.

Another problem is that there is such an amazing gulf in sales numbers between mainstream and indie games. I remember my naive approach when I thought about going indie. If a massive failure like Daikatana could still sell 200,000 copies, I thought, wouldn’t it be reasonable to assume a little indie game could sell maybe 10,000 copies? A twentieth of that?

Well, yes and no. Yes, it’s reasonable, and yes, there are games that sell that many (especially casual games – at least in the past – but that became a mega-niche a few years back, almost a branch of mainstream gaming). But for a niche game of non-cutting-edge production values, it’s still a dang high number. Jeff Vogel notes, an average game in an established, reasonably well-known franchise for him sold a little under 4,000 copies in over a year. Even with my jaded, indie-veteran experience now, I would have guessed two to three times this number.

After a few more years of sales the game may double that figure, but that’s still far, far below what’s even considered a “total failure” in the AAA realm. He, too, has found that he needs to price his games a little above the conventional indie price point in order to survive in that niche.

The curve of sales between niche and top-tier mainstream is pretty friggin’ steep. And that is why there seems to be little room for niche or experimental games anymore in the “AAA” games industry, and why those that do make them have to play so very far from the cutting edge of production values.

My recommendation to Mr. Macris is simple – come join the rest of us grumbling old-school gamers and get over the stigma of games that are somehow less that cutting-edge. The weather’s fine, the games are awesome, and we can have fun and watch our niche thrive and grow while the mainstream industry burns itself out in a painful transition from adolescence into adulthood.

Filed Under: Biz - Comments: 15 Comments to Read

Brian 'Psychochild' Green said,

You’ve hit the nail on the head: games will get made if people want them enough. And, if they want them enough, they’re going to have to go the extra mile. Maybe that means buying extra copies for friends to get them hooked, or perhaps overlooking terrible graphics, or forking over a bit more money than other games.

The problem is that the audience isn’t willing to do anything to support the niche games they love. Most people want their niche games with great production values and a cheap price point. They then just want to buy the game and expect things to work just as they work for the larger companies. Especially given the hit-driven nature of the game industry, an indie can’t just keep making things hoping that they strike upon that miraculous success.

Sure, there are opportunities for indies to strike, but that’s not always the right thing to do. For example, a lot of MMO developers have gone into social gaming because that’s the new hotness. I only have a Facebook account in order to play some games, but they didn’t hold my interest. Could I go design social games? Sure, but that’s not what I’m passionate about….

Something’s got to give. I hope eventually games get a true indie aesthetic as we’ve seen in other media. Until then, I guess we’ll keep doing what we’ve always done….

Starve. 🙂
Rampant Coyote said,

I think we could potentially get an “indie aesthetic”, once this industry hits maturity. Looking at the numbers, I think it’s going to be forced kicking and screaming into maturity sooner rather than later. In some ways its already happening.

But we’re running smack into another problem, which is the law of supply and demand. People have an ingrained understanding of this law. And the problem is that digital downloads mean that the supply is infinite, for practical purposes. Infinite supply means free in a trade-goods world. So there’s an additional force driving prices – and expectations of prices – down.

Nevermind that thousands of hours of time might have been put into making this game that will give you far more entertainment bang for your buck than the movie you would go to (or even rent) tonight.
Stephen said,

Macris’ numbers also point out an unsustainable curve that, as David Wong keeps pointing out over at Cracked, may indicate that the gaming industry, at least as far as AAA titles are concerned, is about to crash. I wonder if, when and if that happens, it won’t give indie games a chance to shine again. A lot of indie titles seem to be passed over primarily based on production quality expectations set by studios with huge art, sound, and programming departments, but they’re still at a level of polish that would have been outstanding ten years ago or less.

During a crash, the speed at which production expectations grow may slow down enough that indie-friendly toolsets can get closer to catching up on providing close-to-AAA quality out of the box. The question is how much of the market that might be more likely to buy indies if they were prettier will be buying games at all without constant improvements in bling and shininess.
Jon Ho said,

Well back in 1994 all you need is a guy who can draw and program and voila, you have a game. Sometimes the same guy creates the graphic or programming tools himself.

Nowadays, with so many different graphic tools and programming tools that cost thousands if not millions, you need a huge team of likewise competent workforce who cost as much.

BUT! Back then, the game market is small, you can sell probably around 500,000 to 1 million copies at most. So 16,000 out of 500,000 should be all right.

Nowadays, with the internet and whatnot, you can sell to the whole wide world, which is a huge market. So 2 million out of what, 2 billion copies? Just to put things into perspective.

Of course, as an indie, given the cheap ass tools I have, and to actually sell 2 billion copies of my game… what are the odds of that happening?
Rampant Coyote said,

I don’t really expect a crash – but the unsustainable curve is definitely what I meant by “burn out.” I see it more as a transition – one we’ve already started to see happen with casual games, social games, the Wii, XBLA, and so forth. For decades games have been driven by technology and higher production values – if you dig into any old PC gaming magazine in the 1980s and 1990s you’ll see constant references to how games were driving the tech, or how the sequels contained so much of technological upgrades…

You don’t see that in other media very much. Yeah, we’ve gotten some of it in movies (*cough*Avatar*cough*), but for the most part, nobody expects a sequel to a novel to be something so much more advanced that it’s not worth going back and reading the first book in the series. That’s silly.

