The sweet spot

Opinion from Jae - Tuesday, 01 March 2011 @ 4:28pm

All this talk about PS3 hacks, modchips, firmware hacks and all sorts got me thinking about the piracy market we have and have had in the past. It isn’t actually all that bad. Well it isn’t perfect but it surely isn’t the development-studio-closing drama that the industry makes you think it is. Piracy is bad but our pricing model in Australia is even worse.

In a few Asian countries piracy is the norm. In these countries you will rarely find a legitimate games store, in fact most of their main shopping malls have retail stores that sell ONLY fake copies of games. The good news is that the size of them seems to be reducing as time goes by. Recently I’ve seen stores downsize their Xbox 360 catalogue to almost nothing whilst their PS2 library looks worse with age. The price that is going for these games ranges between $1-$5AUD or in other words peanuts.

Thank goodness they're the worst games that are pirated.

The thing that needs to be understood is that the people that buy these games are buying them simply out of opportunity and not because it beats buying a copy down at EB Games. Matt mentioned this in his retort to Jim Sterling and called these kinds of people F-ing C-bombs. For example if I was Captain Feathersword (and yes I watch more than my fair share of the Wiggles) and I walked into a store filled with pirated games I’d simply buy what ever I could afford to as long as they were games I considered trying out. Where in fact if I were looking at the same titles in stores here in Australia I’d only be picking one title and it would have to be the best title on the shelf that day because of the ludicrous $100 price tag. So the question here is really how much Captain Feathersword is willing to pay of a legitimate copy of these games.

The best Pirate of them all

If you ask me the real sweet spot for your standard games should be $20AUD. Hear me out. For starters this covers the cost of producing the physical product, meaning the pressing of the disc, printing of the manual and covers and manufacturing of the game case. Not only does it cover the cost but it immediately means more sales. It’s the simple law of economics. The price of a long standing product determines it’s level of demand. High prices means low demand whereas low prices means high demand. I think the industry in Australia needs to take a long hard look at the algebraic formula of:

$S x Q – ($C x Q) = P

Where by S is the sweet spot retail price, Q is the quantity of units sold, C is the cost per unit and P is profit. Now mathematically speaking the hardest variable to determine is C, the cost. As Q increases C decreases but how do you know how much C should be? Do the math! Currently Australia’s population is just over 22.5 million. According to Nintendo there has been over 2 million Wii’s sold so potentially you can sell, lets say, half a million copies of your game if you find the sweet spot in price. Selling that game at $20 a pop generates you a revenue of $10million. Take away retailer markups, manufacturing and other costs so that you’re looking at a $2million pool that goes towards developers. Taking into consideration we represent less than 1% of the total gaming market of the world and you’ve got yourself a gigantic pot of money there! Of course this example makes sense with the assumed figures but it doesn’t take a genius to work out a good model that applies similar figures.

We miss your big nose Charles E. Kingsford-Smith

Newspapers and some print magazines follow this same business model. Sell the product at the cost of manufacturing and allow other avenues of revenue generation to run the business. Video games can follow the same model, not with advertising but more so with DLC and specific content. What I would like to see is added content for added fees. How many of you out there bought Dead Space 2 and played the multiplayer or the motion controller Extraction game? How many of you out there bought Black Ops and used the 3D functionality? For example if Halo 4 came out I’d like to buy the single player game on a disc for $20. If I wanted multiplayer I’d pay an additional $20. If I wanted more maps I’d pay $10 more and if I wanted more spics and specs like coloured armour I’d pay $5 for each piece of equipment. I can even buy the whole package at retail that gives me everything for $100. The fact that I can choose to buy the single player component for $20 gets a whole lot of buy in from people that wouldn’t normally buy the game for $100. Channel of choice is really key when wanting to drive more sales. Who knows maybe I like the $20 single player so much I invest the extra money for multiplayer and maps. BOOM Microsoft have earned $60 whereas they would’ve gotten nil from me if the game was $100 standalone.

All it takes is for one publisher/developer to drop the price of their big title and watch the sales numbers. What this does is break down one of the biggest barriers in gaming and it gives pirates minimal profits for their efforts. I’m not saying this model will work indefinitely but no one has gone and proven it wrong because no ones has taken the approach to lower the price. It’s a high risk but a potential high return if someone leads the way.