But that’s exactly how it is in games.

I think THAT is the kind of thing that will change. Sure, technology will advance, as will production values. I mean, hey, many of today’s indie games have much higher production values than the mainstream games of yesteryear they attempt to emulate. But I think the tech / production-value progression of the art that is so deeply ingrained in all of us is definitely screeching to a halt.
Corwin said,

The problem with Vogel, is that when you’ve played one of his games, you’ve played them all. I like his stuff, but there’s too much of a sameness for me. He needs to update his graphics as well. I also find he doesn’t interact with his customer base as much as other Indie guys like yourself, VD, Gareth, Basilisk, etc. At the Watch, we try to support Indies as much as we can, but I can’t remember ever getting visits from Vogel. Getting yourself known on several gaming sites is a clear way to help build a fanbase and interest in your game. This, in turn, should translate into more sales. You’re doing a good job Jay so keep at it and together the Indie market has nowhere to go but UP!!
WCG said,

The other thing is that there are a LOT of indies, or so it seems to me. I can’t find the time to play more than just a few of the games that sound interesting. In the past, I’ve bought games just to support the developer, and sometimes I never did get around to playing them.

I seldom buy a mainstream game until it’s been out a few years. Again, I don’t have the time to play everything I want right away. And then there are old games I want to re-install and play again. Frankly, every time I see a retrospective on a great old game, it brings back fond memories that I want to re-capture. Wouldn’t that be fun to play again?

So you’ve got a LOT of competition. Yes, you’re even competing with games ten or 15 years old, as long as they’re still playable with DOSBox. I’ve got crates of old games stored in the basement, many that I’ve forgotten all about, so I could probably never buy another game and still have plenty to play.

Compared to all that, price doesn’t matter much to me. If it’s a game I really want to play, something that really appeals to me, I won’t even look at the price. (After all, my computer is easily the major expense in playing games.) My limited amount of time is the main constraint. I’m going to be very picky on buying an indie game, just because I CAN’T PLAY EVERYTHING. If your game sounds interesting, but not exactly what I want, I’ll probably pass, just for that reason.

I wish this weren’t true, but it is.
Silemess said,

I’m amazed that the numbers are so small for Spiderweb! Like you, I’d have thought it to be at least 3 or 4 times greater.

I think that the market is continuing to develop and change. Yes, in time it will be a question of whether or not people want to spend the money to support their niche or not. Like any other hobby, it takes good money to keep it up and going. But I don’t know that we’re at the right point to declare that this is it. Wait until we hit a plateau or go without change for a few years. Then we’ll see what develops. Meanwhile, there’s engines being developed and old engines facing a new lease on life by being leased to new people. Change remains upon us.
WhineAboutGames said,

The problem with Vogel, is that when you’ve played one of his games, you’ve played them all. I like his stuff, but there’s too much of a sameness for me. He needs to update his graphics as well. I also find he doesn’t interact with his customer base as much as other Indie guys like yourself, VD, Gareth, Basilisk, etc.

If I stop interacting with my customer base and making games which are different from each other, will I sell as many copies as he does? Because I can tell you, I do NOT sell 3000 games a year…
WhineAboutGames said,

(Direct, anyway. I don’t normally count portal sales when I talk about sales, because they’re harder to keep track of.)
Ruber Eaglenest said,

The problem is the industry is already burn out. It is the same we pointed the other day about casual market. Did I say Jayisgames and Kongregate was not longer interesenting, well the say we could say about IGN, Kotaku and other mainstream showcases. Just look at the E3 titles: Gear of war 3, Killzone 4, more Marios, again a Twilight Princess, etc. Wait a moment, I’m repeating myself… Damn!, Well that’s because the industry is repeating itself, and the problem will never end. That is, E3 is boooooring, new titles are the same 10 years ago.

The industry wants to keep their income maintaining their damned IP’s, but by this, they are simply removing the innovation from the equation.

The only thing interesting in E3 was, the 3DS (because is highly desired feature), the new project of Thatgamecompany, the new Rez game (because lisergic shooter are very cool), and that very interesting thing of Eric Chahi. The rest, just disposable crap.
Rampant Coyote said,

My personal opinion is that when the inevitable transition to maturity happens (dragging companies and customers kicking and screaming, no doubt), the mainstream games biz is likely to resemble the indie side of things a lot more than it does now. We’re trend-setters! Without the ability to alternately drive or be driven by vast technological improvements between game generations, they competition will have to be more about things like gameplay, storytelling, and crafting unique entertainment.
Indie Biz: Collaborative Competition said,

[…] then we have something WCG said in a comment to yesterday’s post. He was trying to be frank but apologetic, but I don’t think he should have apologized. I […]
Jaes said,

“Jeff Vogel notes, an average game in an established, reasonably well-known franchise for him sold a little under 4,000 copies in over a year.”

It’s more than 2 years, actually. So the game sold less than 2,000 copies per year.
Tesh said,

“competition will have to be more about things like gameplay, storytelling, and crafting unique entertainment.”

What a weird notion. I like it. 🙂